Page 7 - Newsletter (Taxation Policies to Counter the Threat of Economic Recession and the Issuance of APA Implementing Regulation)

DDTC Newsletter Vol.03 | No.07 I April 2020 Page 7 of 9

Taxation Policies to Counter the Threat of Economic
Recession and the Issuance of APA Implementing Regulation

before the tax year in which the application for APA is development, and supervising the production and
prelodged. distribution of tobacco products.

Second, the taxpayer has fulfilled the obligation to
Stipulations and provisions on the establishment of
prepare and retain Transfer Pricing Documentation in
the tobacco product industrial estate are outlined in
the form of a master document and local documents for
the Minister of Finance Regulation No.21/PMK.4/2020
3 (three) tax years prior to the prelodgement of the APA
concerning Tobacco Product Industrial Estate (MoF
request. Third, the taxpayer is not under a criminal act
Reg./21/2020).
investigation or is not currently undertaking tax crime
Under the regulation, the tobacco product industrial
Fourth, controlled transactions and related parties estate is intended for manufacturers of small and
included in the APA request have been reported by the medium-scale industries. The definition of small and
Taxpayer in the Annual Corporate Income Tax Return. medium industries in this regulation refers to the
Fifth, the transfer pricing in the APA request is prepared provisions stipulated by the minister of industry.
based on the arm’s length principle and does not result
Further, the regulation sets forth that entrepreneurs of
in a taxpayer’s operating profit being smaller than
factories that produce or package tobacco products in
the operating profit reported in the Annual Corporate
packages for retail sale (hereinafter referred to as factory
Income Tax Return
entrepreneurs) and are incorporated in the tobacco
The regulation also stipulates the arm’s length principle. product industrial estate are eligible for facilities in terms
The principle is applied by comparing the conditions and of business permit and deferral of excise payments.
indicators of comparable uncontrolled transaction prices.
In further detail, the ease in terms of permits in the
The transfer pricing is said to meet the arm’s length
form of exemptions from the provisions shall be given to
principle if the value of the transfer pricing indicator is
manufacturers that have an area of at least 200 square
equal to the value of comparable uncontrolled transaction
meters as the location, building, or place of business, as
price indicators. The value of the uncontrolled transaction
referred to in the legislative provisions on Goods Subject
price indicators may either be the arm’s length point or to Excise Entrepreneur Code Number (Nomor Pokok
the arm’s length range.
Pengusaha Barang Kena Cukai/NPPBKC).
The arm’s length point is a price indicator point formed
Moreover, the ease in terms of permits shall be given
by one or more comparables that have the same price
to the extent that factory entrepreneurs who are in the
indicator value. In contrast, the arm’s length range
same tobacco product industrial estate wish to cooperate
is a range of price indicators formed by two or more
to produce goods subject to excise in the form of sticks of
comparables that have different price indicator values.
tobacco products.
The arm’s length range may be in the form of two values,
In contrast, the ease in terms of excise payment deferral
namely 1) the minimum value up to the maximum value
is provided in the event that bank guarantees are used
(full range) if formed by two comparables and 2) the
and the deferral period is set for 90 days from the date of
value of quartile one to quartile three (interquartile
the banderole order document.
range) if formed by three or more comparables.
Additionally, this regulation outlines that four activities
If the transfer pricing does not meet the arm’s length
may be carried out in the tobacco product industrial
principle, pricing is carried out in a similar manner as
estate. First, managing and developing the tobacco
in pricing in uncontrolled transactions. The pricing uses
product industrial estate by factory entrepreneurs.
arm’s length point, the most appropriate point in the
arm’s length range according to its comparability, or the Second, producing goods subjects to excise in the form
median in the arm’s length range (if the most appropriate of sticks of tobacco products by factory manufacturers.
point cannot be determined). Third, packaging goods subject to excise in the form of
packaged tobacco products for retail sales and sticking
of banderoles, which may also be carried out by factory
Establishment of Tobacco Product manufacturers.
Industrial Estate Fourth, producing goods other than goods subject to
excise and/or supporting services for the tobacco product
The Minister of Finance has released a regulation that industry that may be carried out by entrepreneurs that
serves as the basis for establishing a tobacco product support the tobacco product industry. Entrepreneurs
industrial estate. The establishment of the industrial that carry out activities as estate entrepreneurs, however,
estate is aimed at improving services, industrial must obtain permission from the head of the regional
office or head of the main service office.