Other BriefingsTransfer Pricing in Indonesia: What Will Trigger a Tax Audit in 2025
Transfer pricing compliance in Indonesia has entered a new phase — one marked by enforcement, audits, and clear winners and losers. More than a year after the implementation of MOF-172/2023, the Directorate General of Taxes (DGT) is no longer focused on socializing the rules. Instead, it's assessing how well businesses have implemented them. While some multinationals have taken proactive steps — updating their documentation systems and conducting price-setting analyses — many others are still relying on outdated practices, exposing themselves to growing audit risk.
What entities are subject to TP Documentation requirements?
As of 2025, the obligation to maintain comprehensive transfer pricing documentation applies to taxpayers that meet any of the following conditions:
- Engaging in related-party transactions, whether domestic or cross-border
- Recording gross annual revenue of at least 50 billion rupiah (US$3 million)
- Conducting related-party transactions exceeding 20 billion rupiah (US$1.23 million) for goods or 5 billion rupiah (US$307,000) for services
- Transacting with entities located in jurisdictions with a lower corporate income tax rate than Indonesia
- Acting as the ultimate parent entity of a multinational group with consolidated turnover exceeding 11 trillion rupiah (US$675 million) (for Country-by-Country Reporting purposes)
These thresholds remain unchanged since the issuance of MOF-172/2023. However, the DGT has increased its enforcement efforts in 2025, placing greater emphasis on the substance and timing of documentation, particularly in audits involving financial arrangements, services, and cross-border asset transfers.
Structure and content of TP documentation
Indonesia still sticks to a three-tier transfer pricing documentation: the Master File, Local File, and Country-by-Country Report (CbCR). While these rules were introduced under MOF-172/2023, the tax office in 2025 is no longer just checking if the documents exist; they are digging into whether the content truly reflects what’s happening in your related-party transactions.
The Master File gives a big picture view of the whole group, like the structure, global business activities, use of intangibles, financial setups, and overall group financials. The Local File, on the other hand, zooms into the Indonesian entity, its business model, industry, risks, related-party deals, TP method, and benchmark results. For groups required to file the CbCR, revenues must now be reported net of discounts and returns, which aligns with international standards.
All documents must be ready by the time the corporate annual tax return is filed, and if the DGT asks, they must be submitted within 30 days. In Fiscal Year 2025, tax disputes are often triggered by delays, outdated data, or inconsistencies, so it’s crucial to stay proactive and make sure everything is audit-ready from the start.
Requirement for preliminary (ex-ante) analysis and price-setting report
Since the enforcement of MOF-172/2023, the requirement to prepare a Price-Setting Report (also referred to as an ex-ante analysis) has become a central focus of transfer pricing audits in 2025. Unlike traditional documentation prepared after the fact, this report must be completed before or at the time a transaction is undertaken.
Transactions subject to this obligation include:
- Intragroup services
- Financial arrangements, including intercompany loans
- Transfers of tangible and intangible assets
- Business restructurings
- Cost contribution arrangements.
The Price-Setting Report must include an analysis of the economic rationale and anticipated benefits of the transaction, a comparability analysis, selection of the most appropriate TP method, and justification for the pricing applied.
For services, taxpayers must additionally demonstrate that such services do not constitute shareholder activities. This ex-ante documentation is intended to support the arm’s length nature of the transaction and forms an integral part of the Local File.
Consequences of not preparing tp documentation
Failure to prepare or submit the required TP Documentation (including the Master File, Local File, Price-Setting Report, and CbCR, where applicable) can result in:
- The documentation is deemed non-existent or invalid.
- The Directorate General of Taxes (DGT) is conducting unilateral transfer pricing adjustments based on its assessment.
- The taxpayer is subject to administrative sanctions, including fines and tax penalties.
- Increased tax liabilities due to adjustments to the reported income or expenses.
- For cross-border transactions, adjustments may be treated as deemed dividends, triggering withholding tax obligations.
- Weakened position during tax audits, MAP, or APA negotiations due to the absence of supporting analysis.
Choosing the right transfer pricing method
Taxpayers are required to apply one of the approved TP methods, with priority given to the following, where reliability is equivalent:
- Comparable Uncontrolled Price (CUP)
- Resale Price Method (RPM)
- Cost Plus Method (CPM)
- Transactional Net Margin Method (TNMM)
- Profit Split Method (PSM)
- Comparable Uncontrolled Transaction (CUT)
- Asset or business valuation methods
If multiple methods yield comparable levels of reliability, the CUP or CUT method must be prioritized.
Transfer pricing adjustments and their tax implications
Transfer pricing adjustments in Indonesia are actively enforced and carry significant financial consequences. When the DGT determines that a transaction is not at arm’s length, it may reclassify the pricing discrepancy as a constructive dividend. A primary adjustment may be imposed to reflect the proper allocation of taxable income, followed by a secondary adjustment — treated as a deemed dividend — subject to income tax withholding under the Income Tax Law.
The timing of the tax liability depends on when the income is paid, made available, or becomes due. The standard withholding tax rate is 20 percent, unless reduced by an applicable tax treaty.
Given these risks, taxpayers must take a proactive approach. Maintaining contemporaneous documentation, such as the Price-Setting Report, Local File, Master File, and CbCR, is essential. Equally important is monitoring intercompany pricing throughout the fiscal year and reconciling deviations before year-end.
Where cross-border transactions are involved, seeking relief through Mutual Agreement Procedures (MAP) or coordinating corresponding adjustments in the counterparty jurisdiction can help prevent economic double taxation.
Without coordination, adjustments made in Indonesia may not be matched abroad, exposing businesses to double taxation and avoidable cash flow pressure..
Available relief and dispute resolution pathways
Taxpayers can access relief under MOF-172/2023 by accepting DGT adjustments and waiving objection rights in exchange for a corresponding tax correction. This avoids prolonged disputes and potential penalties.
For international cases, the Mutual Agreement Procedure (MAP) remains the main tool to resolve double taxation. Success depends on consistent documentation across jurisdictions and early engagement. Advance Pricing Agreements (APAs) offer forward certainty, especially for recurring or complex transactions.
While the DGT is increasingly receptive to APA applications, the process demands thorough documentation and alignment with group-wide transfer pricing policies.
What tax auditors expect in 2025
As of 2025, transfer pricing compliance is judged by execution, not intention. The Master File, Local File, Price-Setting Report, and, where applicable, the Country-by-Country Report for FY2024 must be complete at the time of filing and submitted within 30 days if requested. The Price-Setting Report must also be prepared before any related-party transaction occurs — delayed or retroactive documentation is no longer acceptable.
Audit triggers have become more data-driven, with the DGT focusing on inconsistencies across filings, risk indicators, and mismatches between documentation and actual business conduct. Companies that cannot present clear, timely, and consistent documentation face a high likelihood of transfer pricing adjustments, even when the commercial rationale appears sound.
Ongoing MAP and APA cases are also being reviewed under the stricter post-reform framework. To remain defensible, historical documentation and methodologies must be brought in line with current standards.
In this environment, transfer pricing must be integrated into day-to-day business planning, with legal, tax, and finance teams coordinating continuously, not just during filing season.
