A benchmark analysis extends beyond Transfer Pricing Documentation (TP Doc). It establishes an arm’s-length range, supports pricing decisions, and provides evidence for tax authorities when reviewing a company’s transfer pricing position.
In this case, Ascentium Indonesia (formerly InCorp Indonesia) assisted a foreign-owned manufacturing company (PT PMA) with a benchmark analysis of its related-party transactions.
We integrated the analysis into the client’s Local File and reviewed it during a tax audit, where the auditor accepted the arm’s-length range without significant adjustment.
Key Takeaways
- A foreign-owned manufacturer (PT PMA) needed a benchmark analysis for tax authority review of its related-party transactions.
- We applied TNMM and CUP/CUT based on each transaction’s characteristics and the availability of reliable comparable data.
- We integrated the benchmark into the client’s Local File under PMK 172/2023.
- During a tax audit, the auditor accepted the benchmarking approach and arm’s-length range without significant adjustment.
- Ascentium Indonesia (formerly InCorp Indonesia) conducted the benchmarking approach, comparable review, arm’s-length assessment, and Local File integration during the engagement.
Manufacturing benchmark analysis: Case study overview
| Area | Case Details |
| Client | Foreign-owned manufacturing company (PT PMA) in Indonesia |
| Main objective | Show that related-party transactions follow the arm’s-length principle and strengthen Transfer Pricing Documentation |
| Transactions reviewed | Sales and purchases of goods and services between related companies, royalties, intercompany loans, manufacturing, and distribution |
| Methods used | Transactional Net Margin Method (TNMM) and Comparable Uncontrolled Price/Transaction (CUP/CUT) |
| Main challenges | Finding comparable companies with similar business activities, market conditions, and financial performance |
| Support provided | Benchmark analysis, comparable company searches, pricing assessments, and Local File preparation |
| Result | Stronger evidence to support related-party pricing and more reliable Transfer Pricing Documentation |
| Tax audit outcome | Tax auditor accepted the benchmarking method and pricing range without significant adjustments |
Why the manufacturer needed a stronger benchmark analysis
The company needed a stronger benchmark analysis to support the arm’s-length nature of its related-party transactions and strengthen its Transfer Pricing Documentation.
The main challenge was to ensure the analysis was up to date, supported by suitable comparables, and strong enough to withstand tax authority review of the client’s TP position.
Establishing a suitable arm’s-length range
The benchmark analysis was needed to determine an appropriate arm’s-length range for each transaction type and to demonstrate compliance with the arm’s-length principle.
Finding the right comparables
Finding sufficiently comparable companies and transactions was challenging because potential comparables differed in:
- Business functions
- Geographic markets
- Financial profiles
The search therefore required more detailed screening to ensure the selected comparables were relevant and defensible.
How Ascentium Indonesia built the benchmark analysis
Ascentium Indonesia (formerly InCorp Indonesia) mapped each of the client’s related-party transactions to the most appropriate method based on functional analysis and the availability of reliable data.
Applying TNMM and CUP/CUT
The team used the Transactional Net Margin Method (TNMM) and the Comparable Uncontrolled Price/Transaction Method (CUP/CUT), choosing the right method based on each transaction’s nature and the availability of reliable comparable data.
They selected the tested party and profit-level indicators according to a functional analysis and the specific characteristics of the transactions.
Improving the comparable search
The team improved its screening criteria and reviewed potential comparables against the business functions, geographic market, and financial profiles identified at the start. The team applied comparability adjustments where necessary to improve the analysis’s reliability.
Establishing the arm’s-length range
The benchmark analysis identified the client’s arm’s-length pricing range and evaluated whether its pricing or profitability fell within it.
- If the results fell below the expected range, the team reviewed the reasons and suggested necessary adjustments.
- If profitability exceeded the range, the team evaluated it in the context of the transaction and the overall transfer pricing position, rather than automatically treating it as a problem.
The analysis was incorporated into the Local File to identify transfer pricing risks and support future related-party pricing decisions.
The result: Stronger TP documentation and a defensible tax audit position
The benchmark analysis established a more defensible arm’s-length range and strengthened the client’s Transfer Pricing Documentation.
Stronger transfer pricing documentation
The benchmark provided clearer evidence supporting the arm’s-length nature of the client’s related-party transactions and enhanced the analysis included in the Local File.
Improved clarity on pricing basis and transactional risk
The analysis identified risks for transfer pricing adjustments and provided a solid foundation for establishing or reviewing future related-party pricing.
Benchmark analysis accepted during a tax audit
The benchmark analysis was reviewed during a tax audit. The tax auditor accepted the benchmarking approach and the resulting arm’s-length range without requiring significant adjustments.
