Tax authority will monitor affilated transactions

JAKARTA. Ministry of Finance will prevent tax manipulation through transfer pricing. The Minister of Finance Regulation No 213/PMK.03/2016, which started taking effect on 1 January 2017, requires any document related to transactions of affiliated companies to be completely reported to the government.

Subsequently, tax authority will compare the documents with the similar transactions of non-affiliated companies. Based on the comparison, the tax authority can estimate the appropriateness of a transaction price, as well as prevent transfer pricing. Understandably, to date, some companies have conducted transfer pricing for tax evasion.

However, the regulation only affects to transaction of goods worth above Rp 20 billion, as well as service provision and interest payment worth at minimum Rp 5 billion.

Director of Counseling, Services, and Public Relations of Directorate General of Taxation Hestu Yoga Saksama said, the regulation will facilitate tax audit, as well as the audit on the fairness of transaction price.

So far, some major business groups remain unclear about this regulation. “I have not heard about this regulation,” said Senior Corporate Affairs Manager of Musim Mas Group Togar Sitanggang.

Executive Director of Center for Indonesia Taxation Analysis (CITA) Yustinus Prastowo assessed that the regulation can mitigate the risks of transfer pricing. “To date, many companies used tax pricing mechanism for tax evasion,” he said. The minister regulation has strengthened the legal basis to prevent the transfer pricing, mainly in terms of the threshold, details of documents, as well as the penalty.

Tax observer at DDTC Bawono Kristiaji said, the manipulation of transfer pricing is the most dominant tax avoidance scheme. To date, the format of documentation only required each entity to report transaction fairness with affiliated party, without required the information about the group or the information about affiliated entities in other countries.

The new regulation also revised the threshold for creating documentations. Previously, this obligation only affected to a taxpayer, who has special transactions connections abroad with a threshold of Rp 10 billion.

Now, the threshold is estimated based on the gross turnover criteria, as well as based on a more specific transaction value. The document also must be written in Indonesian. “This to protect minor taxpayers from large administrative burden,” he said. (Muhammad Farid/translator)

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