This content is from: Transfer Pricing

The promising development of APAs and MAPs in Indonesia

Indonesia has strengthened its tax disputes framework by adapting a more sophisticated procedure when handling advance pricing agreements (APAs) and mutual agreement procedures (MAPs). Charles Setia Oetomo and Felic Setiawan of GNV Consulting Services examine how the developments are an attractive premise for businesses in the region.

As transfer pricing (TP) controversies become increasingly common and more important for multinational companies, the emergence of the advance pricing agreement (APA) and the mutual agreement procedure (MAP) in recent years as possible dispute resolution mechanisms are seen as beacons of hope for taxpayers. This article explores the regulatory background, progress, challenges and the anticipated future of APAs and MAPs in Indonesia.

Building new platforms

The Indonesian transfer pricing landscape has developed over the past couple of years. The introduction of regulatory frameworks, as well as the ever-growing number of TP cases, has seen the Directorate General of Taxes (DGT) substantially grow to wage a campaign against the base erosion and profit shifting (BEPS) practices of multinational companies.

Fueled by the developing regulatory frameworks and the continuously increasing annual tax revenue target of the DGT, multinationals are regularly facing TP disputes and related issues regarding double taxation.

Despite the availability of existing domestic dispute resolution mechanisms, the uncertainty surrounding recent tax court decisions on transfer pricing issues, along with strong progress in the number of resolved APA and MAP cases, have shed light on bilateral negotiations and have boosted the confidence of taxpayers.

Regulatory development

In 2010, the introduction of DGT Regulation No. 48/PJ/2010 on guidelines for the implementation of MAPs based on the agreements to avoid double taxation, and DGT Regulation No. 69/PJ/2010 on APAs, initially kick-started the development of alternative models of dispute resolution in Indonesia.

Since then, the Ministry of Finance (MoF) and the DGT have issued a number of related regulations. Most notably in recent years, a number of regulations relating to transfer pricing have been introduced to align domestic rules with the OECD/G20 BPS Action Plan.

While most of these regulations are game changers, the most important is MoF Regulation No. 7/PMK.03/2015 (PMK-7)¹ on guidelines for the establishment and implementation of the APA, which became effective on April 11 2015. Likewise, another key development was MoF Regulation No. 49/PMK.03/2019 (PMK-49) on the guidelines to implement the MAP, which came into effect on April 26 2019.

The aforementioned regulations outlined the specific procedures and steps that taxpayers need to follow when applying for an APA and/or a MAP. Most importantly, both regulations introduced a time limit within which the Indonesian tax authorities will need to carry out and complete the APA and/or MAP.

Case progress

While no notable progress has been observed in the initial years of their introduction, the submission of APA and MAP applications have been picking up pace since 2016, following the release of the final reports on the 15-point action plan to address BEPS by the OECD/G20. The growth has also increased because of Indonesia's active participation as a member of the OECD/G20 Inclusive Framework (IF) on BEPS. This is particularly in line with Action 14 of the BEPS Action Plan, which reflects a commitment by countries to make dispute resolution mechanisms more effective by implementing a minimum standard on dispute resolution (comprising of specific measures to remove obstacles) and an effective and efficient mutual agreement procedure. The plan also calls for the establishment of a monitoring mechanism to ensure that such commitments are being effectively satisfied.

In 2016, the DGT also began internal restructuring to cope with the demands of international tax. The organisation sought to increase its capacity and capability in handling international tax cases, particularly MAP and APA cases. The DGT consequently formed the Directorate of International Taxation by transforming what was formerly the Sub-Directorate of Tax Treaty and International Tax Cooperation to oversee three other sub-directorates, namely:

  • Sub-Directorate of Tax Treaty and International Tax Cooperation;
  • Sub-Directorate of International Tax Dispute Prevention and Settlement; and
  • Sub-Directorate of International Tax Information Exchange.

The Directorate of International Taxation was appointed as the competent authority (CA) which negotiates the APAs and MAPs.

The DGT has also been highly proactive in handling applications while maintaining transparency over the number of APA and MAP requests being made and closed over time. The 24-month timeline for MAP (and effectively also for APA) negotiations, as prescribed within PMK-49, has also sped up the process. However, the implementation of such a timeline is not as strict when it comes to the applications submitted before the regulation came into effect. Both APAs and MAPs, when they relate to the same taxpayers, may also be negotiated simultaneously.

Based on the APA and MAP statistics published by the DGT on its website, the number of cases being closed from year-to-year are as follows:

YearNumber of cases closedTotal
Prior to 2016101

The same source indicates that the average time needed to close MAP cases, relating to transfer pricing, is as follows:

Average time needed to close MAP cases relating to transfer pricing in 2016
Cases started before January 1 201639.98 months
Cases started as of January 1 2016N/A
Average time needed to close MAP cases relating to transfer pricing in 2017
Cases started before January 1 201642.21 months
Cases started as of January 1 201629.67 months

The data published shows a notable number of MAP and APA cases being closed from the beginning of 2016. Similarly, the average time needed to close MAP cases (relating to transfer pricing) are evidently shorter now than when compared to the average time needed to close MAP cases (relating to transfer pricing), which had started prior to January 2016. These statistics seem to imply that the progress of MAP and APA cases have seen significant improvements, as the number of cases being closed increases and the time required to complete an MAP decreases.

