Shifting the profit to countries that provide lower taxes or even tax exemptions, have resulted in losses in tax revenues. It has become one of the Indonesian government's concerns in tax matters.

 

Related Party Transactions on Tax Regulations in Indonesia

 

For transfer pricing matters, the Director General of Tax is given the authority to determine a fair price for transfer pricing transactions carried out by taxpayers (Article 18 paragraph 3 of the Income Tax Law). Thus, if a transaction occurs between related parties, the transaction requires special attention and preparation because the tax liability for a transfer pricing transaction is different from an ordinary transaction.

 

This article specifically discusses the terms or conditions that cause a special relationship, in addition to explaining general tax obligations related to transfer pricing.

 

What is meant by a transfer pricing transaction

Transfer pricing transactions are transactions carried out by related parties. Types of transactions include the sale or purchase of tangible / intangible goods, services, interest payments, royalties.

 

What are the obligations of the taxpayer regarding related relationship transactions or transfer pricing?

 

  1. Applying the principles of fairness and business practice

 

Taxpayers or companies that carry out affiliated relationship transactions (transfer pricing) are required to set the transaction price by applying the fairness and business practice principles that are not affected by a affiliated relationship by using the price comparison method between independent parties, the resale price method, the cost-plus method, or other method.

 

Provisions regarding the application of the principles of fairness and business normality are regulated by the Regulation of the Director General of Taxes Number 32 of 2011.

 

  1. Making documentation on the determination of transfer pricing

 

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Taxpayers are required to comply with the provisions of Government Regulation Number 80 of 2007 article 16 regarding maintaining additional documents and / or information to support that transactions made with related parties have been in accordance with the principles of fairness and business norms for 10 years in Indonesia.

 

Additional documents or information related to transfer pricing, namely documentation regarding the determination of transaction prices (“transfer pricing documentation” or “TP Doc”) are regulated in more detail in the Minister of Finance Regulation Number 213 of 2016. The discussion on TP Doc is in another article (please read here ).

 

 

What are the conditions that give rise to an affiliated relationship?

 

The affiliated relationship according to Article 18 Income Tax Law is as follows:

  1. Taxpayers have direct or indirect equity participation of at least 25% (twenty five percent) in other Taxpayers; the relationship between the Taxpayer and the participation of at least 25% (twenty five percent) in two or more Taxpayers; or the relationship between two or more of the latter taxpayers;

  2. Taxpayers control other Taxpayers or two or more Taxpayers are under the same control, either directly or indirectly; or

  3. There is a family relationship, both blood and blood, in a straight line and / or one degree to the side.

 

Affiliated Relationship in the Income Tax Law in Explanation Section

  1. An afiliated relationship between taxpayers can occur because of dependence or attachment to one another due to:

  2. Ownership or equity participation; or

  3. There is control through management or the use of technology.

  4. affiliated relationship between individual Taxpayers can also occur because of blood or marriage relations.

 

Affiliated relationship due to ownership or equity participation

 

An affiliated relationship is considered to exist if there is an ownership relationship in the form of equity participation of 25% (twenty five percent) or more directly or indirectly. 

 

For example, PT A owns 50% (fifty percent) of the shares of PT B. The ownership of shares by PT A is a direct investment.

 

Furthermore, if PT B owns 50% (fifty percent) of the shares of PT C, PT A as the shareholder of PT B indirectly has 25% (twenty five percent) of the shares in PT C. In this case, PT A, PT B, and PT C are deemed to have an affiliated relationship. If PT A also owns 25% (twenty five percent) of the shares of PT D, between PT B, PT C, and PT D is considered to have an affiliated relationship.

 

The ownership relationship as above can also occur between an individual and a body.

 

An affiliated relationship due to control through management or use of technology

 

An affiliated relationship among taxpayers can also occur due to control through management or use of technology even though there is no ownership relationship.

 

An affiliated relationship is considered to exist when one or more companies are under the same control. Likewise, the relationship between several companies that are under the same control.

 

Affiliated relationship between individual Taxpayers can occur due to blood relations or marriage

 

What is meant by "blood family relations in a straight line of one degree" is father, mother, and son, while "blood family relationships in the lineage next to one degree" is brother.

 

What is meant by "marital relation family in a straight line of one degree" are in-laws and stepchildren, while "marital relation family relationship in the lineage to one degree" is a brother-in-law.

 

 

Affiliated Relationship According to the Regulation of the Minister of Finance

Regulation of the Minister of Finance Number 22 of 2020 article 4 also specifies the affiliated relationship as follows:

 

(1) An affiliated relationship is a state of dependence or attachment of one party to another caused by:

a. ownership or capital participation;

b. control; or

c. blood relatives or relatives.

 

(2) A state of dependence or attachment between one party to another is a state of one or more parties:

a. handle the other party; or

b. do not stand free, in running a business or doing activities.

 

(3) An affiliated relationship due to ownership or capital participation is considered to exist if:

a. Taxpayers have a direct or indirect capital contribution of at least 25% (twenty-five percent) on other Taxpayers; or

b. the relationship between the Taxpayer with a minimum participation of 25% (twenty-five percent) in 2 (two) Taxpayers or more; or the relationship between 2 (two) Taxpayers or more mentioned last.

 

(4) An affiliated relationship due to control is considered to exist if:

a. one party controls the other party or one party is controlled by another party, directly and / or indirectly; b. two or more parties are under the control of the same party directly and / or indirectly;

c. there are the same persons directly and / or indirectly involved or participating in managerial or operational decision-making on two or more parties;

d. parties who are commercially or financially known or declare to be in the same business group; or e. one party declares itself to have an affiliated relationship with the other party.

 

(5) An affiliated relationship because of a blood relation or marital relation family is considered to exist if there is a family relationship of both blood and marital relation in a straight lineage and / or to one degree.

transfer-pricing tax pajak

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