Indonesia

Part A: Domestic legal and administrative framework

2. Indonesia has rules (primary and secondary laws) that impose and enforce CbC requirements on MNE Groups whose Ultimate Parent Entity is resident for tax purposes in Indonesia.1 The first filing obligation for a CbC report in Indonesia commences in respect of fiscal years commencing on or after 1 January 2016. Indonesia meets all the terms of reference relating to the domestic legal and administrative framework.

Part B: Exchange of information framework

3. Indonesia is a signatory of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol (OECD/Council of Europe, 2011), which is in effect for 2016, and is also is a signatory of the CbC MCAA; it has provided its notifications under Section 8 of this agreement and intends to exchange information with a very large number of other signatories of this agreement which provide notifications. As of 12 January 2018, Indonesia has 46 bilateral relationships activated under the CbC MCAA. Indonesia has taken steps to have Qualifying Competent Authority agreements in effect with jurisdictions of the Inclusive Framework that meet the confidentiality, consistency and appropriate use conditions (including legislation in place for fiscal year 2016). Against the backdrop of the still evolving exchange of information framework, at this point in time Indonesia meets the terms of reference relating to the exchange of information framework aspects under review for this first annual peer review.2

Part C: Appropriate use

4. Indonesia indicates that measures are in place to ensure the appropriate use of information in all six areas identified in the OECD Guidance on the appropriate use of information contained in Country-by-Country reports (OECD, 2017a). It has provided details in relation to these measures, enabling it to answer “yes” to the additional questions on appropriate use.3 Indonesia meets the terms of reference relating to the appropriate use aspects under review for this first annual peer review.4

(a) Parent entity filing obligation

7. Indonesia has introduced a domestic legal and administrative framework which imposes a CbC filing obligation on Ultimate Parent Entities of MNE Groups above a certain threshold of revenue, whereby all required Constituent Entities of the MNE Group are included in the CbC report and no entity is excluded from CbC Reporting other than permitted by the Action 13 report (OECD, 2015).

8. Under Article 1.8 of the Ministry of Finance Regulation number 213/PMK. (hereafter “the regulations”), a “parent entity” shall mean “a member of a business group that satisfies the following criteria: a) directly or indirectly controls other members of the business group; and b) has the obligation to prepare consolidated financial statements according to Indonesian financial accounting standard and/or regulations that are binding to public companies in Indonesian stock exchange”.8 This is narrower than the definition in the terms of reference (paragraph 18 of the terms of reference (OECD, 2017b)). However, Indonesia has clarified the definition in a Regulation of the Directorate General of Taxes published on 29 December 2017: the Regulation provides, in the context of parent entity filing, that a “Parent Entity” shall mean that “a) there is no other Constituent Entity of such Business Group that owns directly or indirectly a sufficient interest of the parent entity; or in the case of the parent Entity is owned directly or indirectly by other entity, such entity is not obliged to consolidate the Parent Entity’s financial Statement”.9

9. Under the terms of reference (paragraph 18 of the terms of reference (OECD, 2017b)), the Ultimate Parent Entity of an MNE Group includes an entity that does not prepare Consolidated Financial Statements, but would be required to do so if its equity interests were traded on a public securities exchange in its jurisdiction of tax residence (“deemed listing provision”). This requirement does not appear to be reflected in the Indonesian legislation. Indonesia however confirms that listed companies and non-listed companies, as well as any other type of entity (notably partnerships) are subject to a requirement to prepare Consolidation Financial Statements when they meet certain conditions of shareholding and / or control. Such requirement to prepare Consolidated Financial Statements may arise under the Indonesian Financial Accounting Standard (PSAK) or the Indonesian stock exchange (IDX) regulation which follows the regulation in the PSAK.

