Category: International Tax

Many Chinese mainland company now has a subsidiary in Indonesia and ask their employee in China to work in Indonesia and often act as a Director even though they are just an employee.

On a tax perspective, they must consider the difference between becoming an employee and a director as stated on Tax Treaty between Indonesia and China as follows :

Article 15 – Dependent Personal Services

1. Subject to the provisions of Articles 16, 18, 19, 20 and 21, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that Contracting State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other Contracting State.
2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:
3. the recipient is present in that other Contracting State for a period or periods not exceeding in the aggregate 183 days within any twelve month period; and
4. the remuneration is paid by, or on behalf of, an employer who is not a resident of the other Contracting State; and
5. the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other Contracting State.
6. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of a Contracting State shall be taxable only in that State.

Article 16 – Directors’ Fees

Directors’ fees and other similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors or any other similar organ of a company which is a resident of the other Contracting State may be taxed in that other Contracting State.

As on article 15 and 16 we can conclude:

• Both may be taxed in that contracting state, it means that if the person works in Indonesia, the income may be taxed in Indonesia;
• As an employee, their income can only be taxed in China but if they work in Indonesia not more than 183 days and the employer is not from Indonesia and the employer does not have permanent establishment in Indonesia;
• An employee from China who works in a ship or aircraft operated in international traffic by an enterprise from China shall be taxable only in China;

To become director as on article 16, the director’s income may be directly taxed in Indonesia but also they must consider about the Resident that is stated on article 4 :

Article 4 – RESIDENT

1. For the purposes of this Agreement, the term “resident of a Contracting State” means any person who, under the laws of that Contracting State, is liable to tax therein by reason of his domicile, residence, place of management, place of head office or any other criterion of a similar nature.
2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:
3. he shall be deemed to be a resident of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (centre of vital interests);
4. if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode;
5. if he has an habitual abode in both States or in neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.
6. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, the competent authorities of the States shall settle the question by mutual agreement.

It means that if you want to become a director in Indonesia but you are still a resident of China as on article 4 above, then the income can only be taxed in China.

If you have any questions, do not hesitate to contact TBrights.

By Tommy HO – Managing Partner TBrights

TBrights is a tax consultant in Indonesia which currently is an integrated business service in Indonesia providing comprehensive tax and business services.

 

 

The shift from offline to online shopping has created numerous new opportunities, including the role of affiliate marketing. In this business model, individuals or groups, known as affiliates, partner with companies or other individuals to promote products or services. Affiliates use various online marketing channels such as websites, blogs, social media, and ads to reach their audience and drive sales.

Affiliate Earnings and Commissions

The earnings generated by affiliates vary depending on the affiliate platform used and the type of products or services promoted. Generally, commissions range from 1% to 10% of the product price per transaction. For example, if an affiliate success sells a product priced at Rp1.000.000,00, the commission earned could be between Rp10.000,00 and Rp100.000,00, depending on the set percentage.

Income Tax for Affiliates

Affiliates who earn commissions need to be aware of their tax obligations. Affiliate income falls under the category of Income Tax Article 21 (PPh 21). The tax rates for PPh 21 are progressive according to Law No. 7 of 2021 concerning Tax Regulation Harmonization. Here are the tax rates based on taxable income:

1. Taxable income up to Rp60.000.000,00 per year – 5%
2. Taxable income  over Rp60.000.000,00 up to Rp250.000.000,00 per year – 15%
3. Taxable income over Rp250.000.000,00 up to Rp500.000.000,00 per year – 25%
4. Taxable income over Rp500.000.000,00 up to Rp5.000.000.000,00 per year – 30%
5. Taxable income over Rp5.000.000.000,00 per year – 35%

Impact of NPWP on Tax Rates

Affiliates without a Tax Identification Number (NPWP) will be subject to a higher tax rate, which is 20% more than the applicable tax rates.

