Why is it important?
Tax has become the major contribution of the Indonesian state revenue, that’s why the Director General of Taxes (DGT) always keeps an eye on any potential profit shifting especially within groups of multinational companies
- Director General of Taxes (DGT) has set up a special transfer pricing unit and will set up a specific group of transfer pricing auditors for each district tax office
- In the past, the verification on whether the price is fair or not, is majority on the hand of DGT, using transfer pricing methodologies to analyze the data obtained during a tax audit. Now, since the application of new format of the 2009 annual corporate income tax return (annual return), the burden of proof is shifted to the taxpayers having affiliated transactions.
Who has bigger potential risk?
- Company that experienced consistent commercial loss for five years or more
- Company that has significant value of related-party transactions compared to taxpayer’s turnover and operating profit
- Company that has an economically unrealistic profit trend compared to the industry trend
- Company that has significant transactions with major counterparts from low-tax jurisdictions, tax heaven countries and non-treaty partners
- Company that has inconsistencies between inter-company contracts, transfer pricing policies and detailed transactions documents i.e. invoices or customs documents.
- Company that pay significant amount of royalty moreover if the intellectual property is not legally registered