adamriofc Transfer Pricing & Thin Capitalization Audit
Audits related-party intercompany loans, statutory Debt-to-Equity Ratio limits (DER 4:1), non-deductible interest expense barriers, and Secondary Dividend Adjustments under PMK 169/2015 & PMK 172/2023.
Statutory Rules & Thin Capitalization Framework
- Statutory DER Ceiling (PMK 169/PMK.010/2015):
- Maximum allowable interest-bearing Debt-to-Equity Ratio is 4:1.
- Interest expense corresponding to debt exceeding the 4:1 ratio is strictly non-deductible (non-deductible expense) for Corporate Income Tax.
- Secondary Tax Adjustments (PMK 172/2023):
- Non-deductible intercompany interest paid to affiliates is recharacterized by DJP as a Deemed Dividend (Secondary Adjustment).
- Domestic Affiliate: Subject to PPh 23 withholding tax at 15%.
- Offshore Affiliate: Subject to PPh 26 withholding tax at 20% (or reduced Tax Treaty / P3B DGT Form rates).
Hybrid Execution Model
Pass parameters to engines/transfer-pricing-engine.js:
auditTransferPricingThinCap({ totalInterestBearingDebt, totalEquity, annualInterestExpense, isAffiliateLender, isDomesticAffiliate, hasValidDgtForm, treatyRatePercent })
Worked Example
Input: Intercompany Debt Rp 50.000.000.000 (Rp 50B), Equity Rp 10.000.000.000 (Rp 10B), Annual Interest Rp 5.000.000.000 (10%), Lender is Offshore Singapore Affiliate (Tax Treaty DGT rate 10%).
- Actual DER Ratio =
50B / 10B= 5.0 : 1 (Exceeds 4.0 limit). - Max Allowable Debt =
4 x 10B= Rp 40.000.000.000. - Deductible Interest =
(40B / 50B) x 5B= Rp 4.000.000.000. - Non-Deductible Interest = Rp 1.000.000.000.
- Secondary Tax Adjustment = Recharacterized as Deemed Dividend subject to PPh 26 (10% Treaty Rate) = Rp 100.000.000.