Indonesia: New guidance on transfer pricing rules

Firdaus Asikin and Connie Chu, Deloitte Indonesia, Jakarta

Indonesia’s Tax Office (ITO) issued a new regulation (PER-32) on November 11, 2011 that amends and clarifies the transfer pricing rules and brings them more in line with the OECD guidelines. The new rules came into effect on the date of issuance.

PER-32 aims to broaden the scope of the existing regulation on the arm’s length principle as provided in PER-43, which sets out the steps that must be taken by taxpayers engaging in transactions with related parties to demonstrate the arm’s length nature of their transactions. These steps include preparing a comparability analysis, showing how the transfer pricing methods were selected and the arm’s length price (or fair profit) determined, and the formatting of transfer pricing documentation.

One of the key revisions in PER-32 is the shift from requiring a hierarchy of transfer pricing methods to the use of the most appropriate method (similar to the new OECD transfer pricing guidelines). This will give taxpayers flexibility to select the most appropriate method to determine the price of related party transactions, and will enable Indonesia to keep up with international best practices. Other notable changes include the following:

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