Transfer Pricing Documentation | Transfer Pricing and International Tax Services
SAJ Consulting – In an era of heightened tax transparency and intensified transfer pricing scrutiny, poorly prepared documentation can expose multinational groups to significant tax adjustments and penalties. Robust Master File and Local File documentation is no longer a mere compliance exercise—it is a strategic safeguard for defending transfer pricing positions.
Transfer pricing documentation plays a critical role in demonstrating that related-party transactions are conducted in accordance with the arm’s length principle, as required under both the OECD Transfer Pricing Guidelines and Indonesian tax regulations. For multinational enterprise (MNE) groups operating in Indonesia, well-prepared documentation is not only a statutory obligation, but also an essential risk management tool.
The Master File provides a high-level overview of the MNE group’s global business, including its organizational structure, value chain, intangibles, intercompany financing arrangements, and overall transfer pricing policies. This document is designed to give tax authorities a clear understanding of how value is created within the group and how profits are allocated across jurisdictions. Consistency between the Master File and group-level transfer pricing policies is essential to mitigate the risk of challenges during tax audits.
The Local File, on the other hand, focuses on the Indonesian entity’s related-party transactions. Its preparation involves a detailed functional, asset, and risk (FAR) analysis to accurately characterize the tested party and the nature of each controlled transaction. Based on this characterization, the most appropriate transfer pricing method is selected and applied in line with OECD guidance, taking into account the availability and reliability of comparable data.
SAJ Consulting – Your Best Partner | Transfer Pricing Services
A key component of the Local File is the benchmarking and economic analysis, which includes the identification of comparable independent companies or transactions, quantitative screening, and the determination of an arm’s length range. This analysis supports the pricing outcomes and provides objective evidence that intercompany transactions are consistent with market conditions.
Overall, well-prepared transfer pricing documentation enhances transparency, supports tax positions, and strengthens a taxpayer’s defense in the event of tax audits or disputes. By aligning documentation with OECD standards and Indonesian regulations, taxpayers can effectively manage transfer pricing risks while meeting their compliance obligations.
