29 SEPTEMBER 2016
www.bdo.co.id
NEWS
FLASH
BASE EROSION
AND PROFIT SHIFTING
(BEPS) UPDATE
HOW PREPARED ARE YOU?
The release of 15 action points, which is the
outcome of the BEPS project, was completed
in late 2015. The 15 action points are organised
around three main pillars: coherence,
substance and transparency with targeted
work in the area of digital economy and the
development of multilateral instrument.
Following the release of this BEPS package,
it is expected that countries would adopt the
underlying principles within the 15 action
points package and encompass them in
the local tax rules and tax treaty with
partner countries.
How Does BEPS Change The Global
Taxation Landscape?
The BEPS package is the worlds response
to out-of-date taxation rules (most are
developed in the 1920s!), when there were less
cross-border activities and businesses were
built based on bricks-and-mortar models. It
is also a response to the changes of business
models, such as globalisation of value chains,
increasing importance of intangibles and
digital economy. Although the OECD member
countries initiated the BEPS project, there are
now about 100 countries involved each with
equal footing including developing countries
like Indonesia.
How Is BEPS Affecting Indonesia?
It is notable, that the awareness of the BEPS
within the Indonesian business community is
still a few steps behind other countries.
For more information on how BDO can help you
in planning and navigate this major changes,
please contact
Michelle Mianova, mmianova@bdo.co.id
From a regulatory perspective, much of
the fiscal policy makers efforts have been
concentrated toward tax amnesty in this past
year. While many countries have adopted
BEPS principles since the beginning of 2016,
the drafting of BEPS-aligned tax regulations
has been temporarily set-aside on the shelf for
Indonesia until the tax amnesty programme
is successfully rolled out. The tax amnesty
has been a trending topic since last year even
though the rules were just issued in July 2016.
It is interesting that many people are not
aware that the tax amnesty programme is also
influenced by the OECD/G-20 BEPS packages
that it will eventually lead to a new era of
transparency when the automatic exchange of
information is implemented.
Now that the lowest rate tax amnesty period
is close to an end on 30 September 2016, the
authorities are now starting to pick up their
pace to get the much awaited BEPS-aligned
tax regulations ready for enforcement. It is
anticipated that these regulations will be
released by the end of this year.
In Indonesia, the adoption of the OECD/G-20
BEPS recommendation into domestic laws is
slower than most countries in the Asia Pacific
region, such as China, India, Singapore and
Australia. We can expect to see changes to the
existing transfer pricing regulations soon.
The following table provides a summary of the
expected changes and timing. (cont.)
BDO Indonesia
Prudential Tower 16th-18th Floor
Jl. Jenderal Sudirman, Kav. 79
Jakarta 12910, INDONESIA
Tel : +62-21 5795 7300
Fax : +62-21 5795 7301
www.bdo.co.id
Overview
Since four years ago, the OECD
and G-20 member countries have
put their focus on the Base Erosion
and Profit Shifting (BEPS) project,
which is aimed to combat aggressive
tax-planning practices that would
erode tax base and/or shift taxable
profits to low tax jurisdictions. BEPS
occurs because under the existing
rules, multinational enterprises
(MNEs) are often able to
artificially separate the allocation
of their taxable profits from the
jurisdictions in which these profits
arise. This can result in income
not being taxed anywhere, and
significantly reduced the corporate
income tax paid by MNEs in the
jurisdictions where they operate.
This article is aimed to report some
updates on where Indonesia is in
implementing the BEPS package
as well as to share some practical
experience from taxpayers in other
countries who have adopted BEPS
since the beginning of 2016.
 29 SEPTEMBER 2016
www.bdo.co.id

Action Point Adaptation to the domestic rules Expected Effective Timing

Action 1: Addressing the Tax Challenges Under discussion between the government and
Yes Not yet known
of theDigital Economy business community

Action 2: Neutralising the Effects

Yes Not yet known Not yet known
ofHybrid Mismatch Arrangements

Action 3: Designing EffectiveControlled

Yes Changes/revision to the existing CFC rules Not yet known
Foreign Company Rules

Action 4: Limiting Base Erosion

New thin-capitalisation rule was introduced in September Applicable for fiscal
InvolvingInterest Deductionsand Other Yes
2015. The implementing regulation will be released soon. year 2016 onwards
Financial Payments

Action 5: CounteringHarmful Tax

Not yet
PracticesMore Effectively, Taking into Not yet known Not yet known
known
Account Transparency and Substance

Action 6: Preventing the Granting

ofTreaty Benefitsin Inappropriate Yes Changes/revision to the existing anti-treaty abuse rules Not yet known
Circumstances