10. The Indonesian legislation refers to the concept of a “business group” defined as a “group of taxpayers conducting business activities, which consists of parties which are affiliated with each other”.10 11 In addition, the Regulation of the Directorate General of Taxes published on 29 December 2017 has clarified that an “MNE Group” is a “Business Group that includes two or more enterprises the tax residence of which is in different jurisdictions”.12 It is unclear whether these definitions fully reflect the definition of an MNE Group in paragraph 15 of the terms of reference (OECD, 2017b),13 in particular for situations where there is an enterprise that is resident for tax purposes in one jurisdiction and is subject to tax with respect to the business carried out through a permanent establishment in another jurisdiction. Indonesia however confirms that the definition of a “Business Group” also includes the situation where there is an enterprise that is resident for tax purposes in one jurisdiction and is subject to tax with respects to the business carried out through a permanent establishment in another jurisdiction, because Indonesia treats a permanent establishment which is a foreign entity as if it is a resident taxpayer of Indonesia. The term “tax subject” in the “Business Group” definition in Indonesia includes permanent establishments.14

11. It is noted that the term “Constituent Entity” is defined in the provisions relating to local filing.15 Indonesia however confirms that by way of cross-reference,16 the definition of Constituent Entity also applies in the context of the parent entity filing. The operation of these rules will be monitored to make sure they apply consistently with the terms of reference.

12. No other inconsistencies were identified with respect to the parent entity filing obligation.

(b) Scope and timing of parent entity filing

13. The first filing obligation for a CbC report in Indonesia commences in respect of periods commencing on or after 1 January 2016.17 18

14. The CbC report must be made available no later than 12 months after the end of a taxable year and must be filed as an attachment of the Annual Corporate Income Tax return for the subsequent taxable year.19 This may result in a CbC report being filed later than the date in paragraph 8 (b) iii. of the terms of reference (OECD, 2017b).20 As a result, the CbC report may subsequently be exchanged with a partner jurisdiction later than the timeline envisaged in the Action 13 Report.21 22 Indonesia has however introduced amended rules in a Regulation of the Directorate General of Taxes published on 29 December 2017:23 a CbC report should be filed not later than 16 months after the end of the Fiscal Year 2016, or 12 months after the end of the Fiscal Year for the Fiscal Year 2017 and so forth. For the Fiscal Year 2016, Indonesia indicates that it intends to exchange of information with its treaty partners according to the agreed deadlines in 2018. No recommendation is made but this aspect will be further monitored to ensure that the filing deadline for the fiscal year 2016 will not impact Indonesia’s ability to meet its obligations relating to the exchange of information under the terms of reference.24

15. No other inconsistencies were identified with respect to the scope and timing of parent entity filing.25 26

(c) Limitation on local filing obligation

16. Indonesia has introduced local filing requirements as from the reporting period starting on or after 1 January 2016.27

17. With respect to the conditions under which local filing may be required (paragraph 8 (c) iv. b) of the terms of reference (OECD, 2017b)), under Indonesia’s legislation, local filing applies where an MNE group has a “resident taxpayer member of a business group and the parent entity of the business group is a non-resident taxpayer, where the country or jurisdiction of residence where the parent entity is resident does not have an agreement exchange of information on tax matters with Indonesia”. 28 Paragraph 8 (c) iv. b) of the terms of reference (OECD, 2017b) provides that a jurisdiction may require local filing if "the jurisdiction in which the Ultimate Parent Entity is resident for tax purposes has a current International Agreement to which the given jurisdiction is a Party but does not have a Qualifying Competent Authority Agreement in effect to which this jurisdiction is a Party by the time for filing the Country-by-Country Report". This is narrower than the above condition in Indonesia’s legislation. Under Indonesia’s legislation, local filing may be required in circumstances where there is no current international agreement between Indonesia and the residence jurisdiction of the Ultimate Parent Entity, which is not permitted under the terms of reference. Indonesia has however introduced rules in a Regulation of the Directorate General of Taxes published on 29 December 201729 to clarify the conditions for local filing: the terms “country or jurisdiction of residence where the parent entity is resident does not have an agreement with the Government of Indonesia regarding the exchange of information on tax matters” shall mean that a “Partner Country or Partner Jurisdiction in which the Parent Entity domiciles does not have a QCAA in effect”. 30 It is noted that the same Regulation also defines “Partner Country or Partner Jurisdiction” as a country or jurisdiction that has an International Agreement with Indonesia in effect; and a “Qualifying Competent Authority Agreement (QCAA) as meaning an agreement that is between authorised representatives of those jurisdictions that are parties to an International Agreement and that requires the automatic exchange of CbC reports between the party jurisdictions.31 As such, no recommendation is made.

