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Escrow Accounts Explained

Escrow accounts are set up during criminal tax cases when the corporation under investigation wishes to admit guilt and guarantee payment of the tax deficiency.

The escrow account should contain an amount equivalent to 5 times the amount of unpaid taxes/tax deficiency or a tax refund that should not have been made. Taxand Indonesia explains how an escrow account is utilised.

An escrow account is created based on an agreement between the Directorate General of Taxes or an authorised official who is known to the bank where the escrow account is opened.

The agreement should set out:

  • The particulars of the parties and the bank in which the escrow account will be opened.
  • The time and place of the agreement.
  • The amount of the deposit.
  • The cost of administering the escrow account.
  • The procedure for disbursement of the deposit.
  • The dispute resolution procedure.

All costs incurred in connection with the opening and management of an escrow account are borne by the taxpayer, however any income earned by the escrow account belongs to the taxpayer as well.

If the taxpayers' admission of guilt is accepted, the funds are withdrawn from the escrow account and the investigation into the corporation is discontinued.

Your Taxand contact for further queries is:
Prijohandojo Kristanto
T. +62 21 835 6379

Taxand's Take

The use of an escrow account are a quick and convenient way for a multinational to admit any foulplay and move on. Many corporations will not want issues dragged through the Courts and interrupting normal business, therefore this is a clever process set up by the Government to encourage payment.

Taxand's Take Author

Prijohandojo Kristanto