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TRANSFER PRICING DOCUMENTATION REQUIREMENT FOR TAXPAYERS WITH
RELATED-PARTY TRANSACTIONS
PMK 213/PMK.03/2016 (SS/TXALERT/01/2017)
Timeline of Indonesian Transfer Pricing Regulations
Year Regulations
2008 Amended Indonesian Income Tax Law effective January 1, 2009 containing Transfer Pricing
(TP) provisions in Article 18
2009 PER 39 – Disclosure Forms for related party transactions added into Corporate Tax Return
2010 PER 43 – Implementing regulation for Arm’s Length Principle
PER 48 – Technical Guidance on Mutual Agreement Procedure (MAP)
PER 69 – Advance Pricing Agreement (APA)
2011 PER 32 – Amendment to PER 43
2012 S 479 – Guidance on submission of TP documentation
2013 PER 22 – Examination guidelines for related party transactions
SE 50 – Tax Audit guide on transfer pricing
2014 PMK 240 – MAP implementation regulation
2015 PMK 07 – APA implementation regulation
2016 PMK 213 – Guidance on types of additional documents and/or information
which are mandatory to be kept by Taxpayers who conduct transactions with related
parties, and its procedures
11 Establish methods to
collect and analyse data
on BEPS and actions to
address it
12 Require taxpayers to
disclose their aggressive
tax planning
arrangements
13 Re-examine transfer
pricing documentation
14 Make dispute
resolution mechanisms
more effective
15 Develop a multilateral
instrument to modify
bilateral tax treaties
8 Consider transfer
pricing for intangibles
9 Consider transfer
pricing for risks and
capital
10 Consider transfer
pricing for other high-
risk transactions
7 Preventing the
artificial avoidance of
PE status
6 Preventing treaty abuse
1 Addressing the tax
challenges of the digital
economy
2 Neutralising the
effects of hybrid
mismatch
arrangements
3 Designing effective
Controlled Foreign
Company (CFC) rules
4 Limiting base erosion
via interest deductions
and other financial
payments
5 Countering harmful
tax practices, taking
into account
transparency and
substance
OECD / G20 Base Erosion Profit Shifting (BEPS) 15
Action Plans
Implementation of BEPS Action 13 in Indonesia Through PMK 213/2016
PMK 213/2016 provides new guidance that stipulates the type of additional documents and/or information which is mandatory to be kept by Taxpayers who conduct transactions with related parties.
PMK-213, which has immediate effect from its stipulation date of December 30, 2016, has
made significant changes to: • Who needs to prepare transfer pricing documentation
• What comprises transfer pricing documentation
• When transfer pricing documentation needs to be prepared
PMK-213 does not revoke nor replace the current Transfer Pricing regulation issued by the Directorate General of Taxation under PER 32/PJ/2011 j.o PER 43/PJ/2010.
The issuance of PMK-213 marks the beginning of a new era for transparency in related party transaction disclosures and contemporaneous transfer pricing documents requirement in Indonesia.
Types of Transfer Pricing Documents Required
Master File
(Dokumen Induk)
Local File
(Dokumen Lokal)
CbCR
(Laporan per Negara)
Consisting of high level information concerning the MNE global operations and
transfer pricing policies.
Consisting of information on the taxpayer specific business
operations, financial information and affiliated transactions,
including the transfer pricing analysis of the covered affiliated
transactions.
Consisting of information of amount
of revenue, profits, income tax paid
& accrued, number of employees,
retained earnings & assets. Functions
performed & business activities by
each entity in a particular tax
jurisdiction must also be disclosed.
1. Who are required to prepare Master File (MF) & Local File (LF)?
No NOT REQUIRED to have TP doc
Yes
Required to have TP Doc
(MF & LF)
Covering all transactions with related
parties
Yes Affiliated
transactions of tangibles > Rp. 20B
No
Yes
No
Yes
Affiliated trx of service, interest, intangibles, or
others > Rp. 5B
No
Based
on
Pre
vio
us
Fis
cal Y
ear
Ongoin
g
Fis
cal Y
ear
Ongoin
g
Fis
cal Y
ear
No
MF
LF
Gross turnover > Rp. 50 Billion
Taxpayer has transactions
with affiliates?
Affiliated party resides in a country with tax rate < Art. 17 tax rate
NOT REQUIRED to have TP doc
GROSS TURNOVER:
is the income received from main business activities of the
Taxpayer, before any sales discounts and other reduction.
If during a Fiscal Year the taxpayer has < 12 months of operation, gross turn over is
calculated by annualizing the income received during that
year.
2. Who are required to prepare CbCR? (1)
Primary Filling Mechanism
Parent Entity of a
Business Group is Indonesian tax resident
Consolidated gross turn over of a FY is ≥ Rp. 11 T?
