Learn more about Transfer Pricing in Indonesia and how our dedicated specialists at BDO could help you regardless of your industry segmentation.

1. 1
BDO Indonesia
TRANSFER PRICING SERVICES

2. 2
What do you know
about transfer pricing
in Indonesia?

3. 3
REGULATORY REQUIREMENT
A special relationship can
be triggered by:
• Direct or indirect share
ownership of 25% or more
• Common control (e.g.
management or
technology)
• Bloodline or by marriage
SPECIAL
RELATIONSHIP
• Embedded in Article 10 (1)
of Income Tax Law and
Article 2 (2) of VAT Law
and Article 9 of tax treaty
• Pricing of transactions
between parties with
special relationship must
be arm’s length
ARM’S LENGTH
PRINCIPLE
• Article 18(3) of Income
Tax Law gives DGT
authority to re-determine
the amount of income
and/or expense or debt as
equity using any of the
five arm’s length methods
(through an issuance of
tax assessment)
CONSEQUENCE OF
NON-ARM’S LENGTH

4. 4
THE WHAT, WHY AND HOW
WHAT
WHY
HOW
• The object of transfer pricing scrutiny is when pricing of transactions between related parties take
place under different conditions than those taking place between third parties
• The possibility of tax evasion through profit shifting from a high-tax jurisdiction (e.g. Indonesia at
25%) to a low tax jurisdiction (e.g. Singapore at 17% or lower) for cross border related party
transactions.
• The possibility of utilising different tax rate (e.g. final versus non final tax or when one of the
parties has fiscal loss balance) for local related party transactions.
• Through sales or purchase of tangible products
• Through transfer of intangibles (e.g. provision of services, technology, patent, etc)
• Through provision of financial services transactions (e.g. loan, guarantee fee)

5. 5
INDONESIAN TRANSFER PRICING MILESTONE
2008
1 Jan 2008
(PP 80/2007)
2009
2 July 2009
(PER-39/PJ/2009)
2010
31 Mar 2010
(S-153/PJ.04/2010)
Oct 2010
6 Sep 2010 – (Reg 43/PJ/2010)
3 Nov 2010 – (Reg 48/PJ/2010)
31 Dec 2010 – (Reg 69/PJ/2010)
Nov 2011
11 Nov 2011
May 2013
30 May 2013
Oct 2013
24 October 2013
TP
documentation
becomes
mandatory
TP Disclosure
form in CITR
introduced
(effective FY
2009)
DGT issues
internal TP
Guideline for
auditors Reg-43
Reg-48
Reg-69
Key TP Regulations
Reg-32
(Reg 32/PJ/2011)
Amendment of
Reg-43
Reg-22
(Reg 22/PJ/2013)
TP Audit Guidelines Circular 50
(Circular No 50/PJ/2013)
Implementation of
PER-22

6. 6
RECENT TRENDS
• In recent times, tax audit has become a challenging process for many taxpayers – especially those that have related party
transactions.
• The risk of getting more scrutiny in the area of transfer pricing increases, especially when the audited taxpayer fits into one or more
of the following conditions:
Significant volume
of related party
transactions in
proportion to sales
or net operating
income.
Cross-border
related party
transactions.
Special related
party transactions
such as provision of
services, payment
of royalties, and
payment of
interest.
Financial
performance that is
below industry
standards.
Perpetual losses.
Significant interest
expense, foreign
exchange loss/
income and loss/
income from asset
disposal.
Increased risk of scrutiny

7. 7
• For taxpayers who are expecting tax audit,
they may want to consider assessing its
position carefully and identify the potential
areas that the Indonesian Tax Office (“ITO”)
may challenge, then do an early preparation
to effectively mitigate the risks of challenges
that could lead to tax/transfer pricing
disputes.
• The first step in managing your transfer
pricing risk is to put in place
contemporaneous transfer pricing
documentation which is mandatory for the
following related party transactions:
• Those which are cross-border and with a
value of more than Indonesian Rupiah
(“IDR”) 10 billion per annum
(approximately USD 800,000) per
counterparty, or
• Those within Indonesia where there is an
opportunity to utilise “different” tax rates
(e.g. transactions with a company that is
subject to final tax) and again with a value
of more than IDR 10 billion per annum per
counterparty
• For related party transactions categorised as
“special transactions”, prepare the necessary
supporting documents (what is commonly
known as “Level 2 Documentation”) to satisfy
the necessity/existence test and the
economic benefits test which the ITO will
apply during tax audit.
• For future transactions, prepare a planning
study to ensure that implementing a pricing
model that can be supported from an arm’s
length principle perspective. For more
certainty, a taxpayer can also opt to apply for
Advance Pricing Agreement (“APA”).
MANAGING YOUR TRANSFER PRICING RISKS

