The implementation of Minister of Finance Regulation (PMK) No. 172 of 2023 introduces a new paradigm in preparing Transfer Pricing Documentation (TP Doc), aligned with the digital transformation of tax administration through CTAS. The regulation emphasizes that transfer pricing must be determined at the outset of a transaction (ex-ante), with separate testing for each type of affiliated transaction. The Benefit Test requirement is reinforced to ensure that services, intangibles, financing, and other transactions are genuinely provided and deliver real economic benefits. PMK 172 also introduces three new valuation methods that enhance the accuracy of comparability analysis. TP Doc is now required to be available within strict deadlines for the Master File, Local File, and CbCR. The role of transfer pricing experts becomes increasingly critical in ensuring both material and formal compliance while mitigating tax dispute risks. High-quality documentation serves not only as a compliance tool but also as an essential fiscal defense that supports long-term business sustainability.
The Implementation of MoF 172 Year 2023 in the Preparation of Transfer Pricing Documentation
Along with the digital transformation of tax administration through the Core Tax Administration System (CTAS) as outlined in the previous article, the corporate tax compliance aspect is now not only limited to reporting Notification Letters (“SPT”) but also includes affiliate transaction documentation known as Transfer Pricing Documentation (TP Doc).
In an increasingly integrated global business environment, transactions between companies within a business group have become commonplace, making it crucial to determine fair and accountable prices to ensure compliance with tax regulations.
The preparation of TP Doc today cannot be separated from the use of information technology.
Taxpayers use various global tax databases to obtain comparative data in determining the fair price (arm’s length price). Access to this comparative data allows companies to conduct comparative analysis in a more objective, measurable, and in accordance with international best practices.
The use of financial analysis software, benchmarking tools, and internationally recognized commercial databases has become standard in the process of preparing TP Doc. This is in line with the principles of fairness and business prevalence adopted globally to ensure that transactions between parties that have a special relationship are carried out reasonably (arm’s length) as well as transactions that occur between independent parties.
The issuance of new regulations regarding Transfer Pricing Documentation (TP Doc) through the Minister of Finance Regulation (MoF) Number 172 Year 2023 dated December 29, 2023, which replaces the old provisions of MoF Number 213 Year 2016, confirms and changes a new paradigm in the application of the principles of arm’s length in transactions influenced by special relationships, including in preparing and compiling TP Doc reports for the 2024 tax year and subsequent years.
The new regulation emphasizes that the principles of arm’s length must be applied at the time of determining the transfer price or at least when the transaction is carried out between the Taxpayer and the affiliated party (ex-ante) and must be tested separately for each type of affiliate transaction. Aggregate testing is provided to the extent that transfer pricing testing cannot be reliably and accurately performed for affiliate transactions that are interrelated or affect each other.
The Importance of Benefit Test
Article 4 paragraph (5) in MoF 172 Year 2023 stipulates that the preliminary stages in the TP Doc report must be prepared from the 2024 tax year onwards. In general, this preliminary stage is necessary if the Taxpayer conducts transactions in the form of services, use of intangible assets, loans and borrowings, transfer of assets, cost restructuring, cost contribution agreements, and other uses other than transactions of buying and selling goods with parties who have a special relationship.
In this preliminary stage, the Taxpayer is obliged to provide evidence that the affiliate transactions have been carried out, are necessary, provide economic benefits, and are not duplicated.
Latest Testing Methods
In addition to the preliminary stages, there are three new transfer pricing methods in MoF 172 Year 2023 in addition to the previous five methods, namely the comparable uncontrolled transaction method, the tangible asset and/or intangible asset valuation method, and the business valuation method.
When Transfer Pricing Documentation Should Be Available
The fairness test of the special relationship transaction must be carried out at the time of determination of the transfer price and/or at the time of the transaction, based on actual conditions. Taxpayers are obliged to apply the principles of fairness and business practice in fulfilling tax obligations.
The TP Doc must be available when:
- Master Files and Local Files: available a maximum of four months after the end of the tax year (e.g. for tax years ending December 31, 2025, documents must be available by April 30, 2026).
- Country-by-Country Reporting: available a maximum of twelve months after the end of the tax year. (example: for tax years ending December 31, 2025, the documents must be available by December 31, 2026).
In addition, Taxpayers who have affiliate transactions are required to prepare an Overview of Master File and Local File which must be attached together in the reporting of the Annual Corporate Income Tax Return.
In practice, the involvement of Transfer Pricing Experts or tax consultants who specialize in the field of TP is very important to avoid fundamental errors in the preparation of TP Doc. Errors in the selection of methods and functional analysis, as well as in the selection of comparative data can have a significant impact on fiscal corrections during tax audits.
Tax consultants also help ensure that the documentation prepared meets the formal and material requirements in accordance with applicable regulations. In addition, the use of consulting services allows companies to obtain a more comprehensive and well-documented analysis as a measure to mitigate tax risks.
In the event of a dispute between the Taxpayer and the tax authorities, the role of the Transfer Pricing Specialist is crucial in providing technical assistance, drafting economic arguments, and providing accountable comparative analysis. The TP Doc that is appropriately prepared not only functions as a compliance document, but also as a self-defence tool in the process of tax audits and litigation.
Compliance in the preparation of Transfer Pricing Documentation will ultimately help Taxpayers carry out their tax obligations in an orderly and measurable manner. With reliable and compliant documentation, companies can minimize the risk of tax disputes and focus more on developing their core business without being distracted by the uncertainty of tax administration in the future.
TP Expert at SW Tax Consulting uses a database provided by TP Catalyst. This database is aligned with the one used by Indonesian tax authorities so that data can be compared and validated together. However, technology is just a tool. Far more important in preparing the Transfer Pricing documentation is an understanding of the client’s business, business model and cost structure, as well as how to utilize technology to achieve optimal tax compliance.
