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Bilateral Advance Pricing Agreement

Bilateral Advance Pricing Agreement Template for Indonesia

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Key Requirements PROMPT example:

Bilateral Advance Pricing Agreement

"Need to draft a Bilateral Advance Pricing Agreement for our Indonesian manufacturing subsidiary's transactions with our Japanese parent company, covering machinery sales and technology licensing fees, to be effective from January 2025."

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Document background
A Bilateral Advance Pricing Agreement (BAPA) is a crucial instrument for multinational companies operating in Indonesia seeking to establish certainty in their transfer pricing arrangements. This document becomes relevant when a company engages in significant cross-border transactions with related parties and wishes to avoid potential double taxation and transfer pricing disputes. The agreement, regulated under Indonesian tax law (primarily PMK-7/PMK.03/2015), provides advance certainty on the transfer pricing methodology to be applied to specific controlled transactions. It involves detailed negotiations with both the Indonesian tax authority and a foreign tax authority, typically covering aspects such as pricing methods, comparables, critical assumptions, and implementation procedures. The BAPA helps companies manage their transfer pricing risks while ensuring compliance with both Indonesian and international tax regulations.
Suggested Sections

1. Parties: Identification of the taxpayer and the two tax authorities involved in the agreement

2. Background: Context of the agreement, including the reason for seeking an APA and brief description of the covered transactions

3. Definitions: Definitions of key terms used throughout the agreement, including technical transfer pricing terminology

4. Scope of Agreement: Detailed description of covered transactions, products, services, and entities included in the agreement

5. Term of Agreement: Duration of the APA, including start and end dates, and any retroactive application

6. Transfer Pricing Methodology: Agreed methodology for determining arm's length prices, including selection rationale and application details

7. Critical Assumptions: Fundamental assumptions underlying the agreement that, if breached, may lead to revision or cancellation

8. Annual Compliance Requirements: Requirements for annual reports and documentation to demonstrate compliance

9. Revision and Renewal: Procedures for revising the agreement and conditions for renewal

10. Termination: Circumstances under which the agreement may be terminated by either party

11. Confidentiality: Provisions regarding the confidentiality of information shared during the APA process

12. Governing Law: Specification of applicable laws and regulations

13. Execution: Signature blocks and execution details

Optional Sections

1. Dispute Resolution: Procedures for resolving disagreements about the interpretation or application of the APA, included when parties want specific dispute resolution mechanisms

2. Roll-back Provisions: Terms for applying the agreed methodology to previous tax years, included when retroactive application is desired

3. Competent Authority Proceedings: Procedures for involving competent authorities in dispute resolution, included when specific bilateral procedures are needed

4. Force Majeure: Provisions for handling extraordinary circumstances, included when operating in volatile markets or regions

5. Language: Specification of official language(s) of the agreement, included when parties are from different language jurisdictions

Suggested Schedules

1. Schedule A - Covered Transactions: Detailed list and description of all intercompany transactions covered by the agreement

2. Schedule B - Transfer Pricing Methodology Details: Technical details of the agreed methodology, including formulas, calculations, and examples

3. Schedule C - Critical Assumptions Details: Detailed explanation of critical assumptions and acceptable ranges of variation

4. Schedule D - Compliance Reporting Template: Template and instructions for annual compliance reporting

5. Appendix 1 - Functional Analysis: Detailed analysis of functions, assets, and risks of involved entities

6. Appendix 2 - Benchmark Analysis: Details of comparable companies and transactions used in the analysis

7. Appendix 3 - Financial Projections: Projected financial results under the agreed methodology

8. Appendix 4 - Organizational Structure: Corporate structure diagram showing relationships between relevant entities

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Linkedin in social icon imageX social icon image
alex.den.21@genieai.co
Relevant legal definitions
Agreement
Advance Pricing Agreement
Arm's Length Principle
Arm's Length Range
Associated Enterprise
Competent Authority
Controlled Transaction
Critical Assumptions
Covered Transaction
DGT
Effective Date
Foreign Tax Authority
Group
Independent Enterprise
Indonesian Tax Authority
Inter-company Transaction
Operating Margin
Parent Company
Related Party
Review Period
Roll-back Period
Subsidiary
Tax Year
Term
Testing Party
Transfer Pricing
Transfer Pricing Documentation
Transfer Pricing Method
Tested Party
Uncontrolled Transaction
Comparable Uncontrolled Price
Cost Plus Method
Resale Price Method
Transactional Net Margin Method
Profit Split Method
Comparable Company
Financial Indicators
Annual Compliance Report
Breach of Critical Assumptions
Compensating Adjustment
Material Change
Operating Expenses
Revenue
Renewal Period
Implementation Date
Clauses
Parties
Recitals
Definitions
Scope
Term and Duration
Transfer Pricing Methodology
Critical Assumptions
Documentation Requirements
Compliance Reporting
Record Keeping
Confidentiality
Information Exchange
Annual Review
Revision and Amendment
Renewal
Termination
Force Majeure
Breach and Remedies
Dispute Resolution
Governing Law
Notices
Assignment
Severability
Entire Agreement
Representations and Warranties
Implementation
Roll-back Provisions
Competent Authority Proceedings
Language
Execution
Relevant Industries

Manufacturing

Technology

Pharmaceuticals

Automotive

Consumer Goods

Energy and Resources

Financial Services

Telecommunications

E-commerce

Chemical Industry

Agricultural Products

Mining and Minerals

Relevant Teams

Tax

Finance

Legal

Treasury

International Tax

Transfer Pricing

Compliance

Corporate Affairs

Financial Planning & Analysis

Risk Management

Relevant Roles

Tax Director

Chief Financial Officer

Transfer Pricing Manager

International Tax Manager

Finance Director

Tax Compliance Manager

Corporate Controller

Head of Tax

Finance Manager

Tax Partner (External Advisor)

Transfer Pricing Director

International Tax Director

Tax Counsel

Finance Planning Manager

Industries
PMK-7/PMK.03/2015: Ministry of Finance Regulation on Advance Pricing Agreement procedures - the primary regulation governing APAs in Indonesia
PER-69/PJ/2010: Director General of Tax Regulation on Advance Pricing Agreements - providing detailed implementation guidelines for APAs
Law No. 36/2008: Indonesian Income Tax Law, particularly Article 18 concerning related-party transactions and transfer pricing
PER-32/PJ/2011: Transfer Pricing Guidelines covering the application of arm's length principle and transfer pricing documentation requirements
PMK-213/PMK.03/2016: Ministry of Finance Regulation on additional transfer pricing documentation requirements (Local File, Master File, and Country-by-Country Reporting)
Law No. 7/1983: Basic framework of Income Tax Law (as amended several times) that provides the foundation for transfer pricing regulations
OECD Transfer Pricing Guidelines: While not legislation, these guidelines are commonly referenced in Indonesian transfer pricing matters and APA negotiations
Relevant Tax Treaties: Bilateral tax treaties between Indonesia and the other country involved in the BAPA, which provide the framework for avoiding double taxation
Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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