What are the standard contents of transfer pricing documentation?
According to Article 18 Paragraph (5) of the Director General of Taxes Regulation Number PER-32/PJ/2011, the transfer pricing documentation that shall be provided by taxpayers must include at least the following information:
- Detail overview of the company profile such as group business structure, ownership structure, organization structure, business operational aspects, list of competitors, and overview of surrounding business circumstances;
- Pricing and/or cost allocation policy;
- The result of comparability analysis on characteristics of products and services transferred in intragroup buys and sales transactions, function analysis, economic circumstances, contractual terms, and business strategies;
- The selected comparables;
- Notes on the application of the most appropriate transfer pricing method selected by taxpayers and reasons underlying the rejection of transfer pricing methods.
According to Chapter V of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (July 2010), the following types of information should be made available through documentation, although it is neither a minimum compliance list nor an exclusive list of information that tax administrators may be entitled to request :
- Information about the associated enterprises involved in the controlled transactions, the transactions at issue, the function performed, and information derived from independent enterprises engaged in similar transactions or business. In particular transfer pricing cases it may be useful to refer to information relating to each associated enterprise involved in the controlled transactions under review, such as:
- an outline of the business;
- the structure of the organization;
- ownership linkages within the MNE group;
- the amount of sales and operating results from the last few years
- preceding the transaction
- the level of the taxpayer’s transactions with foreign associated enterprises,
- Information regarding the nature and terms of the controlled transactions, economic conditions and property involved in the transactions, how the product or service that is the subject of the controlled transaction in question flows among the associated enterprises, and changes in trading conditions or negotiations of existing arrangements;
- Description of the circumstances of any known transactions between the taxpayer and an unrelated party that are similar to the transaction with a foreign associated enterprise and any information that might bear upon whether independent enterprises dealing at arm’s length under comparable circumstances would have entered into a similarly structured transaction;
- Information on pricing, including business strategies and special circumstances at issue, may also be useful. This could include factors that influenced the setting of prices or the establishment of any pricing policies for the taxpayer and the whole MNE group;
- An explanation of the selection, application, and consistency with the arm’s length principle of the transfer pricing method used to establish the transfer pricing;
- Special circumstances such as set-off transactions, management strategy, and type of business.