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13.4.4. APAs and Dispute Resolution Mechanisms

In 2020, a MoF regulation was issued to update procedures for implementation of APA. The new regulation  express permits  roll-back provisions and shows that the tax authority is committed to make APA a viable solution to manage the taxpayer’s Indonesian transfer pricing position. MoF regulation (No. 22/PMK.03/2020) concerning the procedure for formation and implementation of APA seeks to:

  • Align APA regulations with Action 14 as mentioned under Base Erosion and Profit Shifting (BEPS) made by OECD and the broader G-20, and
  • Provide detailed guidelines to ensure legal certainty for taxpayers that are involved in the APA process, particularly related to the procedure and timeframe for APA applications and their follow-up.

PMK 22/2020 became effective from 18 March 2020 and replaced the previous APA regulations with respect to   all current and future APA applications. There are three points arising from PMK-22/2020 that are as follows:

  • Guidelines on application of Arm’s Length Principle (ALP) is expanded in terms of the special relationship to which ALP should be applied;
  • Expansion of the definition of special relationship  can in some cases deviate from the traditional definition provided under existing Transfer Pricing regulations - which is typically linked to ownership/control and family relationship; and
  • Separate ITA regulations are expected to be issued on ALP guidelines.

The current APA regulation no longer requires a taxpayer to submit a separate Annual Compliance Report, but it requires taxpayers to prove their APA compliance through TP documentation. Therefore, a taxpayer that has an APA agreement with DGT is no longer exempt from transfer pricing documentation for the specific transaction that is covered in the APA.

Unilateral and bilateral APAs are allowed under the domestic laws both for a maximum period of 5 years (eligible for renewal).