|Danny Darussalam Tax Center|
|Hadiputranto, Hadinoto & Partners|
|PB Taxand, Taxand Indonesia|
|GNV Consulting Services|
Indonesian President Joko Widodo has repeatedly demonstrated his focus on increasing tax revenues to boost the country's much-needed infrastructure spending. In the summer of 2016, he granted a nine-month tax amnesty in hopes of repatriating offshore wealth and enhancing tax compliance. Hailed by media as a success, the campaign resulted in the tax administration collecting some $330 billion from at least 745,000 taxpayers by the end of March 2017, making it one of the world's most successful tax amnesties ever.
The Indonesian government's drive for improved tax collection includes increasing the amount of TP audits. In June 2017, the Indonesian government announced that it had settled a lengthy tax dispute with Google for 2016. While the settlement sum has not been disclosed, it is perceived as setting a new tone in the interpretation of permanent establishment status for tech companies.
The Indonesian Ministry of Finance in December 2016 also issued regulation number 213/PMK.03/2016 (PMK-213) requiring the preparation of the master file, the local file and country-by-country reporting (CbCR).
However, different from other countries that have implemented the three-tiered TP documentation, Indonesia's regime does not state different thresholds for taxpayers preparing the master file and the local file. Taxpayers have to prepare the master file and the local file if their transactions or related party transactions reach the relevant thresholds.
While CbCR requirements align with the OECD's standard of €750 million ($884 million) the thresholds for preparing TP documentation in Indonesia are now lower than before the regulatory changes. This allows the Indonesian government to cast its tax net wider: more taxpayers who were previously exempt from TP documentation now have to prepare reports for 2016. This may mean these taxpayers are vulnerable to compliance costs which may affect their profits and investments.
Even if companies do not exceed the thresholds of PMK-213, they will still be bound to comply with the previous TP regime, which was not repealed by the new regulation. Taxpayers will have to ensure that they comply with PMK-213 and the older TP rules. PMK-213 now requires taxpayers to include their domestic related party transactions in the TP documentation.
Where the taxpayers exceed the TP documentation thresholds, they will have to include all their related party transactions. This is a step away from the previous TP regime that required taxpayers who exceeded thresholds to include only specific party related transactions. PMK-213 also requires that a taxpayers may need to prepare a CbCR even if the taxpayer is deemed not to be the ultimate parent entity of an MNE.
PMK-213 states that taxpayers need to file the master file and the local file within four months after the taxpayers' fiscal year-end. Taking into consideration the lower thresholds and the new requirements to include all party related transactions, this submission deadline is tight.
(As of August 2017)
|Corporate income tax rate||25% (a)|
|Capital gains tax rate||n.a.|
|Royalties from patents, know-how, etc.||15/20% (b)|
|Land or buildings||10% (c)|
|Other payments for the use of assets||2% (d)|
|Fees for services|
|Payments to residents|
|Technical, management and consultant services||2% (d)|
|Construction contracting services||2/3/4% (e)|
|Construction planning and supervision||4/6% (e)|
|Other services||2% (d)|
|Payments to non-residents||20% (f)|
|Branch profits tax||20%/25% (g)|
Net operating losses (years)
|Carryforward||5 to 10 (h)|
Source: EY 2017 Worldwide Corporate Tax Guide