• Replacement/Improvement of Regulation Related to Controlled Foreign Company

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.


  • 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.

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