GAAR SAAR Indonesia

5/20/2018 GAAR SAAR Indonesia

1/26

THE INDONESIA

ANTIAVOIDANCE RULES:

GAARs & SAARs

By:

Astera Primanto Bhakti

Director of Center for State Revenue Policy,

Fiscal Policy Agency, Ministry of Finance of The Republic of Indonesia

on the event of:

4th IMGF-Japan High Level Tax Conference Program

TOKYO, April 2013

1


2/26

OUTLINE

3

1 Background of GAARs/SAARs in Indonesia

The Indonesian SAARs

2 The Indonesian GAARs

3

2

GAARs/SAARs :

Some Consideration for Its Effectiveness

4

Conclusion5


3/26

GAARs / SAARs in Indonesia :

The Background

3


4/26

6.3 6.04.6

6.2 6.5 6.5

14.2

9.6 9.210.4

9.28.2

10.0

6.2 6.6

10.6

7.2 6.96.6

4.2

1.1

7.6

3.7 4.2

6.15.2

-0.3

7.5

2.7 3.0

5.0

2.6

-2.3

7.8

0.1

5.5

8.5

5.2

-7.8

4.3 4.3 4.0

-10

-5

0

5

10

15

20

2007 2008 2009 2010 2011 2012%

Indonesia China India Philippines Brazil Thailand Russia

Indonesias Economic Growth:

High and Stable

Indonesia has achieved continuous high economic growth since 2000, 6.5% real GDP growth in 2011.

Maintaining growth in line with capacity, 6.5% expected for full year 2012 and 6.8% projected for 2013.

Consistently outpacing its most BRIC and South-East Asian peers.

Source: MOF, IMF, World Economic Outlook

Indonesias GDP growth

Indonesias economic growth vs. BRIC and Southeast Asian peers

4.7

0.8

4.93.6

4.5 4.8 5.0 5.7 5.5

6.3 6.04.6

6.2 6.5 6.5 6.8

7.5 8.2 7.8

-13.1

-15

-10

-5

0

5

10

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

%

4


5/26

Food Crops& Plantation

7,0%

Mining17,3%

Industry47,1%

Transport,Storage &

Communicati

on5,9%

Electricity,Gas & Water

Supply2,2%

Trade &Repair4,0%

Hotel &Restaurant

10,3%

Real Estate,Ind Estate &

BusinessActivities

1,8%

OtherSectors

4,5%

5

FDI has been Growing Rapidly

Across Sectors...

FDI Growth by Sectors (%YoY)

Industry and Mining Continue to be the Two Largest Invested Sectors (2011 Compared to 2012)

Source: BKPM, processed

Note: Data excludes oil&gas and banking

2011 JanSept 2012

20,2%

103,1%

185,4%

98,4%

293,8%

13,7%

23,1%67,6%

101,9%

-23,8%

64,0%64,6% 30,5%

6,1%

-30,6%-74,7%

23,4%

-7,2%

65,9%

-7,7%

-39,4%

-12,9%

49,8%

-100%

0%

100%

200%

300%

400%

Industry Transport,Storage &

Comm.

Mining Food Crops &Plant

Electricity, Gas &Water Supply

Trade & Repair Hotel &Restaurant

Real Estate, IndEstate & Buss

Acts

5 years ave growth 2011 Jan-Sept'12

434%

Food Crops &Plantation

6,3%

Mining18,5%

Industry34,8%

Transport,Storage &

Communication19,8%

Electricity, Gas &Water Supply

9,6%

Trade & Repair4,2%

Hotel &Restaurant

1,2%

Real Estate, IndEstate & Business

Activities1,4%

Other Sectors4,2%


6/26

Investment Growth in Indonesia

6

Source: The Indonesian Investment Coordinating Board

The Investment Realization of the year 2010-2012(& Target for the year 2013)


7/267

2006-2012: Tax Revenue increased by 2.5 times, from IDR 409,2 T (2006) to IDR 1.019.2 T (2012).

Average growth is 17% annually.

20112012: Tax revenue increased by 17.5%; Non-oil tax revenue increased by 22.2%.

208.8 238.4327.5 317.6 357.0

432.0520.0123.0

154.5

209.6 193.1

230.6

298.4

352.9

37.8

44.7

51.356.7

66.2

68.1

75.4

39.6

53.4

70.352.5

69.5

80.2

84.2

409.2

491.0

658.7

619.9723.3

878.7

1,032.6

12.30 12.43

13.30

11.0411.30

12.16

12.72

0

4

8

12

16

20

0

200

400

600

800

1000

1200

2006 2007 2008 2009 2010 2011

APBN-P

2012

APBN

Triliun Rp Persen (%)

Lannya Cukai PPN PPh Tax RatioOther Excise VAT Income TaxRevised BudgetBudget

PercentIDR Trillion

Tax Revenue Growth

2006 2012)


8/268

During the period of 2006-2012, Non Tax Revenue increased by 6% annually.

Natural Resources, particularly the Oil and Gas, have been the primary

sources of non tax revenue.

