Navigating the new era of transfer pricing and international taxation in Indonesia
Navigating the new era of transfer pricing and international taxation in Indonesia
The regulatory landscape for corporate taxation in Indonesia is undergoing an unprecedented transformation, compelling multinational groups to radically re-evaluate how they manage cross-border, affiliated-party arrangements. The implementation of Ministry of Finance Regulation No. 172 of 2023 (PMK-172) continues to reshape the transfer pricing landscape across the jurisdiction. Historically viewed as a retrospective compliance exercise, transfer pricing in Indonesia has now evolved into a sophisticated mechanism requiring proactive strategic oversight.
The shift to ex ante analysis and business substance
Under the current regime, the Indonesian Tax Authority now expects taxpayers to conduct comprehensive transfer pricing analyses before affiliated transactions actually occur - an explicitly ex ante approach - rather than merely preparing documentation at the year-end. This marks a major shift in paradigm. Transfer pricing can no longer be approached as a yearly compliance formality: it must be treated as a core element of strategic business risk management.
Concurrently, the Tax Authority is increasingly focusing on complex intercompany transactions such as intragroup loans, royalties and management fees, whilst heavily emphasising the ‘substance over form’ principle. As a result, taxpayers must be equipped to demonstrate not only legally flawless documentation, but also clear business purposes and strong commercial justification behind related-party transactions.
In today’s rigorous audit environment, failures in this area carry severe financial consequences. Transfer pricing adjustments can trigger secondary adjustments treated as constructive dividends, creating additional withholding tax exposure and substantially increasing tax uncertainty for multinational groups.
The Pillar Two framework and global tax governance
At the same time, Indonesia is entering a new era of international taxation through the implementation of the OECD Pillar Two Global Minimum Tax framework, further strengthened domestically by PER-6/PJ/2026. This recent regulation introduces strict technical reporting obligations for the Global Anti-Base Erosion (GloBE) rules, including mandatory Global information returns and Domestic minimum top-up tax reporting.
Consequently, transfer pricing can no longer be managed in a silo. Large corporate groups must now carefully align their transfer pricing policies with global effective tax rate calculations, Pillar Two exposure and broader tax governance strategies. Tax authorities are no longer assessing only whether transaction prices are at arm’s length, but are actively auditing whether profits are being systematically shifted to low-taxed jurisdictions or entities.
In this increasingly complex environment, Advance Pricing Agreements (APAs) and Mutual Agreement Procedures (MAPs) have become essential tools to provide legal certainty, mitigate double taxation risks and support sustainable cross-border business operations
How BDO can help your company
At BDO, we understand that managing these multi-layered international tax obligations requires a cohesive, forward-looking strategy. Our dedicated team of tax professionals is perfectly positioned to assist your company in navigating this intricate regulatory shift. We can help you transition smoothly to an ex-ante model by structuring and analysing your affiliated-party transactions before execution, ensuring they align fully with PMK-172 requirements and possess robust commercial substance.
The shift to ex ante analysis and business substance
Under the current regime, the Indonesian Tax Authority now expects taxpayers to conduct comprehensive transfer pricing analyses before affiliated transactions actually occur - an explicitly ex ante approach - rather than merely preparing documentation at the year-end. This marks a major shift in paradigm. Transfer pricing can no longer be approached as a yearly compliance formality: it must be treated as a core element of strategic business risk management.
Concurrently, the Tax Authority is increasingly focusing on complex intercompany transactions such as intragroup loans, royalties and management fees, whilst heavily emphasising the ‘substance over form’ principle. As a result, taxpayers must be equipped to demonstrate not only legally flawless documentation, but also clear business purposes and strong commercial justification behind related-party transactions.
In today’s rigorous audit environment, failures in this area carry severe financial consequences. Transfer pricing adjustments can trigger secondary adjustments treated as constructive dividends, creating additional withholding tax exposure and substantially increasing tax uncertainty for multinational groups.
The Pillar Two framework and global tax governance
At the same time, Indonesia is entering a new era of international taxation through the implementation of the OECD Pillar Two Global Minimum Tax framework, further strengthened domestically by PER-6/PJ/2026. This recent regulation introduces strict technical reporting obligations for the Global Anti-Base Erosion (GloBE) rules, including mandatory Global information returns and Domestic minimum top-up tax reporting.
Consequently, transfer pricing can no longer be managed in a silo. Large corporate groups must now carefully align their transfer pricing policies with global effective tax rate calculations, Pillar Two exposure and broader tax governance strategies. Tax authorities are no longer assessing only whether transaction prices are at arm’s length, but are actively auditing whether profits are being systematically shifted to low-taxed jurisdictions or entities.
In this increasingly complex environment, Advance Pricing Agreements (APAs) and Mutual Agreement Procedures (MAPs) have become essential tools to provide legal certainty, mitigate double taxation risks and support sustainable cross-border business operations
How BDO can help your company
At BDO, we understand that managing these multi-layered international tax obligations requires a cohesive, forward-looking strategy. Our dedicated team of tax professionals is perfectly positioned to assist your company in navigating this intricate regulatory shift. We can help you transition smoothly to an ex-ante model by structuring and analysing your affiliated-party transactions before execution, ensuring they align fully with PMK-172 requirements and possess robust commercial substance.