TAXES
LAW
8
KPMG Advisory Indonesia c/o Siddharta & Widjaja
L
ast July the Ministry of Finance issued Regulation PMK-
107/PMK.03/2017 (“PMK-107”), which amends the
Indonesian Controlled Foreign Company (“CFC”) rules. The
main definition of CFC remains the same: a non-listed foreign
company, which is at least for 50% owned by an Indonesian
taxpayer (company or individual), or a group of Indonesian
taxpayers.
The most important change under PMK-107 is that also
indirectly owned CFCs will fall under the CFC rules. An indirectly
owned CFC is defined as a foreign company, which is held for
at least 50% by: (i) another CFC, or (ii) various CFCs held by
Indonesian taxpayers, or (iii) various CFCs held by the same
or more Indonesian parent companies. The 50% threshold
requirement should be fulfilled as per the end of the fiscal year of
the Indonesian taxpayer.
For the indirect CFCs the threshold is determined based on
the ownership of the indirectly held CFC. If the indirect CFC is
held for at least 50% by another CFC, it will be regarded as an
Jacob Zwaan, LL.M.(taxation)
Partner
+62 21 5799 5147
indirectly owned CFC. If an Indonesian taxpayer owns a CFC
through a trust or foundation, a “look-through” approach will be
applied. The Indonesian taxpayer has to recognize a deemed
dividend from a CFC by the end of the fourth month after the
CFC had to submit its local tax return. In case the CFC is not
required to submit a tax return, the deadline for the Indonesian
taxpayer is the end of the seventh month after the end of the
CFC’s fiscal year. The deemed dividend is calculated based on
the effective ownership of the Indonesian taxpayer in the CFC
(i.e., proportionally). If a CFC does actually pay a dividend, this
amount can be offset against the previously reported deemed
dividend (with a five years limitation).
L
ast June the Director General of Tax (“DGT”) issued
Regulation PER-10/PJ/2017 (“PER-10”) that introduced
the new certificate of domicile (“CoD”) for non-resident
taxpayers. PER-10 is applicable as of August 1, 2017. Under PER-
10 there are still two types of CoDs, one for banking institutions
(“form DGT-2”) and one for non-banking institutions (“form DGT-
1”). Form DGT-2 remained largely the same, whereas form DGT-
1 has been amended more drastically. The CoD (page 1 of the
form) is still valid for 12 months.
However, the format (part III of the form) now specifies the
validity period. This may create issues for taxpayers in countries
of which the tax authorities do not want to specify a specific
period. Under the new form DGT-1 various new residency tests
are added (under Part VI), and a new set of beneficial ownership
tests is introduced (under Part VII), which only have to be
filled in in case the non-resident taxpayer receives Indonesian
dividends, interest or royalties.The form seems to incorporate
the principle purpose test and a simplified limitation of benefits
test (“simplified LOB”), as Indonesia announced to use when
signing the MLI. In general it can be said that the tests of Part
VI are aimed at the use of SPV structures for investments and
financing in Indonesia. Companies have to make sure that the
entity they use for investments in Indonesia also has other
functions and ideally also has investments in other countries.
The beneficial ownership test of Part VII is quite straightforward.
Like in the old form DGT-1, there still is an anti-base erosion test
(i.e., not more than 50% of the recipient entity’s income is used
to satisfy claims by other persons). However, the requirement
that the Indonesian income is subject-to-tax at the level of the
recipient company has been removed.
Jacob Zwaan, LL.M.(taxation)
Partner
+62 21 5799 5147
Company Taxation
Amended CFC Rules
New Certificate of Domicile
for Non-Resident Taxpayers (Form DGT-1)
Tax Treaty
8
th
Edition | December 2017