Effective Tax Rate Calculation (TER)

In addition to knowing the tax rates on earned income, affiliates should understand the Effective Tax Rate (TER) calculation scheme. The PPh 21 TER scheme is a simplified method for calculating and withholding PPh 21, designed to make it easier for affiliates to fulfill their tax obligations accurately. According to Government Regulation No. 58 of 2023, the TER calculation scheme is divided into two categories:

1. Monthly Effective Rate
   a. Category A
   – Single with no dependents (TK/0) – Rp54.000.000,00
   – Single with one dependent (TK/1) – Rp58.500.000,00
   – Married with no dependents (K/0) – Rp58.500.000,00
   b. Category B
   – Single with two dependents (TK/2) – Rp63.000.000,00
   – Single with three dependents (TK/3) – Rp67.500.000,00
   – Married with one dependent (K/1) – Rp63.000.000,00
   – Married with two dependents (K/2) – Rp67.500.000,00
   c. Category C
   – Married with three dependents (K/3) – Rp72.000.000,00

The monthly Effective Tax Rate (TER) calculation applies from January to November using the formula: Gross Income x %TER (A/B/C). In December or the last month of the tax year, taxpayers can calculate using: PPh 21 Payable – PPh 21 Already Withheld from January to November.

1. Daily Effective Rate
   a. Less than or equal to Rp450.000,00 – 0% x Daily Gross Income
   b. More than Rp450.000,00 up to Rp2.500.000,00 – 0.5% x Daily Gross Income

Conclusion

Affiliate marketing offers significant earning potential with commissions that can vary based on the sales of promoted products or services. However, it is crucial for affiliates to understand their tax obligations and ensure they have a Tax Identification Number (NPWP) to avoid higher tax rates. With a good understanding of taxation and careful planning, affiliates can manage their income more effectively and maximize their earnings from this profession.

By Tommy HO – Managing Partner TBrights

TBrights is a tax consultant in Indonesia which currently is an integrated business service in Indonesia providing comprehensive tax and business services

Reference:
1. Law of the Republic of Indonesia Number 7 of 2021 on the Harmonization of Tax Regulations

2. Government Regulation of the Republic of Indonesia Number 35 of 2023 on the Rate of Income Tax Withholding Article 21 on Income Related to Employment, Services, or Activities

A recent enforcement from the Indonesian Tax Administration based  on the Minister of Finance Regulation number PMK-22/PMK.03/2020 about Procedures for Implementing the Advanced Pricing Agreement, states that this Minister of Finance regulation can be used as a legal basis and/or guideline for implementing the imposition of secondary adjustments resulting from transfer pricing corrections (primary adjustments), in audits carried out after the effective date as of 18^th March 2020 without paying attention to the tax year being audited. For the guidelines and applying the transfer pricing corrections in audits carried out before the enactment of PMK-22/PMK.03/2020, the provisions in the Income Tax Law, PER-22/PJ/2013, and SE-50/PJ/2013 can be used.

 

Article 22 Paragraph (8) Minister of Finance Regulation Number: 22/PMK.03/2020 concerning Procedures for Implementing a Transfer Pricing Agreement (Advanced Pricing Agreement) states that: “Article 22 (8) The difference between the value of Transactions Affected by Affiliated Enterprises which are not in accordance with the Arm’s Length Principle and the value of Transactions Influenced by the Affiliated Enterprises which are in accordance with the s Arm’s Length Principle is considered as dividends which are subject to Income Tax in accordance with the provisions of the laws and regulations in in the field of taxation”.

 