Non Tax Revenue

2006 2012)

35,7%

30,5%

34,9%

26,8%27,1%

24,6%21,2%

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

50

100

150

200

250

300

350

2006 2007 2008 2009 2010 2011

APBN-P

2012

APBN

PersenTriliun Rp

Pend BLU PNBP Lainnya Dividen BUMN Penerimaan SDA Porsi PNBP thd PDNBLU Other SOE Dividend NaturalResources

Ratio of Non Tax Revenue

/Domestic Revenue

IDR Trillion Percent

Revised Budget Budget


9/26

TAX AVOIDANCE/EVASION ?

9

TAX

AVOIDANCE

LEGAL or NOT ?

Based on FACT &

SUBSTANCE

Legal Tax

PlanningIllegal Tax

Planning


10/26

TAX AVOIDANCE :

Some Stylist Facts

Which of the followings are considered as tax avoidance ?

1. Company Reporting Losses / No Income in its Tax Return

for several years, but the business remains exist

2. Not reporting income earned abroad (interest, dividends,and capital gains)

3. Shifting debt to high-tax jurisdiction; vise versa, shifting of

profit and income into low-tax jurisdiction

4. Preference of debt to equity as financing source for its taxbenefit

5. Setting up shell corporations and trusts in foreign haven

countries to channel funds

10


11/26

GENERAL ANTIAVOIDANCE RULES

(GAARs)

11


12/26

GAARs IN INDONESIA

LEGAL BASES:Indonesian Income Tax Law (IITL), (as lastly amended byLaw No.36 year 2008)

a. Substance Over Form rule

ie. Article 4, 23, 26 of IITL (Income Determination)

Definition of Income:

Any increase in economics capacity received by or accruedby a taxpayer from Indonesia as well as from offshore, whichmay be utilized for consumption or increasing the taxpayers

wealth, in whatever name and form, including .......

The above provisions forms the principles in determining taxableincome, and it operates as one of the measures to counter taxavoidance and/or evasion.

12


13/26

b. Article 18(1) : Debt and Equity Determine the Debt to Equity ratio of companies for tax calculation

purposes

c. Article 18(4) : Control / Ownership

Related Taxpayer shall be deemed to exist in the case of:

A taxpayer who owns directly or indirectly at least 25% of equity ofother Taxpayers;

A relationship between taxpayer through ownership of at least

25% of equity of two or more taxpayer, as well as relationship

between two or more taxpayers concerned;

A Taxpayer who controls other Taxpayer; or two or more Taxpayersare directly or indirectly under the same control;

A family relationship either through blood or through marriage

within one degree of direct or indirect lineage.

13

General Applicability of the provisions GAARs

GAARs IN INDONESIA


14/26

Legal Base:

a. Article 26 (1a) of Law of The Republic of Indonesia Number 36 of

2008 concerning Fourth Amendment of Law Number 7 of 1983

concerning Income Tax

b. DGT Regulation no. 62/PJ./2009 as amended by no 25/PJ./2010

concerning The Prevention of Misuse of Double Taxation

Avoidance (DTA) Agreement

DTA abuse occurs in case of:

a. transaction that has no economic substance, which is done by

using the structure /scheme in such a way with a view solely to

obtain tax treaty benefits.

b. transaction with a structure / scheme where legal form differs

from economic substance, in such a way with a view solely to

obtain tax treaty benefits

c. income recipient is not the beneficial owner14

INDONESIAN GAARs

on Tax Treaty


15/26

Beneficial Owneris defined as income recipient who is:

a. Not acting as Agent;

b. Not Acting as Nominee; and

c. Not a Conduit Company

In the case of misuse of DTA :

a. DTA does not apply; and

Apply regular taxation rules in accordance with Indonesian Income

Tax Law.b. In the case of difference between the legal form of a structure /

scheme with their economic substance (economic substance), the

tax treatment will be based on their economic substance

(substance over form).

15

INDONESIAN GAARs

on Tax Treaty


16/26

SPECIFIC (TARGETED)

ANTI AVOIDANCE RULES (SAARs)

16


17/26

LEGAL BASES:

Indonesian Income Tax Law No.36 year 2008 :

a. Article 18(2): Controlled Foreign Companies (CFC)

Minister of Finance is authorized to determine when a dividend is

deemed to be derived by a resident Taxpayer on participation inan offshore company other than public companies, where:

Taxpayer owns at least 50% of the paid in capital of thecompany; or

Taxpayer together with other resident Taxpayer own at least50% of the paid-in-capital of the company

b. Article 18(3,3a,3b,3c,3d): Related Party + SPV/SPC relatedTransactions

Transactions between related parties should be carried out in aCommerciallyJustifiable Wayand on ArmsLength Basis.

