Risks and Sanctions for Negligence in Reporting CbCR File and CbCR Notification According to PMK 172/2023

In the Transfer Pricing documentation scheme in Indonesia, CbCR and its Notification hold a crucial role as tools for global transparency. MoF Regulation (PMK) 172 of 2023 reinforces that failure to fulfill this obligation is not merely an administrative issue, but can invalidate the validity of the Taxpayer's transfer pricing analysis as a whole.

Basic Obligations: Notification and CbCR

Before discussing sanctions, it is important to distinguish between the two types of reporting obligations regulated in Article 23 of PMK 172/2023:

1. CbCR Notification: Mandatory to be submitted by all domestic corporate Taxpayers who are members of a Business Group (both parent and subsidiary companies).
2. CbCR Report: Mandatory to be submitted by the Parent Entity (consolidated turnover > Rp11 Trillion) or Constituent Entity under certain conditions (secondary filing mechanism).

Administrative Sanctions and Fatal Consequences

Based on Article 28 of PMK 172/2023, Taxpayers who do not fulfill the obligation to submit CbCR and Notification are subject to sanctions in accordance with the provisions of laws and regulations in the field of taxation. Here are the details of the sanctions that can be imposed:

A. Annual Tax Return Deemed Incomplete

The receipt for the submission of CbCR or Notification is a document that is mandatory to be attached to the Corporate Income Tax Annual Return for the following tax year (e.g., receipt for CbCR 2023 is attached to the 2024 Annual Tax Return).

If the Taxpayer does not report the CbCR/Notification, then there is no receipt attached. In accordance with the General Provisions and Tax Procedures Law (UU KUP), an Annual Tax Return that is not accompanied by the required information is deemed not submitted.

Sanction: Administrative fine of Rp1,000,000.00 (One Million Rupiah) for not submitting the Tax Return, and potential compliance audit.

B. Ex-Officio Tax Determination

This is the biggest risk. CbCR is part of the Transfer Pricing Documentation (TP Doc). If a Taxpayer is audited and cannot show the CbCR (even though obligated), then the Taxpayer is considered not to have fulfilled the obligation of organizing TP Doc.

Its consequences based on Article 36 paragraph (5) of PMK 172/2023:

• The DGT is authorized to redetermine the amount of taxable income ex-officio (ex-officio).
• The DGT may ignore the transfer pricing analysis created by the Taxpayer and use comparable data possessed by the DGT itself, which often results in a much larger tax correction.

Case Study of CbCR Obligation (Based on Attachment of PMK 172/2023)

To understand when these sanctions potentially arise, we must understand when the obligation arises. Here is an official calculation example from Attachment Letter A Number 3 of PMK 172/2023:

PT GHI is an Indonesian company which is the Parent Entity of a Business Group. The book year of PT GHI starts from January 1 to December 31.

Consolidated Gross Turnover Data:

• Tax Year 2018: Rp12,000,000,000,000.00 (12 Trillion)
• Tax Year 2019: Rp10,000,000,000,000.00 (10 Trillion)
• Tax Year 2020: Rp13,000,000,000,000.00 (13 Trillion)
• Tax Year 2021: Rp9,000,000,000,000.00 (9 Trillion)

Obligation & Potential Sanction Analysis:

Conclusion

Negligence in reporting CbCR or CbCR Notification has a chain impact. Besides the administrative fine on the Tax Return, the biggest risk is the delegitimization of the Taxpayer's transfer pricing document during an audit, which opens the door for tax authorities to conduct fiscal corrections unilaterally. Taxpayers must monitor the consolidated turnover of the previous year carefully to determine their obligation status.