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One of the documents that must be attached to the Annual Corporate Income Tax Notification Letter (SPT Corporate Income Tax) is an Overview of Master Documents and Local Documents. Through this overview, the Taxpayer will provide a statement regarding the implementation, provision and availability date of documents which are the basis for applying the arm’s length principle or also known as transfer pricing documents.
The transfer pricing document is a document to ensure that transactions between the company and its affiliates comply with applicable transfer pricing principles.
Steps to Create a Transfer Pricing Document
The following are the steps for creating a transfer pricing document:
- Identify transactions related to transfer pricing: Identify all transactions involving transfer pricing between the company and its affiliates. This includes the purchase and sale of goods, services, or intellectual property rights.
- Choose a transfer pricing method: Choose the appropriate transfer pricing method for each transaction. Common transfer pricing methods include the cost plus method, profit markup method, and similar transaction comparison method.
- Collect data and information: Collect data and information to calculate a fair transfer price for each transaction. The data required includes market prices, production costs, selling prices and profit margins.
- Data and information analysis: Analyze data and information to determine a fair transfer price. This analysis should include comparisons with market prices and reasonable profit margins.
- Document the analysis: Document the analysis for each transaction. The document should include methods, data and information, and analysis results.
- Establish a transfer pricing policy: Establish a clear transfer pricing policy to ensure that transactions between the company and its affiliates are correct and in accordance with applicable transfer pricing principles.
- Update regularly: Update documents regularly to ensure that transfer pricing policies remain in line with market conditions and changes in applicable laws.
Don’t forget to ensure that the documents meet the requirements set by the local tax authority.
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