Is your benchmark more than two years old, or built on comparables that no longer match your operating model? Ascentium Indonesia can review it before the tax authority does. Talk to our TP team →
Why benchmark analysis matters for transfer pricing compliance
For foreign-owned manufacturers in Indonesia, weak benchmark analysis can lead to additional taxes, penalties, and disputes with the tax authorities.
Under PMK 172/2023, companies must show that their related-party transactions follow the arm’s-length principle.
A Master File and Local File are generally required if any of these thresholds were exceeded in the previous financial year:
- Gross revenue exceeds IDR 50 billion.
- Related-party transactions involving goods exceed IDR 20 billion.
- Related-party transactions involving services, interest, or intangible assets exceed IDR 5 billion per category.
These documents must be ready within four months after the financial year ends. Additional rules apply to transactions with related companies in lower-tax countries.
For manufacturers, benchmark analysis should consider:
- Actual transactions and operating models.
- Functions, assets, and risks.
- Relevant and reliable comparables.
- Consistent financial results and intercompany arrangements.
Without reliable benchmarking, companies may face:
- Transfer pricing adjustments: Tax authorities may question the company’s pricing and increase its taxable income.
- Additional withholding tax: Pricing differences may be treated as dividend payments, potentially resulting in additional tax obligations.
- Penalties and interest: Additional tax liabilities may lead to penalties and interest charges.
- Lengthy tax disputes: Weak benchmarking may result in prolonged tax audits, objections, and appeals.
Reliable benchmark analysis helps manufacturers support related-party pricing, strengthen transfer pricing documentation, and reduce tax audit risks.
Smarter Transfer Pricing
Get expert benchmark analysis support with Ascentium Indonesia
A reliable benchmark analysis helps your business support related-party pricing, reduce tax risks, and prepare for potential tax audits.
Ascentium Indonesia (formerly InCorp Indonesia) provides end-to-end benchmark analysis services, including:
- Transaction and functional analysis: Assess related-party transactions, business activities, and risks.
- Transfer pricing method selection: Identify the most appropriate method for your transactions.
- Comparable company analysis: Identify and evaluate independent companies with similar business activities.
- Arm’s-length range assessment: Establish a reliable pricing or profitability range.
- Transfer Pricing Documentation: Incorporate benchmarking results into your Local File.
- Benchmark review and update: Review existing benchmarks to reflect changes in business operations and financial data.
Don’t wait for a tax audit to expose weaknesses in your benchmark analysis. Fill out the form below to book a free benchmark review with our transfer pricing team. *
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Frequently Asked Questions
What is benchmark analysis in transfer pricing?
Benchmark analysis compares a company's related-party pricing or profitability with comparable independent companies or transactions to determine an arm's-length range. It is the evidence base behind Transfer Pricing Documentation and is often the first thing in a tax auditor's test.
Why is benchmark analysis important for a foreign-owned manufacturer?
A manufacturing PT PMA often has significant related-party transactions with its overseas group, such as raw material purchases, royalties, and intragroup services. Benchmark analysis shows whether those transactions are priced at arm's length.
What transactions can benchmark analysis cover?
Depending on the company's activities, benchmark analysis can cover sales and purchases of goods, intragroup services, royalties, intercompany financing, toll or contract manufacturing, and distribution. Each transaction may need a different method and comparable set.
Which methods are used in benchmark analysis?
The method depends on the transaction and the comparable data available. TNMM is common for manufacturing and distribution margins, while CUP/CUT suits royalties and loans where comparable prices or rates exist. In this case, Ascentium Indonesia (formerly InCorp Indonesia) applied both methods, matching each to the transaction type.
How are suitable comparables selected?
Potential comparables are screened for similar business functions, geographic markets, and financial profiles, then reviewed individually. Search criteria are often refined several times before a defensible set remains.
What happens if the result falls outside the arm's-length range?
The underlying reasons should be assessed first, and appropriate adjustments may be considered for results below the range. Results above the range should be evaluated in the context of the transaction and overall TP position rather than treated automatically as an issue.
Does benchmark analysis only support the Local File?
No. Beyond Transfer Pricing Documentation, benchmark analysis helps identify TP risks, set or review related-party pricing, and support the company's position during tax authority review.
Can benchmark analysis support a tax audit?
Yes. A well-supported benchmark provides evidence for the company's TP position during an audit. In this manufacturing case, the auditor accepted the benchmarking approach and arm's-length range without significant adjustment.
When should a company review its benchmark analysis?
A review is advisable when comparable data becomes outdated, related-party transactions change, the business model shifts, or future pricing needs reassessment. Many companies refresh their benchmark every one to three years.
How can Ascentium Indonesia support benchmark analysis?
Ascentium Indonesia (formerly InCorp Indonesia) supports companies with functional analysis, method selection, comparable searches, arm's-length range determination, Local File integration, and benchmark refreshes. The team also supports clients during tax audits, helping them build a TP position that withstands review.
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