Ministry of Finance Regulation No. 172 of 2023 (“PMK-172”) introduces new rules that apply to Transfer Pricing Documentation (TP Doc) for the Fiscal Year 2024 onwards. A significant aspect of PMK-172 is the introduction of additional compliance requirements, particularly for service transactions, royalty payments, and financial transactions between related parties.

One of the key new requirements is the necessity of conducting a preliminary analysis for these types of transactions. The purpose of this analysis is to demonstrate that the transaction has economic substance. In other words, it must prove that the transaction reflects real business activities and is not merely structured to shift profits for tax purposes. This new obligation adds another layer of documentation and justification to the TP Doc, ensuring that the nature, pricing, and terms of the intercompany transactions are aligned with the arm’s length principle and that they are consistent with the economic realities of the parties involved.

Failure to comply with these requirements could potentially expose companies to greater scrutiny from tax authorities, increasing the risk of audits or adjustments to their taxable income. As a result, companies engaged in related-party transactions must carefully evaluate and document their service agreements, royalty payments, and financing arrangements in line with PMK-172.