17

SAARs IN INDONESIA


18/26

18(3): Interest Stripping

DGT is authorized to reallocate income and deductions between

related parties and to characterize debt as equity, aiming to

properly reflect the transaction between independentparty

Resale Price, Cost-Plus, or other methods

18(3a): Advance Pricing Agreement (APA)

DGT is authorized to conclude agreement with a Taxpayer and with Tax

Authority from other countries on Transfer Pricing method between

related Taxpayer

18 (3b): SPV/SPC Related TransactionTaxpayer who purchases shares or assets of other entity through a

special purpose company (SPC) can be deemed as the real party who

conducts the transaction, provided that such taxpayer is the affiliation

of the SPC and the price of the transaction is unfairly settled.

18

SAARs IN INDONESIA


19/26

SAARs IN INDONESIA

18 (3c): SPV/SPC related transaction

The sale or transfer of shares of a conduit company or SPC which is:

established (or domiciled) in tax haven countries; or

affiliated with company/PE established (or domiciled) in Indonesia

could be deemed as the sale or transfer of shares of an entity that is

established (or domiciled) in Indonesia or PE in Indonesia.

18 (3d): International Hiring-out of Labor

The amount of income that individual resident taxpayer has received from

an employer which is the affiliation of non residents entity may be

adjusted by tax authority, in case of the employer transfers the payment informs of expenses or other expenditures which is paid to his affiliation.

19


20/26

1. Thin Capitalization Rule :

Currently is still under preparation.

2. Controlled Foreign Company Rule :

a. [Minister of Finance (MOF) Regulation No. 256/PMK.03/2008 ]concerning the Determination of when dividend is accrued by aresident Taxpayer on participation in an offshore company otherthat public companies

b. [DGT Regulation no PER - 59/PJ/2010]

Dividend is deemed to be derived in the :

4thmonth following the deadline for filling the tax return in theoffshore country; or

7thmonth after the offshore companystax year ends (in casethe country does not have a specific tax filling deadline)

20

ANTI AVOIDANCE RULES:

THE OPERATIONAL REGULATIONS


21/26

3. Related Party/Transfer Pricing Rules :

a. [DGT Regulation no PER 43/2010 as amended by PER-32/2011]

Application of the fairness and the prevalence principles fortransactions with related party

Commercially Justifiable Way and on Arms Length Basis.

b. [DGT Regulation no 69/PJ/2010 Advance Pricing Agreement ]

Agreement between Tax Competent Authorities and Tax Payerconcerning Pre-defined Transaction Price

The agreed price shall be in effect for maximum 3 consecutivetax years commencing from the tax year the price wasagreed.

c. [DGT Regulation no 48/PJ/2010 Mutual Agreement Procedure]

Optional way for taxpayer to solve problems due to

misapplication of DTA clauses. 21




22/26



4. SPV/SPC Related Transaction:

a. MOF Regulation No. 140/PMK.03/2010 concerning Determination of

Taxpayer who genuinely purchases shares or assets of other entity

through a special purpose company that is a related party and the

price is unfairly settled.

[Anti Stepping Rules for Paragraph (3b) of Article 18 of IITL]

b. MOF Regulation No 258/PMK.03/2008 concerning Article 26

Withhoding on Income from Sales or Alienation of Shares as referred

to Paragraph (3c) of Article 18 of Income Tax law which is received or

accrued by Non-Resident Taxpayer

5. International Hiring Out Labor

MOF Regulation No 139/PMK.03/2010 concerning Realocation of the

amount of income that individual resident taxpayer has received from an

employer which is the affiliation of non-residents entity

[rule for Paragraph (3d) Article 18 of IITL]

22


23/26

GAARs & SAARs :

Some Considerations

Some of the issues that need to be anticipated to clear the way towardsthe GAARs/SAARs implementation:

1. Taxpayer/Business refusal

public hearing and consultation might be a way to

avoid this2. Lower investment, particularly the inbound investment

require profound and comprehensive analysis

3. Politics and others

4. Court Decision

Indonesia: Court makes references to

the existing laws and regulations

23

Stringent

?

Flexible

?

OTHER

?


24/26

ANTI AVOIDANCE RULE :

STRIKING THE BALANCE

Return Risks

24

RISK

R TURN

InternationalObligation

DomesticNeeds


25/26

Conclusion

1. The fast development in business sophistication has resulted in

enchanced complexity of transactions. The tax planning involving thecomplex transactions may entangle tax avoidance scheme.

2. The existence of anti avoidance rule is important as a mean to obtain

proper base for the implementation of domestic tax regulation.

The Indonesian GAARs/SAARs were introduced as part of themeasures to prevent and counter abusive tax planning (tax

avoidance/evasion) from taxpayer.

Overall, the Indonesia Anti Avoidance Rule applies the Substance

Over Form approachin line with International

standard/approach.

When deciding on cases, court refers to the laws and regulations in

Indonesia

3. In order to have an optimal result, the formulation of anti avoidance

rules should consider all relevant aspects/factors for both Government

and Taxpayers sides, ie : Risk vs Return ; Prudence vs Flexilibility 25


26/26

THANK YOU

26

GAAR SAAR Indonesia

Documents

Transcript of GAAR SAAR Indonesia