Taking the lead in BEPS implementation
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Taking the lead in BEPS implementation

By Iwan Hoo and Collin Goh of KPMG in Indonesia.

Although Indonesia has had transfer pricing-related provisions in its tax legislation for many years, the Indonesian Tax Office (ITO) started to introduce transfer pricing regulations and guidance only around 2009. These were followed by a number of regulations giving more guidance to taxpayers and tax auditors alike. These regulations were in line with the OECD guidelines, in particular when the hierarchical approach to the choice of the transfer pricing methodology was replaced by a "best method" approach in the second edition of the transfer pricing regulations.

Introduction of BEPS Action 13

However, the year 2016 ended with a big bang when Indonesia introduced BEPS Action 13 in its local regulations on December 30 2016. This new regulation, PMK-213 is not surprising in itself as it required the preparation of three documents regarding related-party transactions:

  • A master file (MF), containing general information on the group;

  • A local file (LF), containing specific information on operations in Indonesia; and

  • A country-by-country reporting file (CbCR), containing detailed financial and other information on each of the members of the group.

The MF and LF must be available upon request four months after each fiscal year end, in Bahasa, Indonesia. The CbCR submission – more on this later – is due within one year after the fiscal year end.

This sudden and immediate implementation caused a number of issues for Indonesian taxpayers. Not only was the deadline for the LF very short; in practice a lot of international groups have issues with their master files which in most jurisdictions were due much later. In addition, the requirement to have the documents available in the local language caused additional burdens, both with regard to the time required to complete the transfer pricing documentation, but also with regard to the effort itself.

Thresholds for preparing and maintaining master files and local files

MFs and LFs are mandated if a taxpayer meets any of the following thresholds in a fiscal year (some of the explanations are KPMG professionals' view on this regulation):

A taxpayer conducting:

  • Any related-party transactions and its gross revenue was above IDR 50 billion ($3.7 million) in the previous year (in this case 2015) – there is no threshold on the total amount of related party transactions; or

  • Related-party tangible goods transactions (sale and purchase of goods, materials, etc.) of more than IDR 20 billion ($1.5 million); or

  • Related party non-tangible goods transactions (interest, royalties and/or services) of more than IDR 5 billion ($370,000), or

  • Related party transactions of any amount with a related party in a jurisdiction which has a corporate tax rate lower than Indonesia's corporate tax rate, currently 25%. As there is no threshold for the level of the related-party transactions, all, however small, are covered under this provision. A list of countries meeting this criteria has been published by the Indonesian Tax Office (ITO).

The level of these thresholds in practice has caused some complications as many groups that are not required to prepare master files under their local legislation must prepare MFs for Indonesian purposes.

The information to be included in the MF seems similar to the OECD recommendations and includes:

  • The structure and chart of ownership, including the country or jurisdiction of each affiliated party;

  • The business activities conducted by each affiliated party;

  • Intangible assets owned;

  • Financial and financing activities; and

  • Consolidated financial statements of the parent entity and taxation information related to affiliated transactions.

The LF information also seems in line with the OECD recommendation and includes:

  • The business activities conducted by the taxpayer;

  • Information on the related-party transactions and transactions with independent parties;

  • Explanation of the application of the arm's-length principle;

  • Financial information on the taxpayer; and

  • Non-financial events which affected the price or profit level.

However, the Indonesia requirements are in practice more extensive – both for the MF and the LF – so that international groups have to provide additional information in their master files to satisfy the Indonesian requirements, in particular with regard to intangible assets. Also, the fact that there is no threshold for transactions with countries with a tax rate lower than 25% adds an additional burden for taxpayers as some major jurisdictions are included, such as Malaysia, the UK, Switzerland and Singapore.

The main issues for the LFs are related to extensive disclosure requirements on the business activities of each group company rather than the group as a whole. Minor issues relate to the disclosure of shareholders since this may not always be possible for publicly listed companies.