No
Yes
Has transactions with affiliates?
MF, LF, CbCR are REQUIRED
Yes
CbCR is NOT required
No
CbCR is REQUIRED
2. Who are required to prepare CbCR? (2)
Secondary Filing Mechanism
Indonesian Taxpayer is an affiliate of an MNE which Parent is a
foreign tax resident
The country where Parent Entity resides requires CbCR?
CbCR is REQUIRED
No
CbCR is NOT required
Parent country has exchange of information agreement for CbCR
with Indonesia?
No
No
Yes
CbCR can be obtained by Indonesian Tax Authority?
Yes
Yes
Requirement to Apply Arm’s Length Principle
Taxpayer having
related party transactions
Required to prepare TP Doc based on
PMK 213/PMK.03/2016
Not required to prepare TP Doc
based on PMK 213/PMK.03/2016
Taxpayer MUST apply Arm’s Length Principle in
transacting with related parties
1
2
CONCLUSION: Regardless whether a Taxpayer is required to prepare TP Doc, as long as the Taxpayer has related party transactions, the Arm’s Length Principle must be applied, and the Taxpayer may be asked to show that the transfer price is at Arm’s Length.
Example 1 (MF and LF Requirement):
PT Ancora Mining Indonesia is an Indonesian company that is a part of Ancora Mining International
business group, and performs related party transactions in a given fiscal year (Jan 1 to Dec 31).
2016 2017 2018
Tangible Assets transactions:
Affiliated 5.000.000.000 5.000.000.000 4.000.000.000
Non affiliated 70.000.000.000 40.000.000.000 45.000.000.000
Total Gross Revenue 75.000.000.000 45.000.000.000 49.000.000.000
Royalty Fee (paid to Parent company
based in Singapore)
0 0 7.500.000.000
2017 MF LF Must be available the
latest on April 30, 2018 Gross revenue 2016 > Rp. 50B
2018
LF Gross revenue 2017
< Rp. 50B, tangible assets transactions
with related party < Rp. 20B
2019 MF LF
Must be available the
latest on April 30, 2020 Gross revenue 2018
< Rp. 50B, but Royalty transaction
> Rp. 5B *Reference for 2016 is financial conditions of FY 2015.
MF
CbCR
Example 2 (CbCR Requirement):
PT. Global Sejahtera is an Indonesian company that fulfills the requirements of a
Parent Entity. As the Parent Entity, PT. Global Sejahtera reported the consolidated
gross revenue for the business group as follows:
2016 CbCR
Must be ready by December 31,
2017
2017
2018 Must be ready by December 31,
2019
Consolidated Gross
Revenue < Rp. 11 T
Consolidated Gross
Revenue > Rp. 11 T
CbCR
Year 2016 2017 2018
Consolidated Gross Revenue
12.000.000.000.000 10.000.000.000.000 13.000.000.000.000
Consolidated Gross
Revenue > Rp. 11 T
Master File
Maste
r F
ile
Information on the MNE Business Group, should cover at the minimum :
Organizational and ownership structure, and
countries or jurisdictions of each member
Business activities of group members
Intangibles owned
Intercompany financial & financing activities
Consolidated financial statement of the Parent
Entity and tax information pertaining to related
party transactions
Refer to Attachment C PMK 213/PMK.03/2016
Local File
Lo
cal
File
If having >1 business activity
with different category
Local file is segmented in accordance to
the categories of business activities
Information on the Taxpayer,
should cover at the minimum:
Business activities of the taxpayer
Information on related party transactions &
transactions with independent parties
Application of Arm’s Length Principle
Financial information
Non-financial events that have implication on
pricing or profit margin
Refer to Attachment D PMK 213/PMK.03/2016
CbCR
Cb
C-R
Provides information on:
• Allocation of revenue
• Tax paid
• Business activity per country or jurisdiction of all members of the Business Group, either in Indonesia or
abroad, which includes:
Country name / jurisdiction
Gross revenue
Profit before tax
Income tax with-held/collected/self-paid
Income tax payable
Share capital
Retained earnings
Number of permanent employees
Tangible assets other than cash & cash equivalents
List of members of the Business Group, and its
main business activity, per country or jurisdiction
Attachment E of PMK-213
CbCR Workingpaper
A
B
Attachment F of PMK-213
Information A
Attachment G of PMK-213
Information B
Information in CbCR is
used only for the
purpose of determining
the risk of BEPS
Requirements on Preparing and Documenting TP Doc
Ma
ste
r F
ile
Lo
cal
Fil
e
Cb
CR
Based on data &
information that is
available when
transaction is executed
Based on data &
information that is
available when
transaction is executed
Based on data &
information that is
available until the
end of Fiscal Year
Must be available the
latest within 12
months after end of
FY
If these requirements are not fulfilled, will be assumed as not applying the
Arm’s Length Principle
Must be attached with Statement Letter indicating the date when
the TP docs are completed, and must be signed by parties
preparing the TP docs.
