Indonesia revises tax rules to combat transfer pricing – official

JAKARTA, Jan 9 (Reuters) – Indonesia has revised tax rules for transfer pricing documentation to match global standards and curb practices of tax avoidance, an official with the tax office said on Monday.

A finance minister’s decree signed last year, but only made available to the public last week, called for big global firms doing cross-border transactions with affiliates to prepare transfer pricing documents detailing global structure and payments.

"This is so taxpayers can explain to the tax office that its special transaction with an affiliate is still within fair boundaries," John Hutagaol, who heads the international department at the finance ministry’s tax office, told reporters.

The decree rules that a multinational group with annual consolidated turnover of not less than 11 trillion rupiah ($822.74 million) must prepare what the tax office called a country-by-country report, on top of some files on local businesses.

The report should detail how much tax the group pays in each country in which it operates, what kind of business it does, its turnover, balance sheets and global structure, the regulation says.

The group must also prepare what the tax office called a master file and a local file, which should include its Indonesian company’s structure, business activity, assets and other financial files that can explain its transactions.

The documents can be kept by the firm, but must be made available to authorities upon request, Hutagaol said.

He said hundreds of multinational companies operating in Indonesia would be impacted by the rules, which took effect at the beginning of 2017.

The country-by-country documentation of transfer pricing is endorsed by the Organisation for Economic Co-operation and Development (OECD) as part of an action plan for combating practices of base erosion and profit shifting.

As of December 7, 2016, the OECD said 50 countries, including emerging markets like Brazil, China, India and South Africa, had signed agreements on the exchange of such reports.

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Indonesia is offering a tax amnesty programme to settle previous tax avoidance in exchange for some penalties. The programme ends in March.

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