JAKARTA, DDTCNews – By the end of January 2024, the DDTC Indonesian Tax Manual (DDTC ITM) has undergone comprehensive updates, featuring enhanced and current content.
A concise overview of biweekly updates on Indonesian tax regulations, DDTC ITM is featured on Perpajakan the DDTC platform. As of 1 February 2024, DDTC ITM encompasses 13 chapters and over 90 subchapters.
Access to DDTC ITM is freely available at https://perpajakan.ddtc.co.id/publikasi/tax-manual/.
The latest changes pertain to Chapter 6, entitled International Tax & Transfer Pricing, in line with the implementation of the Minister of Finance Regulation Number 172 of 2023. This chapter delves into various key points.
First, there is uniformity in the application of the Arm's Length Principle (ALP) for both domestic transfer pricing and cross-border transfer pricing under MoF Reg. 172/2023.
Pursuant to prior provisions, however, it is noteworthy that the transactions subject to the ALP testing include controlled transactions and transactions influenced by such a special relationship.
Second, MoF Reg. 172/2023 includes provisions on corresponding adjustments for domestic transfer pricing.
To apply for corresponding adjustments, resident taxpayers subject to transfer pricing corrections by the Directorate General of Taxes (DGT), must consent to the DGT’s transfer pricing and file no legal measures against the notice of tax assessment (surat ketetapan pajak, hereinafter referred to as SKP) concerning the DGT’s transfer pricing.
Corresponding adjustments may be implemented through various mechanisms, including the rectification of the Annual Tax Return, issuance of the SKP or rectification of the SKP ex officio. Notably, the taxpayer constituting the counterparty is to initiate the corresponding adjustments.
Third, secondary adjustments are implemented to restore a company’s financial position following transfer pricing corrections by the Directorate General of Taxes (DGT).
The discrepancy between the transaction value not in compliance with the ALP and that adhering to the ALP is deemed an indirect distribution of profits to affiliated parties treated as dividends.
The validity of secondary adjustments, however, may be compromised if the taxpayer repatriates funds and/or agrees to the transfer pricing determined by the DGT.
Fourth, the DGT is authorised to adjust the selling or replacement price influenced by special relationships as a basis for calculating VAT payable if the price falls below the arm; market price.
Specific conditions must be satisfied for these adjustments, i.e. the transfer pricing by the DGT may be allocated to each transaction involving a supply of taxable goods (barang kena pajak, hereinafter referred to as BKP) or taxable services (jasa kena pajak, hereinafter referred to as JKP).
The adjustments of the selling price or consideration do not lead to input VAT adjustments for taxable persons for VAT purposes (pengusaha kena pajak, hereinafter referred to as PKP) constituting buyers of BKP or recipients of JKP. This is due to the absence of documents that may serve as a basis for input VAT crediting.
Fifth, the provisions on Transfer Pricing Documentation (TP Doc) in Indonesia under MoF Reg. 172/2023 remain largely consistent with the former regulation.
Two recent provisions, however, require taxpayers’ attention, namely the taxpayers’ obligation to prepare TP Doc within one month from the DGT’s request.
Further, there are distinct provisions concerning the tax year used in determining the turnover threshold value for taxpayers obligated to maintain a Country-by-Country Report (CbCR) under MoF Reg. 172/2023 compared to the former regulation, i.e. MoF Reg. 213/2016.
Under MoF Reg. 172/2023, taxpayers constituting parent entities for business groups with a turnover exceeding the IDR11 trillion threshold in the tax year prior to the reported tax year are mandated to maintain a Country-by-Country Report (CbCR).
Sixth, in the resolution of cross-border transfer pricing and corresponding adjustment disputes, taxpayers may apply for the Mutual Agreement Procedure (MAP).
The updates of MoF Reg. 172/2023 stipulate the Mutual Agreement Decision Letter (Surat Keputusan Persetujuan Bersama, hereinafter referred to as SKPB), which constitutes the basis for tax refunds or collection.
If for a taxpayer, an SKPB is issued following the issuance of an objection decision, appeal decision, and/or civil review decision, the basis for the imposition of administrative penalties in the notice of tax collection (surat tagihan pajak, hereinafter referred to as STP) also considers the amount of tax specified in the SKPB.
Seventh, MoF Reg. 172/2023 adds a new type of Advance Pricing Agreement (APA), i.e. the multilateral APA. The update also stipulates the follow-up to the administrative penalties arising from APA implementation.
If the Annual Tax Return has been filed during the APA period or roll-back, the director general of taxes has not conducted an audit and there is an income tax underpayment calculated as per the APA agreement, the taxpayer is required to perform rectification. Penalties arising from the rectification shall be nullified.
However, if during the APA period or roll-back, the Annual Tax Return for that period is being audited, the DGT will issue the SKP, taking into account the agreement stipulated in the decision letter on the implementation of APA.
If an SKP has been issued for a tax year within the APA period, the DGT will rectify the SKP ex officio, taking into account the agreement.
Administrative penalties arising from the SKP or rectification to the SKP are also nullified by the Director General of Taxes pursuant to the General Provisions and Tax Procedures Law.
Committed to assisting taxpayers, DDTC ITM is continuously updated in line with the latest developments in Indonesian tax regulations.
The goal is for DDTC ITM to serve as a reliable and up-to-date reference for all stakeholders seeking a comprehensive understanding and compliance with various tax regulations and provisions in Indonesia.
For further information on the aforementioned tax regulation updates, kindly visit DDTC ITM through the following link: https://perpajakan.ddtc.co.id/publikasi/tax-manual.
For inquiries, feel free to contact DDTC via WhatsApp at 0813-8080-4136 or email at [email protected]. (rig)
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