• Replacement/Improvement of Regulation Related to Controlled Foreign Company
Newsletter:

Replacement/Improvement of Regulation Related to Controlled Foreign Company

17 October 2017

Indonesia has a commitment to fight against the practice of tax avoidance across the country. Due to that, the Directorate General of Taxation (DJP) and the Ministry of Trade issuing a regulation related to the handling of income from overseas controlled companies owned by Indonesian taxpayers (Controlled Foreign Company/CFC).

Reasons of the Issuance:

  • The previous regulation related to the practice of CFC is considered less effective;
  • The previous regulation is considered still allows taxpayers to avoid taxes.
  • For example, by establishing a subsidiary abroad for the purpose of transferring the profits of the company to a subsidiary abroad is generally done by doing financial engineering, such as transfer pricing; also
  • in line with the implementation of the 3rd action within the framework of anti-grinding Income and Redirection Profit or better known as Base Erosion and Profit Shifting (BEPS).

Purpose of the Issuance:

  • Improving taxation regulations on CFC in the context of handling international tax avoidance. Which the previous regulation only provides for direct ownership and does not provide for indirect ownership;
  • A profit shifting scheme through CFC have a purpose to avoid the imposition of tax on dividends from subsidiaries outside Indonesia to a holding company domiciled in Indonesia.

Sanctions:

  • The practice of the avoidance of imposition of taxshall be asked for their taxes accountability by the taxation authority, which in this case Directorate General of Taxation.

For more information on how BDO can help
you in planning and navigate this major
changes, please contact our technical team at:

corsec.helpdesk@bdo.co.id