Disputes regarding transfer pricing often occur over differences in determining a reasonable transfer price between taxpayers and Directorate General of Tax. Corrections on prices or profits which then will have an impact on the taxpayer’s turnover or net profit from determining the fair transfer price by DGT are commonly called primary adjustments.
Since the enactment of PMK 22 of 2020, new impacts have emerged on the determination of reasonable transfer prices by DGT, which are often called secondary adjustments. Secondary adjustment is a further correction applied to corrections in determining the selling price or profits obtained by taxpayers from affiliated transactions, where the difference between the fair price and the transfer price which is considered non Arm’s Length by the DGT, is considered a dividend which is the object of PPh Article 26 tax.
This is explained in Article 22 paragraph 8 PMK 22 of 2020:
“Difference between the value of Affiliated Transaction that are non Arm’s Length Principle with Affiliated Transaction that are following Arm’s Length Principle is considered as a dividend which subjected to Tax Income by regulation in the field of taxation.”
Many experts believe that secondary adjustments does not need to be imposed because the legal basis is not strong enough and gives rise to double taxation. TBrights has also made an article about this:
However, since the enactment of PMK 172 of 2023, it is now expressly regulated that secondary adjustments cannot be imposed if the taxpayer agrees to the primary adjustment and/or there is an addition and/or return of cash or cash equivalents in the amount of the difference, this is written in Article 37 paragraph (4):
“The provisions as intended in paragraph (1) do not applies, in the case of:
a. cash additions and/or returns occur or cash equivalent of the difference as stated referred to in paragraph (1); and/or
b. Taxpayer approves Transfer Pricing Determination by the Director General of Taxes as follows referred to in Article 36 paragraph (6).”
By firmly stating in the Article 37 PMK 172, DGT has provided clear legal certainty regarding secondary adjustments, and it is hoped that no more disputes regarding adjustments will arise.
If you want to have more detail information, please contact TBrights
By Olina Rizki Arizal – Partner TBrights
TBrights is a tax consultant in Indonesia which currently is an integrated business service in Indonesia providing comprehensive tax and business services
