PRESIDENT UNIVERSITY

Internship Report

for

Transfer Pricing

Laura Tunggal

Management in International Business

011200800046

January 2011 – August 2011

PREFACE

I would like to acknowledge Mr. Carlo Navarro for offering me an internship

opportunity at Ernst&Young. He has been a mentor to me, teaching me valuable life

values, especially in working with other people in the corporate community.

I would like to acknowledge Mr. Joakim Kokomaking for his time and advice

throughout the period.

It was also essential to acknowledge the contribution of Mr. Daniel Laoh who has

put aside his time giving me great lectures and teachings. Thank you for your challenging

questions, your demanding deadlines, your hows and whys, and your why-nots. You have

been significant in my career planning, as well as guiding me closely during my

internship days.

For Ms. Adelina Putri, Janice Shiejova, and Elvina; my classmates and colleagues.

I would like to thank them for being there. They have always reminded me to be grateful

of what I have and do not give in. This internship period would not be such a blessing

without all of them.

For Transfer Pricing Team. Olivia Ramli, Felic, Stephan, Margareth, Kiki, Parven,

Heydi, Bobby, Yura, Ghea, Wulan, Ayas, Winnie, Mbak Alin, Mbak Juju, Mbak Dian,

Pak Agung, Pak Micky, Pak JJ, and my fellow interns (Gracia, Febby, Christian,who

helped edit this report, Gita, Kevin, and Wasim); thank you for the joyful memories.

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CHAPTER I

INTRODUCTION

In the modern world, education plays an important role in determining success.

Those with higher and better education have improved opportunities to be accepted into

their companies of choice and excel in the race to the top. However, students require a

platform that would prepare them to a professional career related to their major.

Internships remain an important milestone in achieving a student’s desired career path

that provides the necessary hands-on, real-world experience within a professional work

setting.

Being a compulsory program for final year students, the internship was intended

to mature students both personally and professionally. Furthermore, this program is meant

to deepen the students’ understanding of the profession in their specific field of study.

Today’s undergraduates aspire to do more than the mindless tasks traditionally

assigned to interns. Students are willing to put into practice theories which have been

learned from the years spent in university. The President University encourages students

to be well prepared in determining their most suitable field of work, assigning them a

mentor who provides guidance, advice and the necessary support during the entire

internship period.

By doing an internship, students are expected to meet the objectives, namely:

• Experience the importance and relevance of ideas learned in classroom work.

• Develop the student’s abilities to achieve performance goals based on the

responsibilities and duties.

• Develop the student’s ability to assess and direct achievement of specified

performance goals.

• Get a bird-eye view of how a company is running and interact with and learn from

industry professionals.

• Give the student the experience of working within a group or team.

• Enable the cooperating organization to receive the benefits of the special talents

and background of the student.

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• Increase interaction between the University and the cooperating organizational to

educate and produce good quality graduates.

• Apply, in an appropriate and professional work setting, theories, concepts, and

philosophies learned through previous academic and other experiences.

• Develop decision-making and problem-solving skills through the formulation,

implementation and evaluation of alternative solutions to problems and

approaches to issues.

• Gain an understanding of the overall company organizational structure and their

corporate culture and clientele base, as well as their position to other local,

national and/or global competition in the market place.

• Identify and address personal strengths and weaknesses in light of demands and

expectations of employment in the various roles and responsibilities assigned in a

work setting.

• Develop a network of industry professionals that can be used when seeking full-

time employment.

• Share the internship experience and special project with other PU interns, faculty

and staff.

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CHAPTER II

COMPANY PROFILE

History

Ernst & Young started in the 19th century of the two people who had one vision.

Arthur Young and Alwin C Ernst understood the importance of people and their quality in

an organization. Their philosophies were brought together when the firms combined to

create Ernst & Young (“EY”) and created a global organization which is recognized as

one of global leader in Assurance, Tax, Transaction and Advisory services among The

Big 4.

Values

“People who demonstrate integrity, respect, and teaming”

“People with energy, enthusiasm, and the courage to lead”

“People who build relationships based on doing the right things”

These values are the fundamental beliefs of EY global organization which define

the people. They guide each actions and behavior in a way that influence the way they

work with each other and the way they serve the clients as well as engage with the

communities.

These values are considered as the same principles that help the people to make

decisions throughout EY global organization.

