Wednesday, November 26, 2008

Transfer Pricing in Indonesia after 2008

In the latest amendment of Income Tax Law this year, eventually the government, as we could see in article 18, acknowledges transfer pricing methods: (i)comparable uncontrolled price method, (ii)resale price method), (iii)cost plus method, (iv)profit split method, and (v)transactional net margin method. Previously, these methods were mentioned in ‘outdated’ circular letter that predates the Income Tax Law 1994 and it could also be questioned since circular letter is binding merely for the tax authority.

The amendment also explains the Advance Pricing Arrangement, purchase through special purpose company (SPV), and the use of conduit company. Nevertheless, further details would be regulated by a decree of Finance Minister. It should be noted that a decree might need review and receive feedback before it could be applicable for the taxpayers. Furthermore, we need to see whether the government, after the amendment, would be more strict in transfer pricing practice for multinational companies since the transfer pricing practice in Indonesia is commonly accused as a means for transferring profit to low tax jurisdiction out of Indonesia

No comments: