Indonesia – Transfer Pricing (2025)

Legal framework and scope

Indonesia’s domestic transfer pricing framework transparently references the Arm’s Length Principle. The primary legal sources include Article 18 para. 3 of Income Tax Law Number 7 Year 2021 (the fifth amendment of Law Number 7 Year 1983) and the Minister of Finance Regulation Number 172 of 2023 (PMK-172/2023, unofficial English translation), supplemented by Director General of Taxes Regulation PER-32/PJ/2011. These instruments determine the scope of the domestic transfer pricing regime, key definitions and documentation obligations.

The rules govern transactions influenced by special relationships, require application of the Arm’s Length Principle and oblige taxpayers to prepare transfer pricing documentation in accordance with PMK-172/2023. The OECD Transfer Pricing Guidelines do not have direct legal force in Indonesia; they are used as an interpretative tool and play a significant role in MAP, APA and treaty-based disputes, but local regulations (e.g., PMK-172/2023 and PER-32/PJ/2011) take precedence where they exist.

Arm’s length principle and the role of the OECD Guidelines

Indonesia requires taxpayers to apply the Arm’s Length Principle. PMK-172/2023 mandates that taxpayers select the most appropriate transfer pricing method based on the nature of the transaction, availability of data and comparability considerations (Article 4 of PMK-172/2023). The OECD Guidelines are accepted as supplementary guidance and are commonly referred to in disputes and advanced pricing arrangements, but they are not legally binding in the absence of domestic regulation. For certain transaction types—commodities, for example—PMK-172/2023 indicates alignment with OECD guidance (paragraphs 2.18–2.22 of the TPG) while prescribing domestic rules where applicable.

Definition of related parties

The domestic definition of related parties is provided in PMK-172/2023, PER-32/PJ/2011 and Article 18 para. 4 of Income Tax Law Number 7 Year 2021. A related party relationship exists when one party has the ability to control or influence another party, directly or indirectly, through: (1) ownership (direct or indirect shareholding ≥ 25%); (2) control through management or family relationship; or (3) special relationship based on economic dependence. Specifically, direct or indirect ownership of at least 25% in another taxpayer creates related-party status; two or more taxpayers are related if they are directly or indirectly owned by the same party that holds at least 25% in each entity. Management control and family relationships (blood or marriage up to the second degree) are included. Additionally, economic dependence—such as exclusive supplier/buyer relationships or financing arrangements—can establish relatedness even absent ownership or managerial control.

Methods and selection criteria

PMK-172/2023 and PER-32/PJ/2011 list and permit methods aligned with the OECD. Indonesia explicitly prescribes five OECD-consistent TP methods: Comparable Uncontrolled Price (CUP), Resale Price Method (RPM), Cost Plus Method (CPM), Transactional Net Margin Method (TNMM) and Profit Split Method (PSM). The domestic framework also allows alternative methods such as tangible and intangible asset valuation and business valuation methods where justified. The criterion for method selection is the “most appropriate method” (Article 4 of PMK-172/2023 and PER-32/PJ/2011); traditional transaction-based methods (CUP, RPM, CPM) are preferred to profit-based methods (TNMM, PSM) when reliable data is available. TNMM is the most commonly applied method in practice, CUP is preferred when high-quality comparables exist (particularly for commodities), and Profit Split is used in complex factual scenarios.

Comparability and ranges

Indonesia largely follows the OECD’s Chapter III guidance on comparability. PMK-172/2023 identifies the economically relevant characteristics to determine an arm’s length price: contractual terms (written or unwritten), functions performed/assets used/risks assumed by each party, product or service characteristics, economic circumstances, and business strategies pursued (Article 7 Paragraph 1 and Article 8 Paragraph 3 of PMK-172/2023). The comparability analysis proceeds through stages: understanding the tested controlled transaction, identifying reliable independent comparables, determining the party whose price indicators are tested for profit methods, identifying differences between the tested transaction and comparables, making appropriate adjustments to eliminate material effects of differences, and selecting the comparables (Article 8 Paragraph 3).

There is a preference for domestic comparables when more than one external comparable has the same level of comparability and reliability: comparables originating from the same country or jurisdiction as the tested party should be selected (Article 8 Paragraph 9 of PMK-172/2023). Use of secret comparables is not explicitly prohibited by regulation, but in practice secret comparables are not used in audits, litigation or dispute settlement. PMK-172/2023 allows the use of arm’s length point or arm’s length range; Article 12 specifies that a range can be a minimum-to-maximum (full range) if only two comparables exist, or an interquartile range (Q1–Q3) when three or more comparables are available. Comparability adjustments are required when differences materially affect price indicators (Article 8 Paragraph 3 of PMK-172/2023).

Documentation and reporting

PMK-172/2023 requires taxpayers to prepare and retain transfer pricing documentation consisting of a master file, local file and country-by-country report (CbCR) (Article 16 paras (1) and (2) of PMK-172/2023). Exemption thresholds are established in Article 16: a taxpayer is exempt from documentation if any of the following apply: (a) annual gross turnover in the preceding taxable year does not exceed IDR 50 000 000 000; (b) annual value of related party transactions in the preceding taxable year does not exceed IDR 20 000 000 000 for tangible goods transactions, or does not exceed IDR 5 000 000 000 for each of service provision, interest payment, utilization of intangible goods, or any other related party transactions; or (c) the taxpayer has no related party transactions in jurisdictions with income tax rates lower than those referred to in Article 17 of the Income Tax Law (Tax Harmonization Law Number 7 of 2021 sets the updated rates).

Timing and language requirements are set out in Article 18 of PMK-172/2023: master file and local file must be available within four months after the fiscal year end; the CbCR must be available within 12 months after the fiscal year end. Submission: master file and local file are to be produced upon request by the Directorate General of Taxes (DGT); the CbCR must be submitted electronically together with the submission of the subsequent year’s tax return, at the latest 12 months after the fiscal year end. Transfer pricing documentation must be prepared in the Indonesian language unless permission is obtained from the Minister of Finance to use a foreign language.

Penalties and compliance incentives are provided. PMK-172/2023 (Article 28) sets out sanctions for failure to submit or late submission of the CbCR: the annual tax return is considered incomplete under Article 3 paragraph (7) of the General Provisions and Tax Procedures Law and a penalty of IDR 1 000 000 applies pursuant to Article 7 paragraph (1) of the General Provisions and Tax Procedures Law. If following written warnings and inspection a transfer pricing correction is made, an Underpaid Tax Assessment Letter will be issued with an increase of 50% under Article 13 paragraph (1) jo. Article 13 paragraph (3) of the General Provisions and Tax Procedures Law.

There is no general exemption from documentation for taxpayers that have an APA; in fact the current APA regulation requires taxpayers to prove APA compliance through transfer pricing documentation.

Safe harbours and other simplification measures

Indonesia does not provide general safe harbours or broad simplification measures for particular industries or transaction types in the domestic TP framework. While simplified approaches (such as the low value-adding services simplification) are used as reference in dispute resolution by applying OECD guidance, PMK-172/2023 has not established a national LVAS regime. The simplified and streamlined approach for baseline marketing and distribution activities from the TPG is under consideration and evaluation in Indonesia; there is no regulation implementing it as of the profile date. Indonesia has stated that it would respect the outcome of the simplified and streamlined approach when applied by a covered jurisdiction in accordance with the Inclusive Framework political commitment, but no formal rules or policy announcements have been issued as of February 2025.

APAs and MAP; procedures and timing

Indonesia allows Advance Pricing Agreements (APAs) and offers unilateral, bilateral and multilateral APAs (Article 55 of PMK-172/2023). APAs are explicitly envisaged as suited to address complex matters including Hard-to-Value Intangibles. For dispute prevention and resolution, the available mechanisms include rulings, APAs and Mutual Agreement Procedures (MAP). The OECD Map Profile for Indonesia contains further operational details; PMK-172/2023 itself does not set uniform statutory timeframes for all APA and MAP proceedings in the country profile text.

Secondary adjustments, year-end adjustments and other administrative procedures

PMK-172/2023 addresses secondary adjustments: Article 37 specifies that a discrepancy between the value of a transaction influenced by a special relationship that does not comply with the Arm’s Length Principle and the value that does comply constitutes an indirect distribution of profits to an affiliated party and is treated as dividends, subject to income tax under applicable laws and regulations. Article 40 provides that corresponding adjustments are performed through the Mutual Agreement Procedure; however, a domestic corresponding adjustment is possible where the counterparty is a domestic taxpayer and the transaction has been adjusted by the tax auditor.

Indonesia does not have specific transfer pricing provisions that mandate year-end adjustments; the tax system operates under self-assessment (Article 4 of the General Provisions and Tax Procedures Law), and PMK-172/2023 indicates that the Arm’s Length Principle shall be applied at the time the transfer price is determined or when the transaction influenced by a special relationship occurs (ex ante) (Article 4 of PMK-172/2023). Regarding the statute of limitations, Article 13(1) of Law No. 6 of 1983 on General Provisions and Tax Procedures (UU KUP), as amended by Law No. 7 of 2021 on the Harmonization of Tax Regulations, provides a five-year period for issuance of tax assessments, including transfer pricing adjustments. Consequently, the tax administration generally cannot make adjustments in open years that relate to amounts pertaining to closed years beyond the statutory period.

Hard-to-Value Intangibles (HTVI)

Indonesia does not currently have specific HTVI provisions. PMK-172/2023 does not establish a formal HTVI regime, though it requires a preliminary stage for intangible transactions (Article 8 of PMK-172/2023) where taxpayers must substantiate: existence of the intangible (economically and legally), type, value, legal owner, economic owner, explanation on use or right to use, parties contributing to development/enhancement/maintenance/protection/exploitation, and economic benefits from use. In practice, Indonesia applies the OECD TPG when addressing tax disputes involving HTVI and permits the use of bilateral or multilateral APAs (Article 55 of PMK-172/2023) to obtain ex ante certainty. PMK-172/2023 requires documentation to be prepared based on information available at the time of the transaction (Article 17) to mitigate hindsight, but it does not set out further specified administrative measures explicitly designed to prevent hindsight (such as formal training programs or guidance notes).

Intra-group services and cost contribution arrangements

For intra-group services, PMK-172/2023 requires taxpayers to demonstrate that the service was delivered and received, that the service was required by the recipient, that it provided economic benefits, that it was not an activity undertaken for shareholders’ benefit or a passive association benefit, that it did not duplicate the recipient’s own activities, that it was not an incidental-benefit service, and for on-call services that the service cannot be obtained immediately from an independent party without an existing on-call contract (Article 13 Paragraph 1 of PMK-172/2023). Indonesia allows Cost Contribution Arrangements and follows guidance consistent with Chapter VIII of the OECD TPG: PMK-172/2023 requires proof that the arrangement is entered into on terms consistent with arrangements between independent parties, is required by the parties, and provides economic benefits to the parties (Article 13 para 8).

Financial transactions and other rules

PMK-172/2023 contains specific guidance for financial transactions, including loans and borrowing costs (Article 13 para 4) and other financial transactions (Article 13 para 5). For loans, taxpayers must demonstrate the transaction’s form is consistent with substance, that the borrower required the loan, that the loan was used to obtain/maintain/collect income under the income tax law, and that standard loan characteristics exist (creditor recognition, maturity date, obligation to repay principal, scheduled payments for principal and yield, ability to obtain financing from independent creditors and repay as an independent borrower would, existence of covenants and legal ramifications for default, and the lender’s right to claim). For other financial transactions, documentation should support conformity with substance, transaction type, economic and legal recognition, motives and economic rationale, and expected benefits.

Beyond transfer pricing rules, the Director General of Taxes has authority to reclassify debt as equity, which may render interest non-deductible and recharacterize payments as dividends. Indonesia historically applied thin capitalization guidance via Minister of Finance Regulation Number 169/PMK.10/2015 and is transitioning toward earnings-stripping limitations (net interest/EBITDA threshold) in accordance with BEPS Action 4.

Permanent establishment profit attribution

Most of Indonesia’s income tax treaties (71 treaties) contain Article 7 as it read before 2010. Indonesia does not apply the Authorized OECD Approach (AOA) for PE profit attribution in its treaties. Instead, the domestic approach and treaty practice apply three principles set out in Income Tax Law Article 5 paragraph 1 and in tax treaties: attribution of income from assets owned or controlled by the PE; the force of attraction principle where head office profits from sales of the same type as those conducted by the PE in the source country are attributable; and effectively connected income, where head office income is taxable if there is an effective connection to assets or activities of the PE.

Other relevant information and ongoing developments

PMK-172/2023 represents the modernized domestic TP framework; Indonesia continues to develop supportive guidance and is evaluating the implementation of simplified approaches for baseline marketing and distribution activities. The country is moving from thin capitalization rules toward an earnings-stripping limitation aligned with BEPS Action 4. No separate domestic HTVI regime exists as of the profile date, but APAs are available and the OECD Guidelines are used in dispute resolution.

Conclusion

Indonesia’s transfer pricing regime is comprehensive and aligned with the OECD framework in substance. PMK-172/2023 and PER-32/PJ/2011, together with the updated Income Tax Law (Law Number 7 of 2021), set out definitions of related parties, the requirement to apply the arm’s length principle, method selection rules (most appropriate method with preference for traditional methods when reliable), comparability analysis requirements with mandatory adjustments where material, detailed documentation obligations (master, local, CbCR) with specified timing and language rules, and sanctions for non-compliance. The OECD Guidelines function as an important interpretative tool in APAs and MAPs, but local regulations prevail where specific domestic rules exist. Certain areas remain under evolution, including earnings stripping implementation and consideration of simplified approaches for routine distribution and marketing activities.

References

For further information on the Indonesia country profile and OECD transfer pricing country profiles, see https://www.oecd.org/en/topics/sub-issues/transfer-pricing/transfer-pricing-country-profiles.html