The income tax on dividends arising from this is final income tax, as stated regulated in Article 26 of the Income Tax (UU PPh) Law. Due to its final nature, withholding tax on dividends cannot be credited to income recipients in the affiliated company’s country, thereby giving rise to the potential of double taxation. The Organization for Economic Co-operation and Development (OECD) has also warned that with the implementation of secondary adjustments there could be potential for double taxation in the implementation of secondary adjustments as stated in Chapter IV Paragraph 4.70. The 2020 OECD Transfer Pricing Guidelines state that: “4.70 A secondary adjustment may result in double taxation unless a corresponding credit or some other form of relief is provided by the other country for the additional tax liability that may result from a secondary adjustment. Where a secondary adjustment takes the form of a constructive dividend any withholding tax which is then imposed may not be relievable because there may not be a deemed receipt under the domestic legislation of the other jurisdiction.” Based on the guidelines above, the potential for double taxation can be avoided if appropriate tax credits (corresponding credits) or some other forms of relief are provided by the counterparty country for tax liabilities that may arise as a result of secondary adjustments. If the Tax Authority continues to carry out secondary adjustments in the form of constructive dividends, any tax deductions may not be refunded or credited because it is considered that there is no receipt of the dividends from the perspective of the domestic law of the opposing country’s jurisdiction. Based on the discussions above, it is debatable to agree of the Secondary Adjustment because it is contrary to the principle of justice as it results in double taxation.

 

Besides that, amongst other considerations, in accordance with Law Number 7 of 2021 concerning the Last Amendment to Law Number 7 of 1983 concerning Income Tax, does not regulate the same things and not in line with what are considered as dividends as regulated in Article 22 paragraph (8) PMK 22 of 2020. Considering this, what is considered a dividend in the Ministry of Finance Regulation is contradictory with the definition of dividends that have been stipulated in the Law.

 

 

 

 

TBrights is a tax consultant in Indonesia which currently is an integrated business service in Indonesia providing comprehensive tax and business services

By Olina Rizki Arizal – Partner TBrights

 

 

 

The worldwide tax system is applied by many countries, including countries that have the largest economic scale in the world. A country that adheres to the worldwide tax system will impose tax on all income received or earned by the country’s Resident Taxpayer, regardless of whether the income comes from within the country or abroad. Indonesia also adheres to the worldwide income system. This means that if a taxpayer is a domestic taxpayer from a country that adheres to the worldwide system, then the taxpayer will be taxed in his country regardless of the source of income generated by the taxpayer because this is in accordance with the Indonesian Tax Imposition Principle, namely the Domicile Residence Principle.

In addition to imposing taxes on all income received by domestic taxpayers, countries that adhere to the worldwide tax system also impose taxes on income received by foreign taxpayers sourced from their countries. So it can be concluded that the worldwide tax system has two principles including:

• The domicile principle used to tax the income of domestic taxpayers.
• The source principle used to tax Foreign Taxpayers’ income.

From this explanation, we can understand that for countries that apply the worldwide tax system there are several provisions including:

• All income received by Domestic Taxpayers, will be taxed regardless of where the income comes from, whether from within the country or from abroad.
• Any income received by Foreign Taxpayers sourced from the country will also be taxed in the country concerned.

One of the impacts of the imposition of tax on worldwide income in Indonesia is that Expatriates who live in Indonesia for more than 183 days within a period of 12 months which causes them to become Domestic Taxpayers, need to calculate the income they receive from abroad, including from their home country as tax in Indonesia.

However, since the enactment of the Job Creation Law and Minister of Finance Regulation Number 18 of 2021, there is a special exception to the tax treatment of worldwide income for foreign nationals who have certain expertise. Namely, Foreign Citizens who have become Domestic Tax Subjects are subject to Income Tax only on income received or obtained from Indonesia with the following provisions:

• Having certain expertise
• Valid for 4 (four) tax years calculated since becoming a domestic tax subject.

 

 

 

TBrights is a tax consultant in Indonesia which currently is an integrated business service in Indonesia providing comprehensive tax and business services

By Olina Rizki Arizal – Partner TBrights

 

Reference:

Minister of Finance Regulation Number 18/PMK.03/2021 of 2021 on the Implementation of Law Number 11 of 2020 on Job Creation in the Field of Income Tax, Value Added Tax and Sales Tax on Luxury Goods, as well as General Provisions and Tax Procedures

In general, foreign nationals (foreigners) can settle in Indonesia for certain reasons and conditions, the most important thing they need is KITAS/ITAS. KITAS Indonesia or Indonesian Limited Stay Permit Card is an important document for foreigners who want to live and work in Indonesia for a longer period of time.