Ex-Ante Ex-Ante
Contemporaneus Contemporaneus
Must be available the latest within 4 months
after end of FY
Must be available the latest within 4 months
after end of FY
Filing of TP Docs
Maste
r F
ile
Lo
cal
File
Cb
CR
Synopsis Attachment B
PMK 213/PMK.03/2016
As Attachment
for CITR
of the
corresponding
Fiscal Year
As
Attachment
for CITR
of the
following
Fiscal Year
Attachment E
Attachment F
Attachment G
PMK 213/PMK.03/2016
Documented by Taxpayer, and must be
provided to DGT if requested
Statement Letter
stating availability
of MF
Statement
Letter stating
availability of LF
2018
*Master/Local File must not be submitted along Tax Return, but must be submitted upon
DGT‘s request and attached with statement letter indicating when such documentation
was created.
2016 2017
April: Synopsis of Master/
Local File to be
submitted along with
FY 2016 Tax Return*
April: CbCR FY 2016 to
be submitted along
with FY 2017 Tax
Return
All transfer pricing documentation must be written in Bahasa Indonesia.
Documentation in foreign language and foreign currency is permitted by approval from
the Minister of Finance, but such documents must be accompanied with a translation in
Bahasa Indonesia.
Timeline & Language
Follows General Provisions and Tax Procedure Law, but specifies non-compliance
events as follows:
Non-Compliance Events Consequences
Article 3
Transfer Pricing documentation is not based on contemporaneous data and information .
Article 5
Non-compliance during monitoring, tax audit,
or preliminary/tax crime investigation.
Article 7
Failure to submit statement letter and/or CbC
report during tax return filing.
Artic le 3(3)
Deemed as not to have applied the
arm’s length principle.
Article 5(3)
In case of late submission, TP Doc cannot
be considered in the remaining course of
the ongoing procedure.
Article 5(4)
In case of failure of submission, deemed
as to have not prepared TP Doc.
Article 7(2) & (3) Tax return is considered incomplete.
Administrative Sanctions
APPENDIX
DETAILS OF MASTER FILE (1) Structure and ownership chart of MNE, and the country or jurisdiction of each MNE member:
1 List of shareholders and percentage of ownership, as well as list of Board of Directors & Commissioners of each MNE member;
2 Ownership chart of the MNE showing overall share ownership relation between the members;
3 Geographic location (country or jurisdiction) of each MNE member.
Business activities performed by MNE business group:
1 List of MNE members and the business activities performed by each member;
2 Important drivers of business profit for each MNE member;
3 A description and graphic/diagram of the supply chain for the MNE’s 5 largest products and/or service offerings, and any products or other services offered by the MNE that amounts to 5% or more of the MNE’s turnover;
4 A list and brief description of important service agreements between members of the MNE, including a description of the capabilities of the principal locations providing important services, and transfer pricing policies for allocating service costs and determining prices to be paid for intra-group services;
5 A description of the main geographic markets for the MNE’s products and services;
DETAILS OF MASTER FILE (2) 6 A brief written functional analysis of the MNE which covers function,
assets, and risks performed by the MNE, and discusses the contribution of value creation by individual entities within the group;
7 A description of important business restructuring transactions, acquisitions, and divestitures occurring within the past 5 (five) years.
Intangibles owned by MNE:
1 A general description of the MNE’s overall strategy for the development, ownership, and exploitation of intangibles, including location of principal R&D facilities and location of R&D management.
2 A list of intangibles or groups of intangibles of the MNE that are important for transfer pricing purposes, and which entities legally own them.
3 A list and brief description on the parties within MNE members that contribute to the development of intangibles;
4 A list of important agreements among members of the MNE related to intangibles, including cost contribution arrangements, principal research service agreements and license agreements.
5 A general description of the group’s transfer pricing policies related to R&D and intangibles.
DETAILS OF MASTER FILE (3) 6. A general description of any important transfers of interests in
intangibles among the MNE members during the fiscal year concerned, including the entities, countries, and compensation involved.
MNE’s intercompany financial activities:
1.
A general description of how the group is financed, including important financing arrangements with unrelated lenders;
2.
The identification and description of any members of the MNE that provide a central financing function for the group, including the country under whose laws the entity is organized and the place of effective management of such entities;
3. A general description of the MNE’s general transfer pricing policies related to financing arrangements between members.
