Transfer pricing audit using OECD model as a solution to base erosion profit shifting (BEPS) implemented in PT Indofood Sukses Makmur

Cavell, Cavell (2018) Transfer pricing audit using OECD model as a solution to base erosion profit shifting (BEPS) implemented in PT Indofood Sukses Makmur. Bachelor thesis, Universitas Pelita Harapan.

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Abstract

Indonesia has shown a strong commitment to follow suit with OECD BEPS Action Plans, which entails with the initiation of Automatic Exchange of Information across jurisdictions and the introduction of transfer pricing documentation. To apply the arm’s length principle in transfer pricing transactions, MNCs areallowed to utilize the most appropriate transfer pricing method complemented with the underlying rationale of selecting such method. In general, OECD recognizes five transfer pricing methods, namely comparable uncontrolled price, resale price, cost-plus, profit split, and transactional net margin. The purpose of this research is to analyze the probable transfer pricing audit practices on PT Indofood Sukses Makmur and its related parties with respect to related party transactions on consumer branded products, wheat-based products, agribusiness, intragroup services and intercompany loan. PT Indofood Sukses Makmur’s transfer pricing transaction is fair in all material respects, but with an exception to management fee, based on a rigorous transfer pricing audit procedures such as industry analysis, financial analysis, comparability analysis, and the application of transfer pricing method. The common rationale for MNCs to engage in transfer mispricing is to maximize tax savings from CITR loopholes, while DGT views these practices as the phenomenon of BEPS. To resolve forthcoming disputes on the determination of arm’s length transfer price, MNCs are recommended to adopt an Advance Pricing Agreement or a Mutual Agreement Procedures as prevention to transfer pricing audit.

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