When discussing related party transactions in Indonesia, most professionals are familiar with its definition in the context of taxation. However, fewer understand the unique criteria applied to related parties in customs. While the Indonesian Customs Law does not directly define “related parties,” the MOF Regulation 144/PMK.04/2022, which implements Article 15 of the ICL, provides eight specific criteria for identifying related parties within the customs framework:
- Employees or executives serving at one company while holding similar roles at another
- Parties recognized legally as business partners
- Employer-employee relationships
- Parties where one directly or indirectly owns, controls, or holds 5% or more of the shares of the other
- Parties where one has direct or indirect control over the other
- Parties directly or indirectly controlled by a common third party
- Entities that jointly, directly or indirectly, control a third party
- Family members, including spouses, parents, children, siblings, grandparents, grandchildren, uncles, aunts, nieces, nephews, in-laws, and step-relatives.
Implications for Customs Valuation.
In Indonesian customs, the valuation of imported goods is governed by six main methods (will be explored further in another article). The most frequently applied method is the transaction value method, which uses the value of the imported goods as the basis for customs duty calculations—provided specific conditions are met.
For related party transactions, adjustments to this transaction value are permissible only if the relationship between the buyer and seller is found to have influenced the pricing of the imported goods. So, how is this determined?
The customs authorities employ two primary approaches to ascertain if a relationship has influenced the pricing:
- Reviewing Transaction Details
If the transaction between the buyer and seller mirrors what is typically seen between unrelated parties, the relationship is deemed not to influence the price. - Test Value Comparisons
A test value typically refers to the transaction value of similar goods imported under comparable conditions. However, if the declared customs value is more than 5% lower than the test value, it is presumed that the relationship has influenced the pricing, necessitating the use of alternative valuation methods.
Understanding how related party relationships impact customs valuation is not just a matter of compliance—it can be critical for financial stability. Missteps in declaring the customs value can result in severe administrative sanctions, with penalties reaching up to 1,000% of the underpaid duties. By comprehending the differences between related party criteria in tax and customs contexts, businesses can better align their practices with Indonesia’s regulatory environment, ensuring transparency and compliance.
Visit the original article here
For more information about the above or Indonesian tax and customs matters, please contact: ahdianto@gnv.id