Thresholds for preparing and maintaining CbCR files

A CbCR is mandated if a taxpayer meets either of the following thresholds in a fiscal year (some of the explanations are KPMG professionals' views on this regulation):

  • It is a parent entity with consolidated group revenue of more than IDR 11 trillion ($814 million) which applies to Indonesian group companies; or

  • It is a part of a foreign parent entity that (i) is not required to submit a CbCR, or (ii) is in a country that does not have an information exchange agreement with Indonesia or (iii) if the ITO is unable to obtain a CbCR through an information exchange agreement.

The ITO has published a list of countries that do not have a suitable exchange of information arrangement with Indonesia. One of the major jurisdictions that has not signed up is of course the US.

However, implementing regulations with regard to the CbCR are still expected and hence changes are still expected.


A taxpayer that falls under the above requirements has four months (12 months for CbCR) after each financial year end to prepare and declare, starting in its 2016 corporate tax return, that it is ready to submit the MF/LF. The MF/LF must be summarised in an attachment to the annual corporate income tax return (CITR) and the CbCR attached to the tax return of the following year.

Penalties exist for failing to prepare and submit the MF/LF upon request. Failure to prepare MF/LF is treated under Article 3(3) as not applying the arm's-length principle, which could trigger major penalties. Failure to deliver MF/LF when requested would result, under Article 5(3), in the taxpayer being deemed as not having transfer pricing documentation. An adjustment as a result of the ITO making a transfer pricing analysis on their own would attract a penalty of 2% per month, but this penalty applies to any adjustment. Hence being late would still put the taxpayer in a better position than having no transfer pricing documentation at all.

The ITO can request the above documents for compliance checking, a tax audit, an objection, a reduction of an administrative sanction and in other cases.

Transfer pricing compliance activities by local tax administration

Under the Indonesian tax system, any taxpayer who files a refund request is subject to a mandatory tax audit. This will almost always include an audit of the transfer pricing policies and may lead to substantial adjustments. This is not only triggered by the usual dispute areas such as services and royalties, but also by challenging economic analyses.

Dispute resolution (including APAs)

On a positive note, the Indonesian Directorate General of Taxation has been very active promoting APAs and MAPs and has gone through the effort of visiting major trading partners. Negotiations with many countries are underway. However, unlike other jurisdictions, Indonesia does not publish data on how many APAs/MAPs have been concluded or what type of transactions are covered.

Indonesia has gone through a major change in its transfer pricing regulations by introducing the MF/LF concept. The information to be disclosed is much more extensive than in the past and as required by the OECD. It still remains to be seen what will be exactly required for the CbCR, pending the issuance of the implementing regulations. However, only time will tell what will be the exact impact of these new regulations on taxpayers during tax audits.

Iwan Hoo



KPMG in Indonesia

Tel: +62 21 570 4888


Iwan has over 20 years of experience working in the Netherlands, Singapore and Indonesia, first in international taxation matters and later specialising in transfer pricing when the OECD guidelines were issued.

He moved to Indonesia when local transfer pricing regulations were issued and has experience in all relevant sectors in Indonesia, as well as dispute resolution and APAs.

He holds an LLM in tax law from the University of Leiden, Netherlands.

Collin Goh



KPMG in Indonesia

Tel: +62 21 5704 888


Collin has more than 10 years of transfer pricing and international tax experience within the Asia Pacific region, covering both developed and developing jurisdictions in Big 4 accounting organisations and revenue authorities. Collin's unique experience has enabled him to see the bigger picture in providing transfer pricing solutions that are practical and regulatory compliant.

He qualified as a chartered accountant and holds a Master of International Tax from the University of Melbourne and a Master of Law (Juris Doctor), and also a PhD from Monash. Collin has been providing transfer pricing services to all industries including the energy & resources sector. He enjoys assisting clients to prevent, mitigate or resolve transfer pricing risks and disputes and is able to do so fluently in both English and Chinese.

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