It may be difficult to avoid tax disputes, due to the wide room for interpretation of regulations between taxpayers and tax authorities. However, it can be mitigated if there is a forum to produce an agreement on the value of a transaction in advance. Such as the Advance Pricing Agreement mechanism.
The transfer pricing used in affiliated transactions is often the object of tax authority audits. The reason is, parties that have transactions between special relationships are always the main target of an audit by the tax authorities or are always a priority for an audit.
If the audit result states that the transaction value is different from the fair price or profit, the difference can be considered as an indirect dividend distribution or constructive dividend. Because it is considered a dividend, the company will be subject to Income Tax Article (ITA) 26.
In fact, companies can actually use the Advance Pricing Agreement (APA) facility that has been regulated in the Law on Harmonization of Tax Regulations (HPP law) and its derivatives, namely Government Regulation (PP) Number 55 of 2022.
Variety of APA Benefits
Through the APA mechanism, taxpayers and tax authorities can make an advance agreement on the transfer pricing that will be carried out in a certain period. The guarantee of this agreement is that the transfer price used will not be audited.
Although in its implementation, DGT will definitely supervise and evaluate the agreement made in the APA, whether it is actually fulfilled by the taxpayer or not.
Another advantage of the APA facility in Indonesia is that taxpayers will not be charged any fees, aka free.
Compare this with the implementation of APA in several countries such as Germany, Hungary, Portugal, and Sweden which charge taxpayers who apply for APA, with a cost range between EUR 5,000 - EUR 35,000.
In addition, the time required to process APA applications is also set, which is a maximum of 24 months for Bilateral APAs and 22 months for Unilateral APAs. While in European countries it can take up to 40 months.
In Indonesia, even APA requests can be applied backward or roll-back, unlike some countries such as the UK which can only be used in the tax period after the APA agreement.
Legal Basis and Procedure
Referring to Government Regulation Number 55 Year 2022, there are three types of APAs that apply. First, unilateral APA or agreement on transfer price made between taxpayers and DGT only.
Second, there is a bilateral APA, which is a written agreement between DGT and tax authorities in partner countries or jurisdictions that are bound by double taxation avoidance agreements (Tax Treaty) and involve taxpayers.
Third, multilateral APA is a written agreement between DGT and several tax authorities in partner countries or tax treaty partner jurisdictions involving taxpayers.
APA is especially recommended for companies with significant affiliate transactions. Because in the process, companies and tax authorities will negotiate to determine a transfer pricing method that is fair and consistent. Thus, it will effectively reduce the uncertainty and risk of disputes that can arise.
Confidentiality Guarantee and OECD Best Practice
However, this facility is still rarely used. Out of approximately 1.6 million registered taxpayers, only 62 APA requests were submitted between 2018-2022. In fact, APA is considered an effective way to reduce the risk of transfer pricing disputes.
The main reason underlying the low attractiveness of APA facilities for domestic companies is that there is no guarantee that the data they submit is safe.
The safe context here is, if an APA agreement is not reached, the data that has already been disclosed will not be used as the basis for the auditor's findings. Moreover, until now there is no provision that emphasizes that data related to APA cannot be used as a basis for audit.
This concern seems reasonable. Moreover, if we look at the statistical data of APA implementation in Indonesia, out of 62 APA requests received by DGT, only 46 requests, or about 75% have been completed.
It should be noted, of the number of completed APA applications, it is not known exactly how many applications were received and which were rejected. This means that the chance of an APA application not being accepted or an agreement not being reached is still quite high.
Some of the information or data that companies usually submit when applying for an APA include settlement offers, reasons, opinions, and assessments regarding the company's transfer price.
This concern has actually been the concern of the OECD for a long time in the Transfer Pricing Guidelines they released. According to the OECD, the tax authorities should not take into account information or data on taxpayers after rejecting the APA application they submitted. This is because if they do so, problems will arise for the jurisdiction.
Reflecting on Tax Amnesty
Thus, the author suggests that there should be confirmation regarding the use of such data in written regulations.
In this regard, we take an example from the tax amnesty policy that took place in 2016.
In Article 11 of Law (UU) Number 11 of 2016 concerning tax amnesty, it is stated that taxpayers who have received a receipt for asset disclosure will not be subject to an audit.
With such confirmation, the authors believe that taxpayers' doubts about using the APA facility will be reduced.
In the end, setting the transfer price at the beginning can be one way to reduce the high tax disputes that occur in Indonesia. If the trend of disputes can be trimmed, the cost of tax compliance in Indonesia will also be lower.
Article 11 of Law Number 11 Year 2016 on tax amnesty states that taxpayers who have obtained a receipt for asset disclosure will not be subject to audit.
With such affirmation, the author believes that taxpayers' hesitation to use the APA facility will be reduced.
In the end, setting the transfer price in advance can be one way to reduce the number of tax disputes that occur in Indonesia. If the trend of disputes can be cut, the cost of tax compliance in the country will also be lower.
Thus, the authority can focus more on providing services and innovating other facility improvements rather than disputes. Conversely, taxpayers can also be more productive and focus on developing their business, to contribute to national economic recovery. (ASP/KEN)
Disclaimer! This article is a personal opinion and does not reflect the policy of the institution where the author works.