Minimising potential tax avoidance by strengthening tax policy on transfer pricing in Indonesia

This article examines transfer-pricing implementation and challenges in Indonesia since its first tax reforms in 1983. The OECD has been formulating guidelines, and the concept of the arm’s-length principle, since 1979, lately through the Action Plan on Base Erosion and Profit Shifting (‘BEPS’) in July 2013. The government of Indonesia put serious effort into transfer-pricing issues in the late 2000s, when it identified high numbers of potential transfer-pricing abuses. This research takes a qualitative approach — the data was collected through a literature review and interviews. It shows that the arm’s-length principle was adopted in Indonesia when tax reforms began in 1983, but its implementation didn’t start until 2008 due to a lack of expertise in transfer pricing. Since its implementation, the tax authority has faced technical challenges due to a lack of competent experts. When Indonesia declared their commitment to implement transfer-pricing rules following the OECD BEPS Action Plan 2013, the tax authority should have followed global examples of transfer-pricing policy. In Indonesia, this policy implementation is still in progress, with many improvements required.