Tax authority will prevent transfer pricing

JAKARTA. Directorate General of Taxation will require every company, which has specific amount of turnover, to prepare supporting documents to uphold Minister of Finance Regulation on the scheme of transfer pricing.

Director of Counseling, Services, and Public Relations at Directorate General of Taxation Hestu Yoga Saksama said, those documents have to be submitted as examination evidence along with master document and local document. The documents include local file, master file, and country by country report (CbCR).

According to Yoga, a company, which has special relations with companies abroad, has to prepare CbCR so that tax authority can examine the company’s value of fairness. Yoga continued, the documents can be evidences should a dispute occur.
The documents comprise consolidated financial statements of the group, including the statements on how the company allocated its costs in various countries.

Director of International Taxation at Directorate General of Taxation John Hutagaol added, this policy is part of taxation reform, which is being prepared by the government. This regulation tightening is part of international community spirit to implement the era of information.

Therefore, government will consolidate domestic regulations to accommodate four minimum standards, which are declared under Base Erosion and Profit Shifting (BEPS). Those four standards include harmful tax practices, treaty abuse, transfer pricing documentation, and dispute resolution. “Our law and Minister of Finance Regulation should accommodate those four standards,” he said.

Big potentials

Observer at Center For Taxation Analysis (CITA) Yustinus Prastowo said, to date there is no exact data on state loss of transfer pricing. This was because of the lack of comparison data when disputes occurred.

Yustinus said international tax avoiding has large potentials of tax revenues. The detail regulations and clear requirements will allow Directorate General of Taxation can prevent tax avoiding. “The potentials of tax revenues can reach as much as Rp 25 trillion,” he said.

Yustinus added that usually transfer pricing involves tangible and intangible goods. The tangible goods include vehicle, cell phone, and others. “But now we have to concern on intangible assets, such as royalty, interests, and others,” he said.

Yustinus said, transfer pricing transaction mechanism is usually conducted by affiliated companies to reduce the profits so that tax and dividend payments will be lower.

According to Yustinus, the transfer pricing modus may involve selling and buying prices, overhead cost, shareholder-loan interests, and the sales through special purpose company, and others. (Muhammad Farid/Translator)