Ernst & Young globally

In order to be efficient and effective, EY has organized its legal entities into 29

similarly sized business units in terms of both people and revenues. These business units,

almost all of which are purposely not single countries, are grouped into four geographic

Areas:

Americas

Asia-Pacific

Europe, Middle East, India and Africa

Japan

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With its presence in 140 countries and having more than 141,000 people around the

world, EY aims to have positive impact on business and markets as well as society as a

whole. Partners and principals are engaged in partnership across the member firms of EY

organization in one strong global leadership that sets one single global strategy and

agenda.

Ernst & Young in Indonesia

Address: Indonesia Stock Exchange Building Tower 1, 14th Floor Jl. Jend. Sudirman Kav.

52-53 Jakarta 12190, Indonesia.

Indonesia has more than 1,600 professionals based in two major cities: Jakarta and

Surabaya. It merged with local public accountant firm, PSS (Purwantono, Suherman &

Surja) and gives EY a strong local base to deal with local companies as well as

multinational companies.

Service

Ernst & Young is a global leader in Assurance, Tax, Transactions and Advisory

services.

Assurance service provides audit and accounting services to the clients. The

service ensures clients’ accounts comply with the requisite audit standards and provide a

robust and clear perspective to audit committees and critical information for stakeholders.

It has five sub-service lines: External Audit, Financial Accounting Advisory Services

(FAAS), Climate Change and Sustainability Services (CCaSS), Accounting Compliance

and Reporting (ACR) and Fraud Investigation & Dispute Services (FIDS). 

Tax service helps the clients understand and manage their tax compliance and

reporting obligations responsibly and proactively. EY help them assess, improve and

monitor their tax function’s processes, controls and risk management and maintain

effective relationships with the tax authorities. It has five sub-service lines which cover a

wide range of issues: Business Tax Services, Human Capital, Indirect Tax, International

Tax Services and Transaction Tax.

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TAS (Transaction Advisory Service) helps businesses drive competitive

advantage by proactively managing clients’ capital agenda which determines how they

strategically raise, invest, preserve and optimize their capital. This service facilitates the

clients to evaluate opportunities, make transactions more efficient and help achieve the

strategic goals. It has three sub-service lines: Transaction Support, Capital

Transformation and Transaction Tax.

Advisory service deals with management and operational challenges. Advisory

helps clients protect their business, improve performance and enable change. This service

measures gains and identifies where the strategies are delivering the value of clients’

business need. It has three sub-service lines (Performance Improvement, Risk and IT Risk

and Assurance) with deep competencies in risk, finance, supply chain, customer and

information technology.

Industries

EY is engaged in 16 principal industry sectors. In addition to gain more revenues,

these various industries enhance EY brand and reputation. They present EY perspective

on today's business issues and help account teams link EY services to these issues. The

industries are:

Asset Management;

Automotive;

Banking & Capital Markets;

Cleantech;

Consumer Products; 

Financial Services;

Government & Public Sector; 

Insurance;

Life Sciences;

Media and Entertainment;

Oil & Gas; 

Power & Utilities;

Private Equity;

Real Estate (includes

Construction, Hospitality &

Leisure); 

Technology; and 

Telecommunications.

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CHAPTER III

SUMMARY OF ACTIVITIES

Working Hours : 08.30 am – 05.30 pm (8 Hours)

Department : PSS Consult – International Tax Service: Transfer Pricing

Job Title : Assistant (Intern Grade-1)

On-Site Supervisor : Mr. Stephan Kadim

Principally, transfer pricing is the priced charge for the transfer of goods, services,

assets, intangibles between related parties. This section shall summarize the

responsibilities that I held during my internship at Ernst & Young Transfer Pricing (TP)

Department, as part of International Tax Services and global specialty service Line.

Within this department, the team’s main projects are:

1. To provide Transfer Pricing documentation.

Transfer Pricing documentation is the most common service, which is performed

for clients in conformance to the 2008 DGT Regulations that require every

private and public listed entity to submit and update their annual related-party

transactions.

2. To provide Transfer Pricing advisory services such as:

2.1. Design study, which is performed to develop and design a transfer pricing system

for a given set of inter-company transactions;

2.2. Audit defense, which is performed in case where tax authorities do not agree with

a client’s transfer pricing policy. The team helps clients to defend the

methodology adopted and the pricing applied in the past;

2.3. Planning study, which is performed when clients are considering relocating an

activity or setting up new operations? The teams helps clients to optimally

allocate functions and risk, and hence returns, among group companies;

2.4. Advance Pricing Agreement (APA), which is performed before the selection of

TP methodology and the making of TP documentation between tax authorities

and multinational companies;

2.5. Any related transfer pricing issues to meet the needs of clients due to significant

developments in the transfer pricing area.

