Executing transfer pricing strategies for NHI in Indonesia

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Founded in 1982 in Sichuan Province, China, New Hope is the largest private agricultural company and the largest feed producers in China, with an annual production capacity of 20 million tons. New Hope has more than 80,000 employees and 10,000 of the best professionals in their respective fields. In 2006, New Hope began investing in Indonesia by establishing PT New Hope Indonesia (“NHI” or “the Company”). In 2008, Jakarta based NHI began commercial operations and now has expanded in various cities across Indonesia including Surabaya, Medan, Lampung, Semarang and Makassar. NHI comprises of animal feed industry, breeding and cultivation of laying and broiler chickens.

The challenge

One of the top challenges for a Chinese business when entering a new market is the language barrier. Cultural and language differences can hinder effective communication and NHI needed a team of local advisors in Indonesia to help them overcome these challenges. To avoid any miscommunications issues between employees and investors which can lead to misunderstanding, NHI needed an advisory team they could trust. All laws and regulations in Indonesia are stated in Indonesian language with minimum translation in English. Misunderstanding or misinterpretation of the laws and regulations can easily happen to non-native speakers and could be harmful to foreign companies and its operations in the jurisdiction of Indonesia.

Based on the Minister of Finance Regulation of the Republic of Indonesia No. 213/PMK.03/2016, certain taxpayers who have met certain conditions are required to prepare transfer pricing documentation under Section 34F of the Income Tax Act unless exemption for specified transactions apply. In this case, NHI who had transactions with related parties, met one of the requirements to prepare transfer pricing documentation. HLB Indonesia raised this issue with NHI’s management for careful consideration and immediate action.

How we helped

At HLB Indonesia, we have Chinese‐speaking staff who can communicate with Chinese clients in their native language. Meeting tax regulation regarding transfer pricing documentation is important for foreign investors who do business in Indonesia. Transfer pricing examination has come under regular scrutiny and is conducted by the tax authority to ensure that foreign companies, like NHI, were not shifting their profit to preferred jurisdictions.

 Our experts helped and supported NHI to prepare their transfer pricing documentation under the prevailing rules. The job involved cross‐jurisdiction coordination to understand the whole structure of the Group. It was challenging because every jurisdiction has their own local rules and is often written in local languages. We had to closely cooperate and intensively communicate with counterparties to acquire information to prepare the transfer pricing documentation in accordance with Indonesian rules. We submitted the draft to the NHI head office and to the Group to obtain understanding on the transfer pricing methods applied and how allocation of functions, risks and assets to each related entity were involved before delivering this to the local tax authority. Transfer pricing documentation must be able to describe transactions and factual events in‐line with rules. Transfer pricing documentation must able to answer the challenges from tax office.

 

The result

We were able to deliver the transfer pricing documentation which satisfied both NHI and the regulatory perspective as well. Our approach utilised OECD Guidelines on transfer pricing documentation which is applicable among developed countries. OECD Guidelines have become a major reference to all jurisdictions. Although every jurisdiction has their own rules, they managed to have links and adaptation to OECD Guidelines. Therefore, preparing the documentation accordingly is an advantage.

By utilising the Guidelines in local transfer pricing documentation proved our ability to compile, summarise and apply transfer pricing rules from several jurisdiction into one report which is suitable for international application. It was a great achievement for HLB Indonesia.

 

Coco Liu

Chief Regional Officer, Asia Pacific & Head of Global Business Channels

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Helping Thermaflex its’ worldwide network of companies grow across the world

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Thermaflex is a leading manufacturer of special pipes and insulation solutions made from environmentally friendly materials. Founded in the Netherlands in 1976, Thermaflex is an international company having a proactive role by developing and providing products, services and solutions to encourage sustainable building by reducing waste of energy. Thermaflex was looking for an accounting network that would be able to deliver professional services in all their business locations and approached HLB. Thermaflex needed services related to audit, tax and advisory.

How we helped

Thermaflex, with production facilities in Europe, Russia and Thailand, is active in more than 40 countries worldwide. Its products, both pre-insulated piping systems and technical insulation solutions, are designed to save energy in: Heating & Plumbing; Cooling & Air Conditioning; District Heating & Cooling; Industry & Protection.

The main activities within the Thermaflex group are the production of insulation foam (Thermaflex™), and pre-insulated piping systems (Flexalen™) As all of the company’s products have the disadvantage of huge transport costs, it is crucial to have production close to the demand. For this reason Thermaflex has a worldwide network of companies from Mexico up to Thailand. Therefore, Thermaflex needed a professional services provider that could support them in all the jurisdiction they operate in for a range of services from compliance to advise work.

