Assessing Mutual Agreement Procedure In Indonesia.

In the midst of modernization and the increasing ease of conducting cross‑border transactions in the contemporary era, taxation has emerged as one of the most critical aspects that directly intersects with such transactions. While taxation constitutes an imperative obligation imposed upon taxpayers universally, it must be acknowledged that the administration of taxation is not invariably seamless. In Indonesia, between the years 2021 and 2025, official records indicate a total of 52,999 cases in which the Directorate General of Taxes of the Republic of Indonesia (“DGT”) was positioned as the respondent or defendant in tax dispute proceedings. This figure does not yet account for disputes that were resolved through administrative settlement mechanisms prior to escalation into judicial proceedings. 

The abovementioned statistic underscores the fundamental importance of tax dispute resolution as an essential mechanism to uphold fairness and legal certainty within society. The necessity is heightened by the unilateral nature of taxation the same authority that regulates and interprets tax obligations is also vested with the power to enforce and collect them. Consequently, the availability of impartial dispute resolution channels serves not only as a safeguard for taxpayers but also as a cornerstone for maintaining public trust in the integrity of the tax system.

In connection with cross‑border transactions that inherently involve cross‑border taxation, the existence of Double Taxation Agreements (“Tax Treaty”) provides significant relief and legal certainty for business actors subject to taxation across jurisdictions. Nevertheless, one critical question arises in the realm of cross‑border taxation, how disputes are to be resolved when a taxpayer believes that the interpretation or application of a Tax Treaty has been incorrectly made by the competent authority. One of the principal mechanisms for such resolution is the Mutual Agreement Procedure (“MAP”).

This article will provide an in-depth explanation of the mutual agreement procedure as a mechanism for resolving disputes that arise under international taxation within the Republic of Indonesia.

What is MAP?

Mutual Agreement Procedure (“MAP”) is a dispute resolution mechanism provided under bilateral tax treaties, through which the competent authorities of the contracting states consult with one another to resolve cases of taxation that are not in accordance with the provisions of the applicable treaty. MOF Regulation No. 172/2023 defined MAP as an administrative procedure provided under Tax Treaty to resolve issues arising in their application.

In the context of MAP, where a taxpayer considers that the actions of one or both jurisdictions have resulted, or are likely to result, in taxation contrary to the treaty, the taxpayer may present the case to the competent authority in accordance with the procedural requirements set out in the relevant treaty and domestic administrative guidance. The competent authorities then engage in discussions with a view to reaching a mutually agreed resolution.

It is important to understand that MAP is an alternative avenue of dispute resolution available alongside domestic remedies. Domestic remedies generally involve contesting an assessment or determination within the legal and administrative framework of a single jurisdiction. By contrast, MAP is specifically designed to address treaty‑related issues through consultations between the competent authorities of the contracting states. Accordingly, in appropriate circumstances taxpayers may pursue MAP concurrently with, or in addition to, domestic remedies, subject to the applicable procedural rules, prescribed timelines, and interaction provisions in the relevant jurisdictions.

Generally, MAP is commonly used in cross-border disputes involving, among others, the following matters: (i) double taxation of the same income; (ii) Transfer pricing adjustments between related entities in different countries; (iii) Permanent establishment disputes; (iv) Tax residence conflicts; (v) Withholding tax issues; dan (vi) Situations where treaty benefits are denied and the taxpayer believes that is incorrect.

The significance of MAP in tax dispute resolution may be outlined as follows:

1. Addressing Double Taxation. MAP plays a crucial role in circumstances where corresponding adjustments, transfer pricing revisions, or divergent income characterisations result in juridical or economic double taxation that cannot be sufficiently remedied through unilateral domestic measures.
2. Inter‑jurisdictional Coordination. Unlike domestic objection or appeal mechanisms, which generally consider only the position of a single tax authority, MAP establishes a framework enabling the competent authorities of both contracting states to examine the matter in a coordinated fashion.
3. Treaty‑based Safeguards for Taxpayers. As MAP derives its authority from the provisions of the applicable tax treaty, it functions as a key mechanism to ensure that treaty benefits and protections are applied consistently with the treaty’s objectives.
4. Practical Relevance in Cross‑border Taxation. MAP is particularly pertinent in disputes involving transfer pricing, attribution of profits to permanent establishments, determination of dual residence, and the treatment of withholding taxes issues that frequently entail conflicting positions between jurisdictions.

General Overview of MAP

The Government of the Republic of Indonesia has adopted the framework of the Organisation for Economic Co‑operation and Development (“OECD”) Model Tax Convention (“Model Convention”), under which Article 25 establishes the standard clause on MAP. Pursuant to Article 25(1) of the Model Convention, MAP constitutes a dispute resolution mechanism available to taxpayers who consider that taxation imposed upon them is inconsistent with the provisions of the applicable Tax Treaty.

