TAXES
LAW
8
PT Roedl Consulting
A
s companies continue to expand their operations on a
global scale, multinational presence becomes virtually
inevitable. Consequently, parts of the business operations
are executed under a foreign jurisdiction, e.g. by establishing a
foreign representative office (RO), giving rise to the question of
how cross-border taxation has to be handled. In Indonesia, the
taxation treatment depends on the individual functionality of the
RO itself.
A RO located in Indonesia and run by a German company,
which does not perform any revenue-generating activities (from
legal perspective such activities are not permitted to the most
common RO forms anyway), does not fall within the definition of
a “permanent establishment” (PE) as stipulated by the tax treaty,
and is thus not subject to corporate income tax. Should this
condition not or no longer be met, the RO will be considered as
PE, and consequently become subject to a final income tax rate
of 0.44 % of the export value generated through trading activities
from the parent company to Indonesian customers, as stipulated
in Circular Letter No. SE-02/PJ.03/2008 issued by the Director
General of Tax. Once being deemed a PE, the RO will fully become
subject to domestic taxation.
We have seen some cases in which ROs were deemed PE by the
Indonesian tax authority, though they had initially been established
for non-revenue-generating activities. In these cases, the tax
T
hese days, Indonesian tax authorities are getting perceptibly
more offensive upon issuing Tax Assessment Letters (
Surat
Ketetapan Pajak
/SKP) based on ‘factual data’ (
Data Konkret
).
As it merely refers to factual data, what is the legal perspective of
this SKP issuance without preliminary tax audit process?
According to Government Regulation No. 74 of 2011, factual
data may be concluded from: clarification/confirmation of tax
invoice, income tax withholding slip, tax data related to a taxpayer
who fails to submit tax returns, and any transaction evidence
or taxation data which may serve to calculate a taxpayer’s tax
obligation. Basically, factual data may be any kind of data obtained
or possessed by tax authorities.
According to Circular Letter No. SE-39/PJ/2015, tax authorities
may initially send a
Surat Permintaan Penjelasan atas Data dan/
atau Keterangan
(SP2DK) based on the collection and examination
of factual data, in request for declaration/clarification in case a
taxpayer is suspected to be not yet fulfilling his tax obligations.
Tomy Harsono
Licensed Tax Advisor
+ 62 537 6225
authority will issue a tax assessment letter charging 0.44 % of the
export value generated through trading activities from the parent
company to Indonesian customers.
It is thus crucial to carefully keep record of all documents proving
that the RO is neither directly nor indirectly involved in the sales
activities of the parent company to Indonesian customers. A
comprehensive analysis of the RO´s functionality, the assets used
and the risks borne by the entire entity, complemented by the
detailed documentation of all actual transactions will be required.
On the other hand, the tax office may obtain a statement letter
from a customer claiming that sales activities are carried out by
a RO, and may use such statement letter as a basis to assess a
RO to be a PE.
A tax dispute resolution process in Indonesia may take 2-3 years
up to an appeal process before the Tax Court.
Should the response still leave questions unanswered, the tax
authorities may opt for a special tax audit according to Regulation
No. PMK 184/PMK.03/2015 issued by the Minister of Finance,
stipulating that in order to confirm the authenticity of the above
factual data, tax authorities need to conduct a tax audit.
The issuance of a SKP without a tax audit process is highly
arguable and, according to our experience, has a weak legal
position. The process of tax dispute resolution in Indonesia may
take 2-3 years up to an appeal process in front of the Tax Court.
Tax Audits and Litigation
Taxation of Foreign Representative Office:
Differentiated Treatment for Different Functions
Tax Assessment Letter Based on Factual Data
Tax Audits and Litigation
9
th
Edition | June 2018
Tomy Harsono
Licensed Tax Advisor
+ 62 537 6225