KITAS cannot be used forever by foreigners. KITAS also has a time limit for use which is valid for 90 (ninety) days up to 5 (five) years, and can be extended except for KITAS originating from a limited stay visa upon arrival. KITAS extension is carried out at the immigration office whose working area covers the residence of foreigners based on the application.

Types of KITAS

KITAS has several types including:

• Work Permit KITAS

Foreigners who have the aim to work in Indonesia will need a work permit KITAS in addition to others permit. However, this work permit KITAS cannot be obtained by just anyone, to get it the person concerned must have obtained sponsorship from a company. Companies that can sponsor foreign workers include PT, PT PMA, representative offices public/private institutions, and foreign workers which do business in Indonesia.

• Marriage Visa KITAS

This type of KITAS can be obtained from a sponsor with one of the conditions that foreigners are legally married to Indonesian citizens (WNI). Since in Indonesia, there is no prohibition for its citizens to marry foreigners. There is also a main requirement to be able to get a marriage visa KITAS, namely that the couple must live together.

• Retirement Visa KITAS

This type of KITAS is intended for elderly foreigners who come to Indonesia with the condition that the user must be more than 55 years old.

 

Does Foreigners who already have a KITAS must have a Taxpayer Identification Number (NPWP)?

Foreigners who work as employees in Indonesia and already have KITAS and meet the requirements to become Domestic Tax Subjects, will be subjected to Income Tax Article 21 for their income like Indonesian employees in general. This is different from the treatment when foreigners are still Foreign Tax Subjects which subjected to withholding Income Tax Article 26, where the rate is higher at 20% or according to the Tax Treaty with their country.

To become a Domestic Tax Subject, foreigners need to register themselves to obtain a Taxpayer Identification Number (NPWP). In order to be considered a Domestic Tax Subject, foreigners need to have stayed or plan to stay in Indonesia for more than 183 days within a period of 12 months. This is especially needed for foreigners who already have a KITAS which show the intention that the person is plan to work and stay in Indonesia for a certain period.

 

 

 

TBrights is a tax consultant in Indonesia which currently is an integrated business service in Indonesia providing comprehensive tax and business services

By Olina Rizki Arizal – Partner TBrights

 

 

Reference:

Regulation of the Director General of Taxes Number PER-43/PJ/2011 concerning Determination of Resident Tax Subject and Non-Resident Tax Subject

Law of The Republic of Indonesia Number 6 of 2011 concerning Immigration

Regulation of the Minister of Law and Human Rights Number 29 of 2021 concerning Visas and Stay Permits

In Indonesia, gold is still one of the most popular investment instruments for the majority of Indonesian people. Gold is considered relatively safe because its value is stable amidst the current economic uncertainty. This was proven when the economic level in Indonesia fell when the Covid pandemic hit, the value of gold actually increased and reached its highest value.

The government has issued Minister of Finance Regulation Number 48 of 2023 (PMK 48 of 2023) to simplify the provisions regarding Income Tax   and Value Added Tax (VAT) on the sale or delivery of gold, both in the form of jewelry and bars, especially for people who are final consumer.

Aspects of Value Added Tax (VAT) on the delivery of Gold Jewelry by Gold Entrepreneurs to final consumers

• For delivery of gold jewelry from Gold Jewelry Manufacturers to end consumers

Based on Article 14 paragraph (3), gold jewelry manufacturers are required to collect Value Added Tax (VAT) at a certain amount, which is 15% of the VAT rate of 11%. Or 1.65% of the selling price for delivery to end consumers.

VAT Certain Amount = 1.65% x Selling Price

 

• For delivery of gold jewelry from Gold Jewelry Traders to end consumers

Based on Article 14 paragraph (4), gold jewelry traders are obliged to collect Value Added Tax (VAT) with a certain amount, which is 10% or 15% of the VAT rate of 11% of the selling price, depending on whether the gold jewelry trader has a Tax Invoice for the gold purchased.