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In addition to the OECD (Organization of Economic Cooperation and Development)

Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations that

most countries follow, Indonesian tax law requires companies engaged in related party

transactions to maintain documentations outlining the said activities and transactions. The

regulation is specifically stipulated in PER-43/PJ/2010 regarding Application of Arm’s

Length Principle in Transactions between Taxpayers and Parties Having Special

Relations.

The fundamental basis that underlies the Transfer Pricing documentation is the arm’s

length principle. It is the international standard that OECD member countries have agreed

should be used for determining transfer prices for tax purposes. Article 9 of the OECD

Model Tax Convention sets forth as follow:

“conditions are made or imposed between the two enterprises in their

commercial or financial relations which differ from those which would be made

between independent enterprises, then any profits which would, but for those

conditions, have accrued to one of the enterprises, but, by reason of those

conditions, have not so accrued, may be included in the profits of that enterprise

and taxed accordingly”.

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The phases of TP projects are described in the following figure:

The content of a typical TP documentation is divided into two main sections,

factual and technical sections. The figure below describes the sections.

In the following sections, the details of each section will be elaborate.

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PURSUE

Understand client's needDevelop proposal

INITIATE

Plan projectMobilize teamEngage with client

PERFOR

M

Fact findingAnalysisReporting

COMPLETE

Sign-offKnowledge sharingPerformance review

Company Analysis Industry Analysis Transaction Description Functional analysis Economic

Analysis

Company Analysis

Objective: To analyze the client’s strategy and business model

Activities:

To state legal evaluation of client;

To discuss recent changes in client’s structure or business activities;

To describe the ownership structure of the clients; including its parent company

and local or regional affiliates;

To describe client’s operational structure, including its business units or division

as well as descriptions of each division’s daily operations and responsibilities;

To describe client’s product segmentation and describe the main products which

generates majority of revenue;

To describe the proportion of products distribution to related and third party; and

To describe the differences in the product, quality, volume of production,

specification, any related information.

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Industry Analysis

Objective: To provide background as well as identifies and evaluates relevant

factors in the industry

Activities:

To discuss factors that affected the global and Asia Pacific market in the year in

question, both positive and negative factors;

To provide the global and Asia Pacific market performance in the year in

question;

To discuss government regulations of the industry in Indonesia;

To discuss the major factors that affected the industry in the specific year in

question in Indonesia;

To discuss the performance of the Indonesian market in general;

To discuss the market competitors and respective shares in the market;

To illustrate value supply chain for the client’s industry;

To discuss market factors that contributed to the success of players in client’s

industry;

To discuss risk encountered by the market players in client’s industry; and

To provide the Porter’s five model of client’s industry.

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Functional Analysis

Objectives: To understand the impact of the functions, risks, and asset of client and

see how these contributes the profit it earns.

Activities:

To discuss who among the entities (related parties) perform each function;

To describe the nature (description) of tangible and intangible assets;

To describe the location of tangible assets;

To provide the market value of tangible assets;

To provide information on the ownership of tangible and intangible assets;

To provide information on the protection and use of intangible asset;

To discuss type of exposure to risk resulted from the functions in which client

carries; and

To determine entity characterization based on the evaluation of the functions, risks

and assets borne or assumed by client.

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Economic Analysis

Objective:

• To elaborate the selection of the most suitable methods (This aims to describe the

main OECD transfer pricing method and identify the key comparability

requirement for each method).

• To elaborate the step of comparables search (This aims to understand the role of

comparable company search).

• To define the Profit Level Indicator used.

Activities:

To elaborate the five main five generally accepted methodologies by OECD

Guidelines that may be used to establish the arm’s length nature of the related

party transactions;

To explain why each method applies or does not apply in client’s case;

To make elimination criteria that was used in order to find comparables and

achieve the highest level of comparability;

To elaborate the application of each criterion and total number of companies were

eliminated;

To review manually the remaining companies set to find accepted comparables;

To elaborate the methodology applied to the financial information of the accepted

comparable companies;

To elaborate the PLI chosen as the most appropriate profit level indicators;

To calculate the inter-quartile ranges of three years weighted average financial

information of the accepted comparable companies; and

To conclude whether client’s PLI sit within range or outside the range to

demonstrate arm’s length principle.

