From Borderless Transaction Turn To Payless Taxation

 

Background and related issues

From the past, tax become a sexy component in contributing cost in the corporation. Nowadays, it becomes sexier when globalization come up. Globalization brings a lot of benefit to us as a human being. We can make many transactions with anyone, anywhere and anytime. We call it easiness of life. We never care about tax we paid in those transactions. So, how about our country? Indonesia’s state budget mostly supported by tax. Each country has its own regulation in tax. Depends on the regulation, a transaction can be taxable or not. Same type of transaction can be taxed lower or higher. We can imagine how the Multinational Enterprise (MNE) thinking about this situation. Whereas, tax office still faces difficulties in redefining Beneficial Owner (BO) and Permanent Establishment’s (PE) status.

In my duty before, Section of Group Company Transaction Audit - Subdirectorate of Special Transaction Audit - Directorate of Tax Audit and Collection, I was concerning about MNE’s transaction. Under the  directive from Director General of Taxes in SE-26/PJ/2013 about Instruction for Group Companies Audit, we make an instruction to do a simultaneous audit. This audit is done simultaneously by entire tax offices where the tax payers of group companies are on. This conduct is in line with OECD Model Agreement for Undertaking of Simultaneous  Tax Examination (OECD transfer Pricing Guideline for Multinational Enterprises and Tax Administrations 2017: 199),

 

“…a simultaneous tax examination means an ‘arrangement between two or more parties to examine simultaneously and independently, each on its own territory, the tax affairs of (a) tax payer(s) in which they have a common or related interest with view to exchanging any relevant information which they so obtain’.”

 

Tax payers of group companies are spreaded in many type of tax offices, including small and large tax offices. Evenmore, the crucial transaction usually is located in Small Tax Office. Like we know, Small Tax Office’s ability to capture the transaction is not as good as the medium and large tax office. With the big amount and variative of tax payers, small tax office must have priority to do their job. Holding company with minor tax payment liabilities and small turnover is not Small Tax Office’s concern.

We can see transaction showed at the picture above. In a glance sight, PT X in Small Tax Office is just a holding company without meaning activities. But, the existence of PT X is important to reduce total tax payed in its group. Revenue from PT Y and PT Z is reduced by paying interest of loan and dividend to PT X. Revenue in PT X is reduced by giving no-interest loan to Mr X and paying interest loan to XYZ Ltd. Suprisingly, loan from XYZ Ltd. is from Mr X. That’s why tax auditor’s ability and skill in Small Tax Office must be upgraded.

Now as a tax auditor in Small Tax Office, finally I face the MNE’s transaction. Last year, I handled a transaction between PT X in my office and it’s transaction opponent in Finland. PT X payed the high amount of fee for shareholder, Mr X. That fee had been taxed as Mr X’s personal income tax. I redefine it as dividend. Core business of PT X is limited distributor. X Ltd. as goods owner give PT X agency fee. But, cost of transaction with the third party is charged on PT X. I don’t clear enough about X Ltd.’s ownership. In other choice, X Ltd. can create PE than establishing PT X. PT X revenue from agency fee must be smaller than PE of X Ltd. Then, PT X membebankan PPN PM atas semua kegiatan yang dilakukan oleh perusahaan Finlandia selama di Indonesia sehingga PPN nya lebih bayar. With the complexity of its transaction, this tax payer’s status now is on Medium Tax Office. Although PT X submit tax objection for Notice on Tax Underpayment Assesment, it’s a good job for Small Tax Office to find out this type of transaction.

In the future, hopefully better tax administration and simultaneous examination will capture better transaction’s scheme in MNE’s group. From now on, tax auditors can start to examine related party of their tax payer. Stop thinking to focus just on the tax payer in their office. DGT can start to manage the use of tax account system so that each tax auditor can see tax payer’s profile around Indonesia. DGT can make new system to connect tax auditor in around Indonesia while examining MNE’s group.

Borderless transaction is good enough for economic growth in the world. But, payless taxation is bad news for almost all country in the world. Especially for country that state budget’s component is mostly from tax, just like Indonesia.

 

Espectations and implementation

I believe by taking this course I will gain more understanding the complex realm of MNE’s audit as my field. I will be more critical and comprehensive in conducting tax audit especially in auditing taxpayers in MNE’s business. After completing this course, I hope that tax auditors in Indonesia especially myself will audit tax payers in wide view. So that, simultaneous audit can boost achieving tax target in Indonesia and improve tax payer’s compliance. We know together that audit is aimed to test tax payer’s compliance.

Furthermore, this course will expand my network with tax auditor in the world. The global networks in this course from various countries with their various experiences can provide me more resourceful information to be implemented in DGT office.

 

Contribution after attending the course

Will never ends in me I will do share this knowledge to my colleagues in my office. So, all of tax auditors, account representatives, and tax office concern about MNE tax payers’s transactions in boosting tax revenue. This knowledge is important too to be shared in tax auditor forums regularly, and I am eager for that. Further, we can give practical input to the DGT policy in MNE’s audit.

 

References:

 

Darussalam, Danny Septriadi, dan B. Bawono Kristiaji (2013). Transfer Pricing- Ide, Strategi, dan Panduan Praktis dalam Perspektif Pajak Internasional. Danny Darussalam Tax Center. Jakarta.

 

OECD (2017), OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2017, OECD Publishing, Paris.