The result

Thermaflex has been a client since 2007 and works with HLB members across the world, enjoying a seamless client experience and network that can support their international business needs.

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HLB International’s member firms can deliver professional services in all our business locations world-wide with a distinguished quality of personal service

Frank Schoolderman, Corporate Finance Director

Servicing Huawei in West Africa: the world’s largest telecommunications equipment company

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HLB KMC West Africa recently provided audit services to Huawei Technologies Niger, a subsidiary of Huawei Technologies, a leading global information and communications technology (ICT) solutions provider and the largest telecommunications equipment maker in the world. A Chinese multinational organisation, Huawei Technologies comprises 150,000 employees in 140 countries worldwide and recorded revenues of CNY 220.2 billion (appr. $36 billion) in 2012. In accordance with legal requirements set by the YSCOA (West African Accounting System) in terms of turnover and number of employees, Huawei Niger had to appoint a Statutory Auditor for the certification of its financial statements. The particularity of the client lay in the way its financial statements are established: Huawei Niger uses an integrated management system set up by the Group, with IFRS accounting standards.

How we helped

In such a situation, it was necessary to conduct an IT audit as well as a financial one in order to check the coherence in the recording and accounting procedures as well as to control data in the system, interviewing key officials, reading and getting familiar with the system guidelines and procedures to better understand operations and performing adequate tests to verify information accuracy. Another obstacle was the financial reporting framework used by the Client (IFRS). At this stage, the strategy used by HLB KMC West Africa consisted in establishing a mapping to check the similarity and differences between IFRS accounts and local accounts (OHADA).

“We are satisfied with HLB KMC and its team of professional auditors for the outstanding audit engagement conducted. During the audit, multiple relevant recommendations were made by the firm’s team of young, dynamic and very professional team of auditors. Those recommendations are very valuable for our company in a way that they will enable us to improve both our management and daily operations. Huawei Technologies Niger is very pleased with the quality services offered by HLB KMC, and relies on the firm’s invaluable guidance and partnership for improving and doing business in Niger.” – Wang Feng, CEO Huawei Technologies Niger

The result

The audit engagement was successfully conducted. Even though Niger is a French-speaking country, the assignment and reports were carried out in English at the request of the client. Huawei Technologies Niger was very satisfied with the engagement in general and agreed to follow and implement recommendations resulting from the audit.

New Frontier Group, a leader in digital transformation

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New Frontier Group is a leader in digital transformation in Central and Eastern Europe and operates worldwide with direct subsidiaries in 17 countries. With €200 million revenues and 2,000 employees, New Frontier Group ranks Top 10 in IT services in Central and Eastern Europe (Gartner), Top 3 to 5 in Russia, Serbia, Czech Republic and Romania, and is expanding rapidly in the other countries it is established in. New Frontier Group’s portfolio includes consulting services, integration of comprehensive IT solutions and services, internally-developed IP products and services as well as digital innovation. New Frontier Group contributes strategic value to its clients by guiding them through their digital transformation journey, offering innovative, customer-facing products and consulting services to reshape business models. Clients belong to the financial industry, the telecommunications sector, the public sector including governments and utilities, along with heavy machinery and retail, among others. New Frontier Group needed an international partner to support its operations across Central Eastern Europe.

How we helped

In Vienna, where the headquarters are located, HLB International Austrian member HFP Steuerberater has been New Frontier Group’s main accountant and tax advisor for several years. To support its client’s international business and growth, HLB’s Austrian member has referred New Frontier Group to other HLB firms in several countries as for example Romania, Serbia, Slovakia, France, Poland, Russia, Hungary, Germany and Turkey. In those countries HLB members support the development of New Frontier Group’s international activity with tax advisory and payroll services, assessing local tax legislation and advising the group on intercompany relations such as transfer pricing or withholding taxes. Services provided also include due diligence as part of company’s acquisitions.

The end result

HLB members in 10 countries support the international growth of New Frontier Group, from its headquarters in Vienna to subsidiaries across Central & Eastern Europe, Russia and beyond.

 

Quote: “We work with HLB International in many countries in addition to Austria for our headquarters. 90% of our tax -related enquiries internationally are addressed to HLB and I can say that we are very well serviced by HLB members. What I really appreciate with HLB International is the great geographic coverage of the network. Thanks to it the HLB network has been able to accompany our international growth, particularly in Central and Eastern Europe. Also, the pragmatic approach of HLB professionals is a great asset. They offer a concrete, simple approach, with clear, precise and to-the-point recommendations and excellent local knowledge. Our collaboration works very well: the HLB team in Vienna led by Roland Zacherl is very well connected to the entire HLB network, and it takes them only a few days to get back to us with first recommendations from their HLB colleagues in other countries.” – Georg Schoder. Chief Financial Officer, New Frontier Group

Broetje-Automation Group: a successful composition

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From the Northwest of Germany, Broetje -Automation Group has become the world’s leading expert in specialised production processes in the aviation and aerospace industry, servicing all major aircraft manufacturers around the world. Since the first major acquisition in 2007, Broetje has relied on transaction advisory services rendered by HLB member firms to support its global expansion.

