Business combinations and splits
Transfers of assets in business mergers, consolidations, splits, or acquisition must generally be dealt with at market value. Gains resulting from this kind of restructuring are assessable, while losses are generally claimable as a deduction from income. However, a tax-neutral merger or consolidation, under which assets are transferred at book value, can be conducted but is subject to the approval of the DGT. To obtain this approval, the merger or consolidation plan in question must pass a business-purpose test. Tax-driven arrangements are prohibited, and tax losses from the combining companies may not be passed to the surviving company.
Subject to a similar, specific DGT approval, the same concession is also available for business splits that constitute part of an initial public offering (IPO) plan. In this case, within two years of the DGT’s approval being given, the company concerned must have made an effective declaration regarding registration for an IPO with the OJK. In the event of complications beyond the company’s control, the period may be extended by the DGT for up to four years.
Tax information exchange agreements (TIEAs)
Indonesia has TIEAs with the Bahamas (pending the exchange of ratification documents), Bermuda, Guernsey, Isle of Man, Jersey, and San Marino.
Mutual Administrative Assistance in Tax Matters
Indonesia signed the Convention on Mutual Administrative Assistance in Tax Matters on 3 November 2011 and ratified it on 17 October 2014. Indonesia also signed a Multilateral Competent Authority Agreement on Automatic Exchange of:
- Financial Account Information using the Common Reporting Standard.
- Transfer Pricing Documentation in the form of Country-by-Country Report.
Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS)
Indonesia signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS on 7 June 2017, and it provided a list of reservations and notifications on the same date. This has been ratified on 12 November 2019. On 28 April 2020, Indonesia deposited its instrument of ratification for the Multilateral Instrument (MLI), which entered into force on 1 August 2020. In this ratified document, 47 tax treaties with Indonesia are to be covered by the Convention. Indonesia submitted notification to the OECD (as the depositary of the MLI) to confirm the completion of internal procedures for the tax treaties on 26 November 2020. The DGT issued Circulars to announce the entry into force and entry into effect dates, as well as implement the synthesised text to the relevant tax treaty articles for 21 countries on 18 February 2021.
US Foreign Account Tax Compliance Act (FATCA)
Indonesia has principally agreed to sign the InterGovernmental Agreement (IGA) 1 for FATCA compliance purposes.