18. With respect to the conditions under which local filing may be required (paragraph 8 (c) iv. c) of the terms of reference (OECD, 2017b), under Indonesia’s legislation, local filing applies where “there is an agreement with Indonesia regarding the exchange of information on tax matters but the CbC report cannot be obtained from the country or jurisdiction of the parent entity”.32 It is unclear whether this provision relates to situations where there is an agreement to exchange information as well as a Qualifying Competent Authority Agreement in place. If this provision intends to cover situations where there is an agreement to exchange information as well as a Qualifying Competent Authority Agreement in place, it is noted that paragraph 8 (c) iv. ) of the terms of reference (OECD, 2017b) provides that a jurisdiction may require local filing if there has been a Systemic Failure of the jurisdiction of tax residence of the Ultimate Parent Entity that has been notified to the Constituent Entity by its tax administration. This is narrower than the above condition in Indonesia’s legislation. Under Indonesia’s legislation, local filing may for example be required in circumstances where one CbC report may not have been obtained. This is unlikely to be considered as “Systemic failure” as per the terms of reference. This may also cover situations where the Ultimate Parent Entity of an MNE Group is required to file a CbC Report with the tax authority in its residence jurisdiction, but has not complied with this obligation; in this respect, local filing is not permitted under the terms of reference. Indonesia has however introduced rules in a Regulation of the Directorate General of Taxes published on 29 December 2017 to clarify the conditions for local filing: it is stated that the situations contemplated are those where a CbC report cannot be obtained because of systemic failure due to the following conditions:33 “a) Partner Country or Partner jurisdiction has suspended the Automatic Exchange of Information of CbC reports for reasons other than those that are in accordance with the terms of that agreement; or b) Partner Country or Partner jurisdiction persistently failed to automatically provide to Indonesia the CbC report in its possession of MNE Groups that have Constituent Entities in Indonesia”. Indonesia confirms that systemic failure should be understood as occurring only in situations where there is a QCAA in effect. As such, no recommendation is made and this will be monitored.

19. No other inconsistencies were identified with respect to the limitation on local filing obligations.34

(d) Limitation on local filing in case of surrogate filing

20. With respect to paragraph 8 (d) of the terms of reference (OECD, 2017b), there are no provisions in the regulations to deactivate local filing in any circumstance. Indonesia has however introduced rules in a Regulation of the Directorate General of Taxes published on 29 December 2017 that provide for the deactivation of local filing in case of surrogate filing.35

21. No inconsistencies were identified with respect to the limitation on local filing in case of surrogate filing.

(e) Effective implementation

22. Indonesia has legal mechanisms in place to enforce compliance with the minimum standard: there are notification mechanisms in place that apply to all Corporate Taxpayers which are Constituent Entities or that conduct affiliated transactions.36 There are also penalties in place (according to General Provisions and Tax Procedures Law): (i) for a late filing of a CbC report (administrative fine as stated in Article 7), (ii) for a failure to file a CbC report (administrative fine as stated in Article 7) and/or a surcharge penalty of 50% from tax underpayment as stated in Article 13, (iii) for inaccurate filing of a CbC report (administrative penalty of interest 2% per months from tax underpayment as stated in Article 13), (iv) for negligence to file or file incorrect or incomplete filling of a CbC report (criminal sanctions as stated in Article 38), and (v) for deliberately failure to file, file a false or incomplete, and failure to maintain a CbC report (criminal sanctions as stated in Article 39). The compulsion powers lie in the imposition of administrative and/or criminal sanctions based on the General Provisions and Tax Procedures Law.

23. As regards specific processes in place that would allow to take appropriate measures in case Indonesia is notified by another jurisdiction that such other jurisdiction has reason to believe that an error may have led to incorrect or incomplete information reporting by a Reporting Entity or that there is non-compliance of a Reporting Entity with respect to its obligation to file a CbC report, Indonesia indicates that the above mentioned penalties would be applicable. This aspect will be further monitored once the actual exchanges of CbC reports will commence.

Conclusion

28. Against the backdrop of the still evolving exchange of information framework, at this point in time Indonesia meets the terms of reference relating to the exchange of information framework aspects under review for this first annual peer review.

Conclusion

32. In respect of paragraph 12 (a) of the terms of reference (OECD, 2017b), there are no concerns to be reported for Indonesia. Indonesia thus meets these terms of reference.