Scope and Procedures of Advance Pricing Arrangements丨Indonesia Tax Guide 2025 (47)
Indonesia
Advance Pricing Arrangement
2025-03-20 09:10:58
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This issue's introduction
Scope and procedures of advance pricing arrangements
Special Tax Adjustment Policy
This arrangement applies to taxpayers with large-scale related-party transactions.
program
(1) The taxpayer submits a formal application to the tax bureau and submits relevant materials within two months of submitting the application;
(2) The tax bureau reviews the relevant materials in accordance with the arm's length principle;
(3) The taxpayer and the tax bureau negotiate on the content of the APA;
(4) The tax bureau issues the APA document;
(5) The APA is applied and evaluated.
The APA does not restrict the tax bureau's power to conduct transfer pricing investigations under other existing regulations.
If the APA is applied to transactions between a taxpayer and a domestic related party, a secondary adjustment may also be made to another domestic taxpayer after obtaining approval from the tax bureau.
If the APA results in double taxation, the taxpayer may submit a written request to the tax bureau to implement the mutual agreement procedure.
The Ministry of Finance Regulation No. 7 of 2015 (MoF Regulation7/PMK.03/2015) issued on January 12, 2015 provides guidelines for the implementation of the APA.
The decree stipulates the following steps involved in the tax bureau's handling of advance pricing arrangements:
(1) After the enterprise submits a formal advance pricing arrangement application, the tax bureau will select personnel to form an advance pricing arrangement discussion team;
(2) The discussion team must submit an evaluation opinion to the tax bureau;
(3) The tax bureau will then set up a quality assurance team to review the evaluation opinion and determine the tax bureau's negotiating position;
(4) If the tax bureau and the taxpayer or other tax bureaus cannot reach a consensus on the final opinion of the advance pricing arrangement (corresponding to unilateral advance pricing arrangements and bilateral advance pricing arrangements, respectively), the advance pricing arrangement will be cancelled.
The decree also refines the standards for advance pricing arrangements previously issued by the Tax Bureau, including:
(1) Taxpayers can only submit an advance pricing arrangement application if they have been doing business in Indonesia for at least 3 years;
(2) The validity period of unilateral and bilateral advance pricing arrangements is extended to 5 years;
(3) The pre-application must be submitted at least 6 months before the beginning of the fiscal year covered by the advance pricing arrangement, and the formal advance pricing arrangement application must be submitted at least 1 month before the same fiscal year;
(4) Guidelines for the renewal process of advance pricing arrangements;
(5) Guidelines for annual compliance requirements for signed advance pricing arrangements;
(6) After the submission of the advance pricing arrangement application, a one-year advance pricing arrangement discussion will be held.
According to Regulation No. 172 of the Ministry of Finance of 2023, taxpayers applying for advance pricing arrangements must meet the following conditions:
(1) Declare annual corporate income tax in accordance with the tax law for three consecutive years before the fiscal year of application;
(2) Submit transfer pricing documents such as local files and master files in accordance with regulations for three consecutive years before the fiscal year of application;
(3) Have not been subject to tax audits or tax criminal investigations by the tax bureau, have not participated in tax hearings, and have not committed tax violations or crimes;
(4) The related-party transactions to be involved in the advance pricing arrangement request are related-party transactions reported by Indonesian taxpayers in their annual corporate income tax notification letters;
(5) The proposed prices in the advance pricing arrangement application comply with the arm's length principle and will not cause the taxpayer's operating profit to be lower than the operating profit reported in the annual corporate income tax notification letter.
The excitement continues in the next issue...