Member Article

The Government of the Republic of Indonesia has entered into over 60 agreements on avoidance of double taxation with other countries. These agreements normally state the scope and the parties who are entitled to avoidance of double taxation benefit. In practice, some parties may abuse the avoidance of double taxation by structuring a transaction in a certain way.

As guidance in implementing agreements on the avoidance of double taxation and to prevent the abuse of this facility, the Director General of Taxation has issued Regulation No. PER-62/PJ/2009, dated 5 November 2009, regarding Prevention of Abuse of Agreements on Avoidance of Double Taxation.

The Regulation defines the transactions which may be considered as an abuse of the agreement on avoidance of double taxation as:

a.    transactions that do not have economic substance but are designed with a structure/scheme merely for the purpose of taking benefit from the agreement on avoidance of double taxation;

b.    a transaction with a structure/scheme containing legal form that is different from its economic substance for the purpose of taking benefit from the agreement on avoidance of double taxation; and

c.    the income recipient is not the beneficial owner of the economic benefit.

In the abuse of agreements on avoidance of double taxation:

a.    the tax withholder/collector must not apply the agreement on avoidance of double taxation and must withhold/collect the indebted tax in accordance with prevailing regulations; and

b.    the foreign taxpayer shall not be entitled to file a tax return.

The Regulation shall be effective on 1 January 2010.

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