8. 8
• Many taxpayers have formed a view that their transfer pricing compliance is only to prepare formal transfer pricing
documentation (i.e. testing exercise). This is a common mistake that has often led to significant transfer pricing assessments.
• Many have disregarded the need to undertake a price-setting exercise (i.e. transfer pricing planning study) to ensure they will
get an arm’s length return at year-end. Because of this, in many cases, taxpayers have returned year-end financial result that
is either below industry standard or (in some cases) are in perpetual losses for many years. Consequently, these taxpayers are
exposed to a high transfer pricing risk.
• Below is an illustration of the best practices to effectively manage your transfer pricing risks.
MANAGING YOUR TRANSFER PRICING RISKS (CONT’D)
Planning and price
setting
Drafting and
executing
intercompany
agreement
Determining
internal pricing
mechanism
Developing transfer
pricing policy and
procedures manual
Documenting and
compliance
Phase 1 Phase 2 Phase 3 Phase 4 Phase 5
Illustration 1 – Transfer pricing cycle

9. 9
HOW WE CAN
HELP YOU?

10. 10
HOW WE CAN HELP YOU
YOUR NEEDS REQUIREMENTS
REGULATORY
BASIS
OUR EXPERTISE YOUR BENEFIT
FIRST LAYER OF DEFENSE
Satisfying the Indonesian
formality requirement
Contemporaneous
transfer pricing
documentation (“TPD”)
that support CITR
disclosures (Form 3A and
3A-1).
Director General of Taxes
(“DGT”) Regulation No 32/
PJ./2011 (“Reg-32”)
Assisting with the
preparation of your formal
transfer pricing
documentation to reflect
a current year’s financial
and business performance.
• Enable identification of
key soft areas (gap
analysis).
•Develop action steps to
put in place defense for
these areas.
If your financial
performance for a
particular year is below
the industry average or in
a declining trend, you may
want to consider
undertaking Special Factor
Analysis (“SFA”). The
objective of this exercise is
to prove that the poor/
declining financial result
does not necessarily mean
it is a result of transfer
pricing practices.
• Get a head start to
collect supporting
documents to support
the analysis (and/or
adjustments when
appropriate).
•Take the opportunity to
develop defense
arguments.
•Take the necessary steps
to put in place additional
supporting documents as
appropriate.

11. 11
HOW WE CAN HELP YOU (CONT’D)
YOUR NEEDS REQUIREMENTS
REGULATORY
BASIS
OUR EXPERTISE YOUR BENEFIT
SECOND LAYER OF DEFENSE
Preparation of supporting
documents: [please note
there are just some
samples and therefore, is
not an exhaustive list. A
more comprehensive
review may be required to
identify your
documentation needs]
Sale/purchase of
product:
Commercial invoice,
Import documents,
purchase order, transfer
pricing policy
• DGT Regulation No 22/PJ./
2013 (“Reg-22”)
• DGT Circular Letter No 50/
PJ./2013 (“Circular 50”)
Assisting with tax/TP
diagnostic review
•Allow gap analysis to
minimize potential risk of
assessment due to non-
reconciling items (e.g.
between VAT and COGS).
Intra-group services and
royalty payments:
• Compilation of supporting
evidence (e.g. email
correspondence, report,
minutes of discussion,
travel documents, CV of
service providers, cost base
calculation, etc.)
• Narration to evident the
existence and economic
benefits they have brought
to the Company by linking
the company’s supporting
documents with the
transfer pricing principles
for intra-group services.
Assisting with Level 2
documentation review
• Increased possibility to
secure deductibility of
these expenses (in partial
or full amount) –
especially that these
transactions are
considered high risk
transactions. You may
want to consider
preparing your Level 2
Documentation if you are
expecting tax audit and
the transaction value is
above IDR 10 billion per
annum.

12. 12
HOW WE CAN HELP YOU (CONT’D)
YOUR NEEDS REQUIREMENTS
REGULATORY
BASIS
OUR EXPERTISE YOUR BENEFIT
SECOND LAYER OF DEFENSE : (CONT’D)
Completion of various
forms
In a tax audit event,
taxpayers will be
required to fill out ten
different forms in only
seven working days and
conduct a presentation
of its transfer pricing
position before the tax
audit team.
• Reg-22 Assisting with the
completion of the forms.
• Head start on
completion of these
forms and preparation of
defense arguments. This
will also ensure that the
Company’s responses on
the questions are
consistent with its
FY2014 CITR disclosures
and its transfer pricing
documentation.
• Early preparation of what
to present and
determining the
appropriate defense
strategy.

