Understanding transfer pricing in Indonesia: Rules & guidelines.

Understanding transfer pricing in Indonesia: Rules & guidelines

This is the ultimate guide to transfer pricing in Indonesia.

Transfer pricing in Indonesia is governed by the Income Tax Law of 2008 along with several implementing regulations, and as an investor, it is necessary that you understand the rules and regulations of transfer pricing.

Let’s dive in.

What is transfer pricing?

Transfer pricing refers to methods and rules for the price of transactions and transfers between companies from the same group, such as a subsidiary company or any other related parties.

Companies or individuals are considered as related if they meet one of the following conditions:

  • A party has direct or indirect control of the other party, such as branch offices or head offices
  • Both parties are under the direct control of the same company, such as subsidiaries owned by the same parent company
  • Family relation between both parties

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The arm’s length principle

Indonesia applies the arm’s length principle (ALP), which is the standard method of transfer pricing.

The ALP in Indonesia states that the transaction price charged between two related parties should be the same as the price charged between two unrelated parties.

It is mandatory to apply the ALP to business transactions in Indonesia. Profits will be taxed where profits are generated and economic activities have taken place.

What transactions are subject to the arm’s length principle?

The following transactions are subject to the ALP:

  • Transactions with affiliated non-resident taxpayers
  • Transactions with affiliated resident taxpayers which apply different tax rates caused by:
    • Final and non-final income tax for certain business sectors
    • Imposition of sales tax on luxury goods; or
    • Transaction with oil and gas contractor taxpayers

Transfer pricing documentation

In 2016, Minister of Finance Regulation No.213/PMK.03/2016 (PMK 213) was issued to introduce the three-tiered system of transfer pricing documentation.

The three-tier documentation system consists of the following documents:

  • Master file
  • Local file
  • Country-by-country report (CbCR)

All of the documents must be submitted in Bahasa Indonesian.

Master file

The master file consists of information that is related to the business group. It should be prepared within four months after the fiscal year-end.

The master file includes:

    • Structure of ownership of the group company
    • Intangible assets owned
    • Business activities
    • Financial activities
    • Consolidated financial statements

Local file

The local file must be prepared within four months after the end of the tax year and consists of information relevant to the local taxpayer’s transactions.

Local files include:

  • Business identity and activities of the taxpayer
  • Related and non-related party(s) transaction information
  • Taxpayer’s financial information
  • Application of the arm’s length principle
  • Local entity’s organisation structure
  • Non-financial events or facts that affect the price determination of profit level

Country-by-country report

The CbCR includes the allocation of taxes, income and business activity of each country of the business group.

The CbCR must be available within 12 months after the end of the tax year.

The following information must be prepared:

  • Country name
  • Profit or loss before tax
  • Withheld, collected or self-paid income tax
  • Registered capital
  • Number of employees
  • Accumulated retained earnings
  • Value of tangible assets other than cash

Conditions for master and local files

Master and local files must be prepared by taxpayers who meet one or more of the following criteria:

  • Have a gross revenue of more than IDR 50 billion for the previous tax year
  • Have conducted related-party transactions, in the forms of tangible goods, of more than IDR 20 billion in the previous fiscal year
  • Have conducted related-party transactions for services, interest payments, intangible goods or other related-party transactions, exceeding IDR 5 billion in the previous tax year
  • Conduct transactions with related parties in countries with a lower income tax rate than Indonesia

Conditions for country-by-country reporting documentation

The CbCR must be prepared by taxpayers who meet the following criteria:

  • Taxpayers who are considered as the parent entity of a group with consolidated gross revenue of IDR 11 trillion
  • Non-parent entities may be required to submit the CbCR if the parent entity’s jurisdiction:
    • Does not have an exchange of information agreement with Indonesia
    • Does not make CbCR available to the tax authorities
    • Is not obliged to file CbCR

Requirements for master and local files

The requirements for the master and local files are as follows:

  • Must be prepared within four months after the end of the tax year, but only have to submit the files when the Directorate General of Taxes (DGT) requests them
  • Must be prepared according to the data and information available when the related-party transactions were conducted
  • Must provide a summary of the information included in the master and local file using the Indonesian language, or if approved by the Minister of Finance, a foreign language.
  • Attach a summary and statement letter of the availability of the documents together with the corporate income tax return

Requirements for the country-by-country report

  • Must be submitted at the latest 12 months after the fiscal year-end
  • Must be prepared in accordance with the information available at the end of the tax year
  • CbCR submission receipt needs to be submitted along with the corporate income tax return

Transfer pricing methods in Indonesia

There are five transfer pricing methods in Indonesia, which are:

  • Comparable uncontrolled price (CUP) method
  • Cost-plus method
  • Resale price method
  • Profit split method
  • Transactional net margin method (TNMM)


Possible penalties will be imposed on taxpayers who fail to meet the following conditions:

  • Maintain the master and local files
  • Maintain information related to the CbCR
  • Submit a summary of the information in the master and local file as an attachment to the corporate income tax return
  • Submit the CbCR submission receipt as an attachment to the corporate income tax


Transfer pricing in Indonesia applies the arm’s length principle as the standard method, and the transfer price between two related parties should be the same two unrelated parties. We recommend engaging with Acclime’s accounting and tax services for advice on transfer pricing.

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