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CHAPTER IV

PERSONAL RESULTS AND EVALUATIONS

1. Personal Results

This internship has broadened my perspective about corporate life as well as my

views on career. It helped me grow both as a person and as an employee. Meeting many

colleagues from different backgrounds has taught me many things. Many of my

colleagues at EY are foreign graduates and have many valuable international exposures

that allow me to leverage upon. Being a local graduate from President, this has given me

the opportunity to gain new insights and views, as well as to learn from them. This has

also strengthened my interpersonal skills and increased my effectiveness in

communication. For instance, I have learnt to be more tactful when working with older

seniors and be brave enough to ask insightful question in order to leverage on their

expertise as much as I can during my internships. Most importantly, working with Mr.

Carlo has provided me with valuable business network that I trust would be useful in my

future endeavors.

I also believe interning at EY has equipped me tremendously as an employer. One

of the most precious lessons that I have gained is the importance of being able to work

under pressure and to meet tight deadlines. No less important is the ability to work with

demanding seniors and managers – to be able to match their demanding work standards

and results. My written and oral English have also improved tremendously. This is due to

the fact that most, if not all of the reports and assignments that were assigned to me were

done in English. Being able to work with many clients from different and wide-ranging

industry has also broadened my industry knowledge, interest, as well as the ability to have

a deep understanding in analyzing the available information.

Overall, this internship has been an eye-opening and challenging experience for

me. It has strengthened me as a person and as an employer and I believe that this

experience will make me a more marketable employee in my future career

.

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2. Evaluations

Based on my colleagues’ review regarding my work-related performance, I

realized that there are things that I need to improve.

One of my major issues is the need to increase ability to expose my capabilities. I

do also need to increase my leadership skills and initiative in working through problems

and issues. I should try and convey my opinions more in group discussions or tasks given

to me. As an intern, though it is not required to make decisions, it would be a plus point to

have the capability to be involved in helping the seniors to make decisions. Moreover, I

also need to be more effective and focus when doing tasks.

My true potential has not been achieved due to my lack of ability to push beyond

my comfort zone. When I am able to do so, the team believes that I have the capability in

completing projects with increased complexity beyond those assigned to me at present.

I believe that my lack of self confidence in work environment is the main motive which

put off me for being better.

Nevertheless; the ability to demonstrate a very good attitude in approaching the

work being assigned, by showing interest and ask for any queries along the way, proves

my willingness to excel in my work. The teams also see me as a person with integrity,

respect for the team, commendable work ethics, eagerness to learn, and receptive to

instructions and comments.

In conclusion, I believe my inter-personal skills combined with technical skills

will be able to help me cope with problems I may encounter in working environments.

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CHAPTER V

CONCLUSION AND RECOMMENDATIONS

1. Conclusion

This internship has been significant in my career plan especially to a particular

field I want to be deal with for the next years. Transfer pricing has been experiencing

significant development this current year which exposed the team to various issues. I find

them very interesting and I am keen to know further. Technically, I was also able to apply

what I have learnt in classroom into what I do at work.

I believe that my experience in the internship will not only be to my advantage but

will also be beneficiary for other people through my future activities.

2. Recommendations

Ernst & Young Indonesia is a global accounting firm which honors its “Quality in

Everything We Do” motto. Hence, employees as well as interns are required to work and

make differences while dealing with clients and communities, simultaneously. However,

interns are not allowed to go to client and working overtime. This fact hinders interns to

develop their capabilities and make differences. Thus, it will be much appreciated if the

policies are being considered so that interns can also deliver qualified and better service

to the company.

Moreover, Ernst & Young Indonesia stand for the company’s branding which

require consistency in particular format when constructing TP documentation. The fact

that most of the assistants in charge are illiterate of Microsoft Office skills, especially

features of Microsoft Word and Excel, most interns assist them to do the formatting rather

than having interns to do analytical works. It will be much appreciated if the team are

being trained for these branding need so that intern can gain more knowledge in analytical

matters.

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REFERENCES

PU Internship Handbook

Transfer pricing in the Asia Pacific Area – TP Training Ernst & Young Indonesia 2010

(13-15 December)

Director General of Taxation Regulation Number PER-43/PJ/2010 regarding Application

of Arm’s Length Principle in Transactions between Taxpayers and Parties Having Special

Relations.

OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administration

(July 2010 Edition)

Director General of Taxation Regulation Number PER 69/PJ/2010 regarding Advance

Pricing Agreements

Direktorat Jenderal Pajak - Direktorat Pemeriksaan dan Penagihan, March 31 2010,

S-153/PJ.04/2010 mengenai Prinsip Kewajaran Transaksi Afiliasi dan Kelaziman Usaha

yang tidak Dipengaruhi Hubungan Istimewa

http://www.ey.com/

http://eyhome.ey.net/

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