How we helped

Today, Broetje operations include presence in the US, the UK, France, Russia and China. Major projects concern not only the delivery of individual equipment items, but the set-up and commissioning of whole production sites. In the course of this growth process, HLB member firms from several countries under the lead of HLB Stückmann, Bielefeld, Germany, have helped to successfully acquire local suppliers and distributors, implement efficient distribution vehicles and a tax efficient intra-group cooperation strategy

Quote 1: “What we do appreciate with HLB International is the fact that we know, value and trust our contact partners. The worldwide network cooperates to design pragmatic and convenient solutions to support our growth”. – Ingo Körner, CFO of the Broetje-Automation Group

HLB’s approach has involved member firms and lead to direct contacts at local level in a well-coordinated manner. To date, a team of ten professionals located in Bielefeld covers and coordinates the services in the fields of tax compliance, international taxation, transfer pricing, staff secondment, corporate restructuring, M&A and legal services, mainly concerning contractual structuring. It is the intra-disciplinary approach covering accounting, tax advisory and legal services, all coordinated to suit the operative and strategic needs of Broetje-Automation, which manifests the success of the mutual cooperation.

Quote 2: “The strong individual relationships between the responsible client partners in the relevant jurisdictions —Germany, US, UK, Russia, China and Japan— based on years of international cooperation, professional experiences and personal relationships developed at HLB’s international conferences, tested in mutual client servicing, allow for this outstanding performance in a world of international players.” – Arnold Stange, Partner at HLB Stückmann.

The end result

In the UK, Menzies have advised Broetje at the GmbH level and with the set-up of a new UK company. In relation to both entities we have had to coordinate the UK position with HLB Stückmann to ensure that the advice has been understood and consistent in both countries. Throughout this process we have developed closer working relationships and a greater appreciation of the cross-border implications for German companies doing business in the UK. It is this type of strong relationships and the constant sharing of knowledge throughout the HLB network that provides us with the ability to confidently service international clients.

In the US, Withum Smith+Brown assisted Broetje through two major transitions: moving their US headquarters from Omaha, Nebraska to Buffalo, New York, as well as a change in personnel in the finance & accounting department which occurred as part of the move of headquarters. Currently, we assist Broetje USA with their year-end income tax provision, in addition to handling their US tax compliance filings. We work closely with the Broetje team to minimise the tax liability on the myriad of US tax filings. We’re also helping with Broetje Automation (Germany) regarding prior-year state income tax filings required despite the German entity not having a Permanent Establishment in the US.

In France, the Broetje project started in the summer of 2011 with negotiations conducted together with HLB Stückmann to acquire a majority take in the capital of a French company located in South France. Since that time, Broetje as well as the HLB team in Germany have regularly contacted us in France for tax, social and legal issues encountered by Broetje. This joint work has strengthened our network and common relationship.

In China, we have worked together with HLB Stückmann to support Broetje’s understanding of the taxes incurred in China for their projects, helped with the Chinese company setup in Shanghai and provided continuous accounting service, tax filing and financial reporting service to Broetje Shanghai on whom we performed both statutory and group audit. HLB ThinkBridge has continuously communicated and coordinated with HLB Stückmann on Broetje, with mutual updates on a responsive and regular basis ensuring the success of this project.

Client testimonial by JF Hillebrand

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Our relationship does back nearly 2 decades to 1999 and through the years, we can proudly say that we saw our client grow significantly. “We work with a number of HLB member firms in respect of our multi-national operations covering thirty-one countries and have been very satisfied with the quality of work and the responsiveness of the firms involved” Kevin Brock, Chief Financial Officer

How we helped JF Hillebrand grow

JF Hillebrand has been a longstanding client of HLB members around the world. Our member firms have provided a wide range of services to them as they have continued their rapid global expansion. The services provided include annual reporting, taxation and a support on the acquisitions they have made around the world.

About JF Hillebrand

JF Hillebrand is the world’s leading specialist logistics provider to the wine and spirit trade, with a global network of both wholly owned offices and agents present in every major wine and spirit market.

Since 1844, the company has dedicated itself to the efficient and cost-effective logistics of wines, spirits and beers. As well as offering first class logistics services, it also leads the way in the development of innovative products, services and IT tools to the global beverage industry. JF Hillebrand has more than 1650 professionals in 45 offices all over the world.

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