If a Gold Jewelry Trader does not have a Tax Invoice for the purchase of gold jewelry sold to end consumers:

VAT Certain Amount = 1.65% x Selling Price

 

If a Gold Jewelry Trader has a Tax Invoice for the purchase of gold jewelry sold to end consumers:

VAT Certain Amount = 1.1% x Selling Price

 

 

TBrights is a tax consultant in Indonesia which currently is an integrated business service in Indonesia providing comprehensive tax and business services

By Tommy HO – Managing Partner TBrights

 

 

 

Reference:

Minister of Finance Regulation Number 48 of 2023 concerning Income Tax and/or Value Added Tax on the Sale/Delivery of Gold Jewelry, Gold Bars, Jewelry, Jewelry whose materials are not entirely made from Gold, Gemstones, and/or Other Stones Similar things, as well as services related to gold jewelry, gold bars, jewelry whose material is not entirely made of gold, and/or gemstones, and/or other similar stones, carried out by gold jewelry manufacturers, gold jewelry traders, and/or Gold Bar Entrepreneur.

Benefit in kind (BIK) is any non-cash benefit of monetary value that employer provides for their employee. Indonesian government have started to tax some BIK which regulated in Government Regulation Number 55 of 2022 and further regulated in Ministry of Finance Regulation Number 66 Year 2023 (PMK 66), one of them is related to medical treatment.

As stated in PMK 66, Indonesian government explains what benefit in kind is taxable and what is exempted from income tax objects, specifically in Appendix A. BIK in the form of health and/or medical treatment are exempt from income tax objects with no limit value.

The catch is that not every medical treatment is exempted, only which is caused by work related accident, ailment from work, life-saving emergencies, and follow-up treatment as a result of work accidents and ailments resulting from work accidents and/or work-related ailments.

The definition for work-related ailments itself is then further described in President Decree Number 7 of 2019. This is intended so that employer does not make too many liberties to classify every medical treatment as work-related so that it is exempted from income tax.

Foreign company who plans to do business in Indonesia must take this new regulation into consideration to determine salaries and benefit in kind offered to their employee.

 

TBrights is a tax consultant in Indonesia which currently is an integrated business service in Indonesia providing comprehensive tax and business services

By Tommy HO – Managing Partner TBrights

Reference:

Minister of Finance Regulation Number 66 of 2023

 

Indonesia sebagai pemegang Presidensi G20 tahun 2022 menginginkan Pilar 1 dan Pilar 2 dalam Rencana Aksi Base Erosion and Profit Shifting atau BEPS dapat berjalan secara bersamaan. Pemberlakuan Pilar 1 tentang pendekatan terpadu merupakan prasyarat jika Pilar 2 ingin dijalankan. Menteri Keuangan Sri Mulyani Indrawati mengatakan Indonesia sebagai presidensi G20 tahun ini akan mendorong pemberlakuan Rencana Aksi BEPS. Masalah ini akan diangkat pada KTT G20 bulan depan untuk mendapatkan persetujuan. Di bawah ini dijelaskan mengenai pilar II beserta implikasi penerapannya di Indonesia.

Pilar II

Pilar kedua ini merupakan usulan solusi yang berupaya mengurangi persaingan perpajakan melalui penetapan tarif pajak penghasilan badan minimum yang efektif secara global untuk melindungi basis pajak. Pilar kedua ini bertujuan untuk menerapkan Pajak Minimum Global sebesar 15% bagi perusahaan multinasional (MNE) dengan peredaran bruto lebih dari 750 juta euro.

Pilar kedua ini mempunyai 2 aturan utama yaitu aturan Global Anti-Base Erosion (GLoBE) dan Subyek Peraturan Pajak (STTR) dimana GLoBE fokus dalam memberlakukan tarif pajak minimum global, sedangkan STTR berperan dalam menjaga hak perpajakan suatu negara. .

Indonesia bersama 137 negara lainnya telah menyatakan komitmennya untuk mendukung konsensus global terkait penerapan pilar kedua ini.