The closed cases may not necessarily result in favourable outcomes for taxpayers, as the majority of MAP cases being closed in 2016 eventually resulted in the Indonesian and partner country tax authorities agreeing to enforce decisions issued by the tax court. Closed MAP cases in 2017 represented an outcome with varying degrees of success, where a good number of closed cases resulted in the full or partial elimination of double taxation.

So far, the implementation of APAs and MAPs, which have been concluded, are observed to follow the steps prescribed within the prevailing regulations, portraying it as being quite clear. Nonetheless, where an APA has been concluded, taxpayers are expected to submit an annual compliance report within four months after the end of the fiscal year. APA renewals are also observed to take a shorter time to conclude when compared to new APA applications.

Where a MAP has been concluded to grant tax relief to taxpayers, it will be enacted domestically (through the amendment of corporate income tax returns, tax assessment letters, amendment of tax assessment letters, objection decision letters, amendment of objection decision letters, etc.). While the request for a tax refund will generally follow the normal procedures, an examination process (in line with Ministry of Finance Regulation No. 187/PMK.03/2015 on the guidelines for the refund of taxes that should not have been paid or PMK-187) will be carried out when the MAP is enacted through an amendment of a tax assessment letter. However, such an examination process is not expected to be as exhaustive as a tax audit.


Despite the clarity of the regulations, as well as the cooperativeness of the DGT, APAs and MAPs are not without their own challenges. Some of the challenges that taxpayers will have to note before deciding on whether to pursue an APA or MAP are:

  • While taxpayers may be able to exert a certain amount of control when it comes to a unilateral APA process and/or domestic remedy, bilaterally negotiated APAs and MAPs can keep taxpayers' involvement to a minimum.
  • There is always a likelihood or possibility that any bilaterally negotiated APA or MAP results in a disagreement between tax authorities.
  • A MAP may be concluded in disagreement when a tax court decision has been issued. This gives rise to the general concern that MAP negotiations may not progress as quickly when taxpayers also pursue a domestic remedy. As such, in most cases, taxpayers pursuing a MAP will decide against pursuing any domestic remedy, or alternatively, pursue such a domestic remedy but have to deal with the risks of the MAP not being concluded until the issuance of the tax court decision.
  • The profit split method (if not, other transfer pricing methods that provides entrepreneurial return for Indonesian taxpayers) is still the most preferred TP method for the Indonesian tax authorities in APA and MAP negotiations.

Expected future updates

New regulations on APAs are expected to be issued in 2020. Plans are in place to enable an APA to be applied as a roll-back on prior open years. The proposed APA regulations may, however, eliminate the firewall that has so far prevented information submitted for the purpose of APA applications from being used during tax audits, preliminary investigations or the investigation of a tax crime.

The recent issuance of Presidential Regulation No. 77 (2019) has ratified the Multilateral instrument (MLI) on November 12 2019. The MLI is a multilateral convention that implements changes agreed under the BEPS project. Article 17 of the MLI, regarding corresponding adjustments, has also enabled tax authorities of partner countries to provide corresponding adjustments relating to transfer pricing on a unilateral basis and ensure that access to a MAP for TP cases are provided by partner countries even when the relevant tax treaty does not contain Article 9(2) of OECD Model Tax Convention. Similar changes are also found in Article 16 of the MLI concerning MAPs, notably on the applicable time limits for a MAP application and implementation, notwithstanding any time limits under the domestic law of the contracting jurisdictions.

Indonesia will adopt these articles whenever applicable. This MLI will become effective once submitted to the OECD (as the Depository of the MLI) before it becomes effective. Based on publicly available information, the deposit of the notice of ratification will be made in early 2020 and is expected to take effect for Indonesian tax purposes on January 1 2021.

Key takeaways

Some of these observations seem to imply that the DGT are treating both APAs and MAPs seriously, reflecting the spirit based on which the regulations were drafted and enacted. This, thereby, brings down the myths that these efforts are merely gimmicks where realisations and tangible progress was unlikely.

Despite the progress made so far, taxpayers will need to take note of the potential issues that may arise when applying for APAs and MAPs. Understanding the timing and potential changes brought about by the upcoming regulations are just as crucial.

Like the available domestic remedy, APAs and MAPs may not necessarily address double taxation and still provide uncertainty in terms of outcome. Strategic considerations and cost-benefit analysis are still required in deciding if APAs and MAPs provide taxpayers with greater chances of obtaining the required tax relief. For better or worse, with careful planning and due care, there is no denying that APAs and MAPs may just be an appropriate dispute mechanism for taxpayers.

Charles Setia Oetomo

GNV Consulting Services

Tel: +62 816 786 811

Charles Setia Oetomo is a partner and advisor at GNV Consulting Services. He provides various tax and customs consultations, as well as advice on transfer pricing and trade regulatory issues, to a broad range of clients with different backgrounds and industries.

Previously, he worked at Deloitte as a partner in its Southeast Asia team by leading multiple lines of functions. He has also served the Big Four firms as an external auditor, which gave him expert knowledge of the financial accounting area.

Felic Setiawan

GNV Consulting Services

Tel: +62 821 151 112 28

Felic Setiawan is a transfer pricing director with GNV Consulting Services. He specialises in advising multinational enterprises on designing and implementing their transfer pricing policies, assisting with documentation, as well as attending transfer pricing audits and dispute resolutions.

Before joining the firm, he served in two of the Big Four firms in Indonesia. As a transfer specialist, he regularly delivers transfer pricing seminars and contributes to the firm's publications.

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