Indonesia is recovering well from the global economic downturn. "After the financial crisis, Indonesia has become a good country for investment. Foreign investors are looking at M&A," said Firdaus Asikin of Deloitte."There have been a lot of mergers, ...
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Indonesia is recovering well from the global economic downturn. "After the financial crisis, Indonesia has become a good country for investment. Foreign investors are looking at M&A," said Firdaus Asikin of Deloitte.
"There have been a lot of mergers, acquisitions, takeovers and so on," said Ben Koesmoeljana, partner at Ernst & Young. "The industry sector is red hot with the Rupiah gaining strength."
The government is focusing on developing different parts of the economy such as education, public health, poverty alleviation, infrastructure, energy, and the environment and has decided that tax is where the majority of the money required to do this will come from.
The Directorate General of Taxation (DGT) set a total revenue budget for 2010 at Rp990.5 trillion ($109.9 billion), of which tax revenue was projected to total Rp743.3 trillion ($82.6 billion).
In 2011, the government announced that Indonesia's total state revenue amounted to Rp1,011.6 trillion, which was 2.1% more than the target. The Finance Ministry commented that the target surplus was boosted by non-tax revenue.
Total revenue from taxes was Rp744.1 trillion, which was 0.1% more than the target of Rp743.3 trillion. However, the head of the state budget policy centre at the Finance Ministry noted that the revenue target from VAT was not met.
The Indonesian Tax Authority (ITA) is focusing on transfer pricing, tax treaty abuse and benchmarking. "Transfer pricing was the number one issue in 2010 and even now," said Prijohandojo Kristanto of PB Taxand.
"There have been heightened transfer pricing activities by the tax office," said Koesmoeljana. "In the last 12 months they have issued many rules and regulations surrounding transfer pricing."
"The tax authorities are more prepared," said Imam Subekti of MUC Consulting. "They have formed a special transfer pricing section to handle this issue."
The DGT released a basic transfer pricing framework and rules according to the arm's length standard in September 2010.
The rules follow international norms, starting with an analysis to determine the comparables, then the determination of the appropriate transfer pricing methodology, setting arm's length prices and documenting all the steps taken.
Though it is important for taxpayers to prepare and maintain a transfer pricing study, the regulation does not refer to a penalty for failing to prepare one. The DGT has the authority to adjust income and costs corresponding to related-party transactions only after reviewing the taxpayer's study. In instances where the taxpayer cannot provide an adequate explanation or prepare a transfer pricing study, the DGT will determine the most appropriate arm's-length value.
The regulation indicates that taxpayers can seek to settle transfer pricing disputes by applying for a mutual agreement procedure (MAP). However, detailed procedures for a MAP have not been provided in the regulation.
Taxpayers may consider applying for an advance pricing agreement (APA) to avoid future disputes. The APA can be unilateral or bilateral.
"The transfer pricing documentation is not really clear. [The tax authorities] tried to introduce the concept under the OECD model for transfer pricing guidelines," said a tax partner.
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