Implikasi Penerapan Pilar II bagi Indonesia

Pemerintah melalui Direktorat Jenderal Pajak (DJP) telah memberikan kepastian tarif pajak yang terutang dengan menerbitkan Undang-Undang Nomor 7 Tahun 2021 tentang Harmonisasi Peraturan Perpajakan yang mengubah Undang-Undang Nomor 36 Tahun 2008 tentang Pajak Penghasilan. Pasal 17 UU HPP telah menetapkan tarif pajak atas Penghasilan Kena Pajak Wajib Pajak Orang Pribadi dan pengenaan tarif Wajib Pajak Badan sebesar 22%.

Pemerintah Indonesia membatalkan penurunan tarif pajak penghasilan badan dari 22% menjadi 20% karena diberlakukannya pajak minimum global sebesar 15%. Melalui Undang-Undang Harmonisasi Peraturan Perpajakan, pemerintah berniat menurunkan tarif pajak penghasilan badan menjadi 20%, namun dengan disepakatinya pilar kedua ini, Indonesia harus membuktikan komitmennya dengan tidak ikut serta dalam penurunan tarif pajak tersebut.

Tax Holiday which is a government program is also affected. As a manifestation of Indonesia’s commitment to this pillar, the government intends to revoke the tax holiday program in 2023 when the global minimum tax regulation comes into effect.

The Indonesian government is also thinking about alternative tax holiday replacement programs. Of course, the incentive provided is no longer exemption from corporate income tax because all countries must tax companies at a minimum of 15% in accordance with the global consensus that has been reached.

 

TBrights is a tax consultant in Indonesia which currently is an integrated business service in Indonesia providing comprehensive tax and business services

By Tommy HO – Managing Partner TBrights

 

Reference:

https://ekonomi.bisnis.com/read/20221026/9/1591735/sri-mulyani-pilar-1-beps-harus-berlaku-sebelum-pilar-2

https://www.oecd-ilibrary.org/docserver/782bac33-en.pdf?expires=1687925235&id=id&accname=guest&checksum=8104252CA65EA7BC4DBB5F3BBA637121

https://www.oecd.org/tax/beps/oecd-releases-pillar-two-model-rules-for-domestic-implementation-of-15-percent-global-minimum-tax.htm

https://www.pajakku.com/read/6194dbbb4c0e791c3760c00f/Implikasi-Penerapan-Pilar-Kedua-OECD-Bagi-Indonesia-

Pada tahun 2022, nilai transaksi uang elektronik tumbuh 30,84 persen dibandingkan tahun 2021 yang mencapai Rp399,6 triliun. Perry Warjiyo selaku Gubernur BI menyampaikan nilai transaksi uang elektronik diproyeksikan meningkat sebesar 23,9 persen dibandingkan tahun lalu hingga mencapai Rp495,2 triliun pada tahun 2023.

Oleh karena itu, mengatasi tantangan perpajakan yang disebabkan oleh digitalisasi merupakan salah satu prioritas utama dan telah menjadi fokus Proyek BEPS sejak dimulainya melalui reformasi sistem perpajakan internasional. Komitmen tersebut tertuang dalam pertemuan Presidensi Menteri Keuangan dan Gubernur Bank Sentral (FMCBG) Indonesia yang dilaksanakan pada 15-16 Juli 2022 di Nusa Dua, Bali.

Perkembangan model bisnis dan globalisasi membuat ketentuan tersebut tidak lagi mampu mengakomodasi perpajakan internasional atas aktivitas ekonomi lintas yurisdiksi yang semakin digitalisasi. Kelemahan ini pada akhirnya menciptakan celah penghindaran pajak, sehingga untuk mengatasi permasalahan tersebut OECD dan G20 menggagas proyek Base Erosion and Profit Shifting (BEPS) Action Plan, yang berupaya mengatasi tantangan perpajakan akibat digitalisasi ekonomi.