13. 13
HOW WE CAN HELP YOU (CONT’D)
YOUR NEEDS REQUIREMENTS
REGULATORY
BASIS
OUR EXPERTISE YOUR BENEFIT
ASSISTANCE WITH TRANSFER PRICING DISPUTE
RESOLUTION
Local avenue: Assistance
with transfer pricing
audit, filing tax objection
and filing tax appeal to
the tax court.
International avenue:
Assistance with Mutual
Agreement Procedure for
transaction with a tax
treaty country.
• To ensure requests from
the ITO (or the Tax
Court judges in case of
tax appeal) are
addressed in a timely
manner.
• To ensure provision of
data/information
consists of those
requested and not those
that could potentially
open an area for
dispute.
• Art.18 of Income Tax Law
• OECD Transfer Pricing
Guidelines
• Reg-22
• DGT Circular No.50/PJ/
2013
• Advising you on how to
best present data/
information to the ITO
or tax court judges.
• Assisting you to put
forward technical
arguments that would
strengthen your transfer
pricing position.
• Guiding you in every
step of the process and
advising your rights as a
taxpayer.
• Sharing with you our
past experience and
collaborating with you
to develop an effective
defense strategy.
• Reducing efforts in
preparing documents/
information that are not
necessary for your
defense.
•Having a more structured
defense strategy and
implementation.
•As transfer pricing audits
(objection and appeal)
tend to be fact-intensive,
we will guide you to
strike a balance between
providing critical facts of
your business/industry
and ensuring discussions
with the authorities are
still conducted in
consideration of the
transfer pricing technical
aspects.

14. 14
HOW WE CAN HELP YOU (CONT’D)
YOUR NEEDS REQUIREMENTS
REGULATORY
BASIS
OUR EXPERTISE YOUR BENEFIT
TRANSFER PRICING PLANNING
Legal certainty for future
related party
transactions through
planning and/or APA
• Adherence to the arm’s
length principle before
and after transactions.
• Reduce unnecessary
costs of transfer pricing
disputes.
•Compliance to Base
Erosion Profit Shifting
initiatives of the OECD
member countries.
• Art.18 of Income Tax Law
• OECD Transfer Pricing
Guidelines
• BEPS action plan
• Reg-22
• PMK No 7/PMK.03/2015
regarding APA procedure
• Assisting with the pre-
lodgment phase.
• Assisting with
preparation of the
planning document.
• Assisting with the
preparation of the
Advance Pricing
Agreement Application.
• Assisting you in the
discussions with the tax
authorities.
• Reduce the risk of future
transfer pricing disputes.
•Ensure obtaining an arm’s
length outcome from
transactions – which will
help strengthen your
position during tax audit.
Robust transfer pricing
policy
• A policy that is
consistent with the
arm’s length principle
yet able to
accommodate your
business needs.
• OECD Transfer Pricing
Guidelines
• Assisting you in ensuring
the policy is in line with
the planning study.
• Advising you with the
necessary Level 2
documents.
• Having a business
process that is in
compliance with the
Indonesian arms length
requirements.

15. 15
• We have a dedicated team of transfer pricing specialists who have vast
knowledge in various industry segments, including: manufacturing and
distribution of consumer products (fast moving consumer goods and
consumer electronics), plantation (palm oil), energy (e.g. geothermal, oil
and gas), utilities and mining (e.g. coal, copper, gold and nickel),
hospitality, chemicals.
•A strong global network in 151 countries that operate through 1,328
offices across the globe. The BDO International network shares common
culture & passion aligned around parallel themes of:
•Quality People. We focus on investing in & hiring the best & insist on
strong personal relationships throughout firm & network; and
•Quality Service. We provide quality service based not only on
technical expertise, but also on business acumen, commercial
awareness & local knowledge.
•One clear defining aspect of the BDO network is its belief that working
relationships between people are key factor. The network is known for its
close involvement with clients, getting to know them & their business
needs while always maintaining human perspective.
WHY US?

16. For more information please contact:
PT BDO BISNIS SOLUSI INDONESIA
Michelle Mianova (mmianova@bdo.co.id)
BDO Indonesia
Prudential Tower 16th-18th Floor
Jl. Jenderal Sudirman, Kav. 79
Jakarta 12910, INDONESIA
Tel : +62-21 5795 7300
Fax : +62-21 5795 7301
www.bdo.co.id
About BDO
BDO is the one of the largest global network of public accounting,
tax and advisory firms which perform professional services.
These firms have representation in 154 territories, with 64,300
people working out of over 1,400 offices worldwide.
BDO member firm in Indonesia dated back to 1992 when
Drs Richard B Tanubrata was the Managing Partner of
KAP Drs RB Tanubrata, a public accountant firm that
was founded in 1979.