Implementation Of Mutual Agreement Procedure On Double Taxation Avoidance (P3b)
- 22 November 2010 by admin 0 Comments
In following up the provisions of P3B Agreements, the Government of the Republic of Indonesia through the Directorate General of Taxation issued a Regulation of the Directorate General of Taxation No. PER-48/PJ/2010 regarding the Implementation of Mutual Agreement Procedure on Double Taxation Avoidance (“Regulation 48”) that came into effect as from 3 November 2010.
Regulation 48 provides that Mutual Agreement Procedure or MAP is an administrative procedure which is stipulated in the Double Taxation Avoidance Agreement (P3B) to solve problems caused by the implementation of P3B itself, while the Mutual Agreement means the result which has been agreed by officials from Indonesia and the P3B counterpart country in accordance with the MAP.
Regulation 48 provides that MAP will be implemented when there is: (a) a request from Indonesian taxpayer; (b) a request from an Indonesian citizen which becomes a domestic taxpayer in P3B counterpart country in accordance with the non-discrimination regulation contemplated in P3B; (c) a request from a P3B counterpart country; or (d) matters which may be necessary based on the initiative of the Directorate General of Taxation.
An interesting issue in Regulation 48 is that the Directorate General of Taxation has an ability to correct transfer pricing, in relation to special transactions with domestic taxpayers of a P3B counterpart country through a corresponding adjustment mechanism, i.e. tax of a country which has a special connection with counterpart country’s taxpayer, which is levied by tax authority of the country in accordance with transfer pricing correction by the partner country’s tax authority (primary adjustment), so that the benefit allocation in both countries or jurisdictions will be consistent, in order to eliminate the implementation of double taxation. Transfer pricing according to Regulation of the Directorate General of Taxation No. PER-43/PJ/2010 concerning the Implementation of Business Fairness and Predominance Principle in Transactions Between a Taxpayer and a Party Who Has a Special Connection which comes into effect as from 6 September 2010 means price determination in transaction between parties who have a special connection, i.e., the connection between the taxpayer and another party as referred to the Income Tax Act or Value Added Tax Act.
In general, Regulation 48 stipulates the procedure for MAP’s submission and implementation from an Indonesian taxpayer or Indonesian citizen which becomes a taxpayer in a P3B counterpart country and the MAP handling requests from a P3B counterpart country. This regulation also aims to get additional tax revenue as it creates a tax correction on current transfer pricing practices in Indonesia.