Transfer Pricing - Indonesia
The definition of related parties for transfer pricing purposes can be found in article 18 of the ITL. It also stipulates that the tax authority has the right to adjust a taxpayer’s taxable income for related-party transactions that are not carried out on an arm’s length basis.
The legal basis of the arm’s length principle is stipulated in article 18(3) of the ITL, where it is stated that transactions between related parties must be consistent with the arm’s length principle. If the arm’s length principle is not followed, the Director General of Tax (DGT) is authorized to recalculate the taxable income or deductible costs arising from such transactions applying the arm’s length principle.