On 13 November 2019, the government introduced Regulation of the President No. 77 of 2019 (“Regulation 77/2019”) on the Ratification of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“Multilateral Convention”).[1] The original version of the Multilateral Convention, which was adopted on 7 June 2017 in France with reservations, was outlined comprehensively under the Appendix to Regulation 77/2019 in its original language of French, while Indonesian and English translations were also provided.[2]

However, as the list of reservations and notifications that have been made by Indonesia to the Multilateral Convention (“Reservation and Notification List”) require various adjustments to be made, as authorized under Law No. 24 of 2020 on International Agreements and the Multilateral Convention itself, the government has now decided to issue Regulation of the President No. 63 of 2024 on the Amendment to Regulation 77/2019 (“Amendment”), which has been in force since 13 June 2024.[3]

While maintaining the majority of the provisions originally outlined under Regulation 77/2019, including the mandate for the original version of the Multilateral Convention in the French and English languages to prevail in the event that any misinterpretations of the convention arise, the Amendment now explicitly states that any changes that are made to the Reservation and Notification List should be notified in writing or in accordance with the mechanism outlined under relevant international agreements and applicable Laws.[4]

Previously, the framework of Regulation 77/2019 outlined a total of 47 agreements between Indonesia and various other countries in relation to the avoidance of double taxation (Persetujuan Penghindaran Pajak Berganda – “P3B”) and the prevention of fiscal evasion with respect to taxes on income, which fall under the coverage of the Multilateral Convention. However, the Amendment has now expanded this list to a total of 60 agreements that include new agreements that have been made by Indonesia with Singapore and the United Arab Emirates, as well as agreements that have been newly introduced with the following countries:[5]

Consequently, the above-outlined countries have now been included on the list of countries that have registered with P3B facilities that have been reserved from Indonesia under Article 4 (3) of the Multilateral Convention.[6]

Against the above background, this edition of Indonesian Legal Brief (ILB) offers an elaboration of the various adjustments that have been introduced to the Reservation and Notification List, as set out under the Amendment. However, due to the broad nature of the provisions set out therein, our discussion has been limited to the following topics:

1. Scope of Newly Included P3B and Tax Evasion Agreements; and
2. Other Newly Included Reservations.

Scope of Newly Included P3B and Tax Evasion Agreements

As briefly mentioned above, Regulation 77/2019 broadly outlines agreements that have been made between Indonesia and various other countries in relation to P3B and income tax evasion. The list of agreements made with Indonesia has now been expanded under the Amendment, as highlighted in the following table:[7]

Other Newly Included Reservations

Regulation 77/2019 previously outlined seven countries that are subject to reservations that adhere to Article 7 of the Multilateral Convention in relation to the prevention of the abuse of P3B agreements by Indonesia. The Amendment has now added the following countries to this list:[8]

1. Papua New Guinea;
2. Singapore (New Agreement); and
3. United Arab Emirates (New Agreement).

In addition to the above adjustment, the Amendment now only imposes a reservation on Mexico in relation to the recognition of any entity that falls under multiple jurisdictions, in line with Article 4 (3) (c) of the Multilateral Convention. Previously, Regulation 77/2019 also included three other countries on this list (i.e. Turkey, the United States and Armenia).[9]

The Amendment has now also added the Philippines to the list of 10 countries that were originally subject to the reservation of the transfer of dividend transactions pursuant to Article 8 of the Multilateral Convention, as listed under Regulation 77/2019.[10] Moreover, the Amendment has also included the following countries as subject to the reservation of provisions relating to capital gains from the alienation of shares or interests of entities that derive their values principally from immovable property that adheres to Article 9 of the Multilateral Convention:[11]

1. Morocco;
2. Ukraine;
3. Singapore (New Agreement); and
4. United Arab Emirates (New Agreement).

Key Takeaways

The expansion of reservations that have been made to agreements between Indonesia and various other countries in relation to P3B and income tax evasion ultimately shows that Indonesia, as a party to the Multilateral Convention, is entitled to invoke reservations to the convention as an independent state and in line with Indonesia’s own interests. Through the adjustments that have been made to the previous Reservation and Notification List through the introduction of the Amendment, Indonesia and its foreign counterparts will hopefully be able to enjoy greater legal certainty as regards the avoidance of P3B and other forms of tax evasion.

Source: hukumonline.com