[World Tax News] Indonesia to recalculate tax based on financial performance of peer companies and more

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  • Last Updated on 6 February, 2023

Indonesian tax

Editorial Team – [2023] 147 taxmann.com 46 (Article)

World Tax News provides a weekly snippet of tax news from around the globe. Here is a glimpse of the tax happening in the world this week.

1. Indonesia releases regulations for recalculating tax based on the Financial performance of the Company

Indonesia issued Government Regulation No. 55 of 2022, which amends Law No. 7 of 2021 to harmonize tax regulations. The regulation covers several issues, such as taxation of foreign nationals, excluded income, tax exemptions, deductible expenses, benefits-in-kind, and more.

An important aspect of regulation pertains to depreciation and amortization, with a rule stating that if a building has a lifespan greater than 20 years, it can be depreciated in two ways:

  • By equal parts over 20 years (standard method); or
  • Based on the recorded useful life according to the taxpayer’s bookkeeping.

The amortization of intangible assets with a lifespan greater than 20 years is governed by the same regulation.

Preventing tax avoidance is also a crucial aspect of the regulation, which includes a list of actions for taxpayers attempting to lower, avoid, or delay tax payments contrary to the tax laws’ intention and purpose.

The regulation includes, among other things, measures such as:

(a) Taxing profits based on financial performance

The regulations cover measures of recalculating the tax that should be payable based on a comparison of the financial performance of a taxpayer with the financial performance of other taxpayers in a similar business.

This should be done when:

  • A taxpayer reports profit lower than peers in similar businesses; or
  • A taxpayer reports unreasonable business losses for more than 5 years of operation and 3 consecutive years of losses.

(b) Recomputation based on substance-over-form

If tax avoidance cannot be prevented through the listed actions, recalculating the tax that is based on the substance-over-form principle.

(c) Multilateral Advance Pricing Agreements

The regulation also permits the Director General of Taxes to establish multilateral advance pricing agreements with multiple foreign tax authorities, in addition to unilateral and bilateral agreements.

Source: Regulation Of The Government Of The Republic Of Indonesia

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