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Tax Regulations To Combat Tax Evasion

Taxpayers typically try to maximise their profits from global business operations by minimising their tax liabilities through acceptable tax avoidance efforts. However occasionally these efforts are not compliant with tax legislation.

The Indonesian Director General of Taxes (DGT) has issued two regulations to combat tax evasion, tax avoidance and tax treaty abuse. Taxand Indonesia summarises these regulations and the effect they have on multinationals.

DGT Regulation No. PER-41/PJ./2011
Regulation 1 sets out the procedures for tax audits conducted in a tax treaty partner country as requested by the Indonesian Tax Authority (ITA), based on the exchange of information provision in the tax treaty. This type of audit can be conducted when a tax resident of the treaty partner country derives income from Indonesia or has a transaction with an Indonesian tax resident which is being audited because there is an indication of unacceptable tax avoidance, tax evasion or tax treaty abuses.The audit shall be carried out based on the ITA's audit procedures.

DGT Regulation No. PER-42/PJ./2011
Regulation 2 provides guidance on the exchange of information for tax collection assistance purposes. Based on the request of the ITA's officials, the tax authority of the treaty partner country will provide tax collection assistance when collecting taxes from Indonesian taxpayers who have not paid the correct amount of tax. Vice versa, the ITA shall also provide tax collection assistance upon request by the treaty partner country.

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

Taxand's Take

These measures are provided to anticipate the possibility of a tax audit on subsidiaries located in treaty partner countries, which have transactions with Indonesian resident taxpayers that are currently undergoing a tax audit. Multinationals should understand the tax measures in the countries where they operate as they may vary, particularly the taxation regulations relating to transfer pricing.

Taxand's Take Author

Prijohandojo Kristanto