Transfer Pricing Audit

---
name: transfer-pricing-audit
description: "Audit intercompany transactions, Thin Capitalization debt-to-equity ratio (DER 4:1 max ceiling), interest deduction barriers, and secondary dividend tax adjustments under PMK 172/2023."
argument-hint: <total_interest_bearing_debt> <total_equity> <annual_interest_expense> <is_affiliate_lender>
risk_level: HIGH
rule_type: statutory
quality_tier: expert-reviewed
allowed-tools: bash
capability:
  purpose: [tax_calculation, statutory_compliance]
  not_for: [tax_legal_opinion, autonomous_filing]
  requires: [<total_interest_bearing_debt> <total_equity> <annual_interest_expense> <is_affiliate_lender>]
  produces: [taxAmount, effectiveRatePercent, statutoryReference, safeToUse]
  consumes: [hr.payroll_cost, context.asOfDate]
  deterministic: true
  cross_domain_relevance:
    hr: high
    finance: high
    legal: medium
---

# 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
1. **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.
2. **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**.