Action 7: Preventing the Artificial

Avoidance ofPermanent Yes Not yet known Not yet known
EstablishmentStatus

Actions 8-10: AligningTransfer Changes/revision to the existing local Before the end of
Yes
PricingOutcomes with Value Creation transfer pricing guidelines the year 2016

Action 11:Measuringand Monitoring Not yet

Not yet known Not yet known
BEPS known

New regulation, procedures are being drafted and

Action 12: MandatoryDisclosure Rules Yes Not yet known
prepared accordingly

Action 13: Guidance onTransfer Pricing

Changes/revision to the existing local transfer pricing Before the end of
Documentationand Country-by-Country Yes
guidelines the year 2016
Reporting

Action 14: MakingDispute Supplementing provision to the Article 20 of tax treaty is

Yes Not yet known
ResolutionMechanisms More Effective being drafted/prepared

Action 15: Developing aMultilateral

Instrumentto Modify Bilateral Tax Yes Not yet known Not yet known
Treaties

Based on the BEPS package, action point 8, 9, 10 and 13 are those that focus on transfer pricing. We can see from the above that, it seems after the
tax amnesty fever ends, transfer pricing would once again become the hottest trend in Indonesia.

(cont.)

So what does CbCR mean to taxpayers?
Particularly in relation to action point 13
on country-by-country reporting (CbCR),
there have been voices of concern from
business community that its implementation
would increase compliance cost. Another
concern is how to effectively disclose
information required under the CbCR format
without exposure to the risks of incorrect
interpretation of the business substance by
the tax authorities.
At the moment, besides progressing with
the drafting of changes and revision to
the existing transfer pricing guidelines,
the Indonesian tax authorities are in close
collaboration with a technology service
provider and the competent authorities
of the OECD and G-20 member countries
to develop an integrated software system
that would facilitate automatic exchange of
information among them. This means, the
CbCR could be used as one of the tools for
information exchanges between countries
and possibly a risk assessment tool to
identify the low-hanging-fruits.
In several public events on transfer pricing,
key high-ranking tax officials who facilitated
the events have shared the plan to put in
force the CbCR requirements starting from
fiscal year 2016. However, only for fiscal year
2016, the filing deadline could be delayed
until mid of 2018 when the automatic
exchange of information system is scheduled
to already be in operation. For subsequent
fiscal years, the deadline will be the same
as the deadline to file the annual corporate
income tax return, that is, by the end of the
fourth month following the closing of book
year (e.g. by 30 April of the following year for
January-December book year).
It was also shared during these public
events that Indonesia would adopt the same
threshold as action point 13 CbCR, which is
EUR 750 million (translated to IDR 10 trillion)
of annual consolidated group turnover.
Are there other changes to the TPD
requirement?
It was also in the current proposed draft
transfer pricing regulations that the following
taxpayers are exempted from the requirement
to prepare transfer pricing documentation:
Taxpayer with accumulated annual revenue
of less than or equal to IDR 50 billion;
Taxpayer with accumulated annual revenue
that exceeds IDR 50 billion but with the
following related party transaction:
With a value of less than IDR 20 billion for
tangible goods transactions and/or
With a value of less than IDR 2.5 billion
for each of the following types of related
party transactions (which are defined as
high-risk in the prevailing Circular Letter
No. 50/PJ.2013 on the implementation of
tax audit guidelines):
provision of services,
payment of interest, and
payment for the use of intangible goods.
Key takeaways - how can you effectively
prepare for BEPS?
In our observation, the BEPS project has
introduced us to a new trend of increased
collaboration between tax authorities and
taxpayers/businesses. As this new tax
environment will be challenging, careful
planning and consideration are required.
As a starting point, you may want to start
considering the following:
29 SEPTEMBER 2016
www.bdo.co.id
How would you respond to the changing
environment post implementation of
BEPS? Is adding more resources to your
internal tax team an effective solution
or should you adopt technology that
is developed for BEPS (e.g. software that
would aid development of CbCR compliant
documents)?
In the new BEPS era, tax could be costly if
not manage effectively. This means the role
of internal tax function would gradually
change to adapt to this new environment.
Have you considered how your business
would respond? Have you made awareness
of your executives so that you would get
their full support in managing tax risks in a
BEPS environment?
Have you thought about what criteria you
would look for in making hiring decisions for
your tax team?
How do you ensure your documentation
would align substance and your companys
Functions, Assets and Risks (FAR) analysis?
How much document is enough?
Have you considered who would take
ownership of the groups CbCR? How much
detailed is required?
In the next two articles, we will try to share
with you some practical tips that you could
consider in responding to BEPS. The tips are
compiled based on what other offices that
operate in BEPS-advanced countries have
experience with their clients and observations
during tax controversy cases post BEPS. If after
these articles you still have questions or if
you have a specific case you want to discuss,
please contact the individual listed and book
your free one-hour consultation meeting.