Consolidated financial statements of the Parent Entity and tax information pertaining to related party transactions:
1. The MNE’s annual consolidated financial statement for the fiscal year concerned, both prepared for external and internal purposes;
2.
A list and brief description of the MNE group’s existing unilateral advance pricing agreements (APAs) and other tax rulings related to the allocation of income among countries.
DETAILS OF LOCAL FILE (1) Local entity identity and business activities:
1. A description of the management structure of the local entity, a local organization chart, and a description of the individuals (either residing locally or abroad) which are the related parties of the local entity, and the country(ies) in which such individuals maintain their principal offices;
2. A detailed description of the business and business strategy pursued by the local entity including an indication whether the local entity has been involved in or affected by business restructurings or intangibles transfers in the present or immediately past year, and an explanation of those aspects of such transactions affecting the local entity;
3. A detailed description of business environment, including key competitors.
Related party transactions & transactions with independent parties:
1. Transaction scheme and description;
2. Transfer pricing policy that has been implemented for the past 5 (five) years;
3. Description of each transaction and reasons why the transaction was executed;
4. Nominal amount of transaction that is detailed by type of transaction and transacting party;
DETAILS OF LOCAL FILE (2) 5. Information about transacting party for each type of transaction, and
description of relationship between Local Entity with each transacting party;
6. Information in a table format which at the minimum provides number & date of invoices, name of transacting party, country of transacting party, product name, product specification/quality, quantity, price per unit (using the smallest size / measurement base that is commonly used), and date of delivery, in the case where the Local Entity has related party transactions for products categorized as commodities;
7. Copies of agreements pertaining to transactions that have material nominal amount.
Application of Arm’s Length principle:
1. Detail description on comparability analysis for every related party transaction executed by the Local Entity, which includes analysis on product or service characteristics, functional analysis (function, asset, and risk), terms & conditions of contracts, business strategy, economic landscape, including multi-year comparability analysis on the changes occurring throughout the years being compared;
2. Detail description on the business characteristics of the Local Entity based on the result of functional analysis;
DETAILS OF LOCAL FILE (3) 3. Explanation on the transfer pricing methodologies selected for each
type of related party transaction, reasons why such methods are selected, and reasons why the selected methods are superior from other methods;
4. Explanation on enterprise selected as the tested party in applying the transfer pricing methodology, and the reasons for selections, and financial ratios and indicators used in the application of the transfer pricing methodologies if the Local Entity uses transfer pricing methods that are based on gross or net profit margin;
5. Summary of assumptions used in applying the transfer pricing methodology;
6. Explanation of the reasons for performing a multi-year analysis;
7. List and description of selected comparable uncontrolled transactions (internal or external), and detail explanation on criteria used in searching for comparables, and the source of such information;
8. A summary of financial information used in applying the transfer pricing methodology, including segmented financial statements if the Local Entity has more than 1 (one) business characteristic;
DETAILS OF LOCAL FILE (4) 9. Explanation on application of transfer pricing methodology based on
selected comparable, price or profit range used, and reference point within the price or profit range that is used as the basis for determining transfer price;
10. Description of any comparability adjustments performed, and an indication of whether adjustments have been made to the results of the tested party, the comparable uncontrolled transactions, or both;
11. Conclusion on whether the transfer price has or has not been in-line with the Arm’s Length Principle;
12. Copy of existing Advance Pricing Agreement (APA) owned by any members of the MNE, and other tax rulings pertaining to the Local Entity’s related party transactions.
Financial Information
1. Annual local entity financial accounts for the fiscal year concerned. If audited statements exist they should be supplied and if not, existing unaudited statements should be supplied;
2. Segmented financial statements based on business categories, if the Local Entity has more than 1 (one) business categories;
3. Information showing how the financial data used in applying the transfer pricing method may be tied to the annual financial statements;
DETAILS OF LOCAL FILE (5) 4.
Summary schedules of relevant financial data for comparables used in the analysis and the sources from which that data was obtained.
Others
Information on nonfinancial events / facts that influence the transfer price.
Synopsis of MF & LF – Attachment B of PMK-213
CbCR Working Paper – Attachment E of PMK-213
CbCR Information A – Attachment F of PMK-213
CbCR Information B – Attachment G of PMK-213
CbCR Information B – Attachment G of PMK-213 (continued)
Contact Us
PERSEK SALAKI & SALAKI www.salaki-salaki.com
Ph.: (021) 290 - 49905 / 49906
TAX ALERT SS/TXALERT/01/2017 March 1, 2017
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
© 2017 Persek Salaki & Salaki For further information, visit : www.salaki-salaki.com
If you have any questions or need any further
information, please contact us :
021 – 290 49905 / 49906 / 49908 [email protected]