Base Erosion and Profit Shifting (BEPS) adalah istilah yang digunakan oleh negara-negara anggota G8, G20, dan The Organization for Economic Cooperation and Development (OECD) untuk menggambarkan praktik bisnis yang dilakukan oleh banyak perusahaan multinasional (MNE) untuk memindahkan keuntungan bisnisnya melalui skema transfer pricing ke negara-negara yang menerapkan tarif pajak rendah. Menteri Keuangan Sri Mulyani Indrawati menjelaskan Indonesia sebagai presidensi G20 akan mendorong implementasi Rencana Aksi BEPS. Masalah ini akan diangkat pada KTT G-20.

Sementara itu, sejak November 2021, 137 negara anggota OECD/G20 Inclusive Framework (IF), yang mewakili lebih dari 90 persen produk domestik bruto (PDB) global, termasuk Indonesia, telah menyetujui Solusi Dua Pilar. Namun untuk mewujudkan kedua pilar tersebut menjadi landasan hukum yang konkrit, perlu disusun Konvensi Multilateral (MLC). Oleh karena itu, kepemimpinan Indonesia pada forum G20 tahun 2022 sangat penting dalam mengawal kemajuan rencana implementasi Solusi Dua Pilar.

Quoted from the OECD, BEPS is a tax planning strategy that takes advantage of gaps and weaknesses contained in domestic tax laws and regulations to “eliminate” profits or divert these profits to other countries that have low tax rates or are even tax-free. The end goal is that the company does not have to pay taxes or that the taxes paid are of very little value to the company’s overall revenue.

For developing countries where an average of 80 percent of the country’s income comes from tax revenue, of course, BEPS or tax avoidance practices will be very detrimental because it has an impact on hampering development in the country.

The potential loss of state revenue from global corporate income tax (PPh) every year due to tax avoidance is quite large, amounting to USD100-240 billion based on OECD estimates. Even the IMF predicts an even bigger USD600 billion. This number will continue to grow following the number of business transactions that are also growing.

The enactment of Pillar 1 will make companies such as Google and Amazon have to deposit taxes into the countries where they operate so that American tax revenues could potentially be reduced. Therefore, Indonesia wants the enactment of Pillar 1 to be a precondition before the implementation of Pillar 2.

The content of Pillar 1 is a Unified Approach or solution to ensure the fairness of tax rights and basics through the revision of the international tax regime which is no longer based on physical presence and not the presence of economic significance. Pillar One will be the basis for reallocating taxation rights to market jurisdiction over income earned by Multinational Entities (MNEs) even though MNEs do not physically exist in market jurisdictions. Market jurisdictions are allowed to obtain taxation rights equal to 25% of the remaining profits earned by MNEs with a threshold of 20 billion Euros or 327 trillion IDR and profitability of 10%.

Although the signing of the Multilateral Convention (MLC) Pillar 1 has been postponed to mid-2023 and is targeted to enter into force in 2024, given the high dynamics of the formulation of taxation schemes in Pillar I, there has been significant progress in drafting technical provisions on new taxation rights for market jurisdictions.

Not only that, the issue of Base Erosion and Profit Shifting (BEPS) or the erosion of the tax base and profit transfer is also a challenge in international taxation because it is increasingly prevalent amid the pace of globalization and economic digitalization

 

TBrights is a tax consultant in Indonesia which currently is an integrated business service in Indonesia providing comprehensive tax and business services

 

By Olina Rizki Arizal

Partner

 

Reference

https://mediakeuangan.kemenkeu.go.id/article/show/g20-dukung-implementasi-solusi-dua-pilar

https://www.oecd.org/tax/beps/beps-actions/action1/

https://news.ddtc.co.id/waktu-implementasi-pilar-1-belum-dapat-dipastikan-peran-as-signifikan-43451

https://komwasjak.kemenkeu.go.id/in/post/inclusive-framework-pilar-satu-dan-pilar-dua

https://fiskal.kemenkeu.go.id/publikasi/siaran-pers-detil/417

https://news.ddtc.co.id/apa-itu-pilar-1-dan-pilar-2-proposal-pajak-oecd-31707

https://www.pajak.com/komunitas/opini-pajak/sepakat-diterapkan-2024-pahami-ketentuan-pilar-1-oecd/