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Transfer pricing adjustment treated as dividend

Kalau DJP koreksi TP, apa dampaknya selain pajak badan?

The situation

A TP adjustment raises taxable income and the extra amount can be treated as a deemed dividend, which carries withholding tax.

The law

  • Art 18(3), Law 7/1983 on Income Tax (PPh Law), as last amended by Law 6/2023: The DJP may redetermine income and costs between related parties using the arm's length principle
  • Art 26, Law 7/1983 on Income Tax (PPh Law), as last amended by Law 6/2023: Withholding of 20 percent on dividends, interest, royalties, service fees and other income paid to non-residents, subject to tax treaties

What it means for you

This creates two layers: corporate tax on the adjustment and withholding on the deemed dividend. Treaty relief and mutual agreement may help with double tax.

What to do

  1. Understand the adjustment basis.
  2. Consider objection.
  3. Check treaty relief.
  4. Fix pricing for the future.

Interest and penalties add to the cost.

We can do this for youTransfer pricing documentation: master file, local file, summary with the annual return and CbCR: IDR 45.000.000

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