In Indonesia, the standardization of MAP is broadly regulated under Minister of Finance Regulation No. 172 of 2023 on the Application of the Arm’s Length Principle in Transactions Influenced by Special Relationships (“MOF Regulation No. 172/2023”) and further detailed in Directorate General of Taxes Circular Letter No. SE‑18/PJ/2025 on Guidelines for the Implementation of Mutual Agreement Procedures. 

Specifically, Article 41(6) of MOF Regulation No. 172/2023 provides that MAP may be invoked in certain cases, including:

1. instances of double taxation arising from transfer pricing adjustments, permanent establishment profit attribution, or other income tax object adjustments;
2. taxation inconsistent with the provisions of a Tax Treaty;
3. determination of residency status by a treaty partner authority;
4. discriminatory tax treatment in the treaty partner jurisdiction; and/or
5. divergent interpretations of Tax Treaty provisions.

MAP is distinguished from domestic legal proceedings in which it is not a litigation process but rather a negotiation between the competent authorities of the contracting states, designed to provide legal certainty for taxpayers. Article 41(11) of MOF Regulation No. 172/2023, in conjunction with Article 27C of Law No. 6 of 1983 on General Provisions and Tax Procedures as lastly amended by Law No. 1 of 2026 (“KUP Law”), stipulates that a request for MAP may be submitted concurrently with domestic remedies such as objections, appeals, lawsuits, requests for reduction or cancellation of tax assessments, or judicial review petitions.

However, it must be noted that the OECD Commentary to the Model Convention observes that in most jurisdictions, the prevailing approach is that a taxpayer may not simultaneously pursue MAP and domestic legal remedies. Furthermore, even though MAP serves as an alternative procedure, the filing of a MAP request does not suspend the taxpayer’s obligation to pay assessed taxes, nor does it halt tax collection measures or refund processes.

Notwithstanding its importance, MAP is subject to a number of practical and procedural limitations, including the following:

1. MAP is generally conducted as a government-to-government process, meaning that the taxpayer does not participate directly in the negotiations between competent authorities.
2. The obligation under many treaties is to use best efforts or endeavour to resolve the case, rather than to guarantee that an agreement will be reached in every instance.
3. The process may be lengthy, particularly in complex cases involving extensive factual and technical issues.
4. Access to MAP and the scope of available relief depend on the terms of the relevant treaty as well as domestic administrative rules governing admissibility and procedure.
5. In practice, MAP may need to be managed alongside domestic objection, appeal, or litigation processes, depending on the legal framework of the jurisdictions concerned.

Types of MAP 

Although MAP is often discussed as a single treaty mechanism, in practice it encompasses a number of distinct forms depending on the legal basis of the case, the nature of the dispute, and the number of jurisdictions involved. The principal types may be described as follows:

• Case-specific MAP initiated by a taxpayer. 

This is the most common form of MAP and arises where a taxpayer considers that the actions of one or both contracting states have resulted, or are likely to result, in taxation not in accordance with the treaty. It is typically grounded in the provision corresponding to Article 25(1) of Model Convention and resolved through consultations under Article 25(2) of the Model Convention.

• Interpretative or consultative MAP. 

This form of MAP is used where the competent authorities seek to resolve difficulties or doubts regarding the interpretation or application of a treaty, or to consult on cases of double taxation not expressly dealt with in the treaty. It is generally associated with the provision corresponding to Article 25(3) of Model Convetion.

• Multilateral MAP. 

In more complex structures involving more than two jurisdictions, MAP may be conducted on a multilateral basis where coordinated resolution cannot be achieved effectively through separate bilateral discussions alone. This type of procedure is increasingly relevant in modern multinational arrangements.

• Arbitration-enabled MAP. 

In treaties that contain an arbitration clause, unresolved issues may proceed to arbitration if the competent authorities are unable to reach agreement within the period specified in the treaty. In such cases, arbitration functions as an extension of the MAP process rather than as a wholly separate remedy.

In transfer pricing practice, it is also common to distinguish retrospective MAP cases from prospective dispute-prevention mechanisms such as bilateral or multilateral advance pricing arrangements. Although an advance pricing arrangement is not itself a MAP in the strict sense, bilateral and multilateral advance pricing arrangements are closely connected to the competent authority framework and are often discussed alongside MAP because they rely on treaty-based cooperation to prevent future double taxation.

MAP in Indonesia

In the Indonesian treaty context, MAP must be understood as part of Indonesia’s broader network of double taxation agreements, which generally follow an OECD-influenced structure while reflecting bilateral variations in drafting and scope. As a result, the availability and practical operation of MAP in Indonesia depend not only on domestic administrative rules, but also on the wording of the relevant treaty, including the article corresponding to Article 25 of the OECD Model Tax Convention and the allocation rules governing residence, business profits, permanent establishments, and withholding taxes.

The Indonesian treaty framework is also increasingly shaped by administrative rules on treaty access and anti-abuse review. In current practice, Minister of Finance Regulation No. 112 of 2025 is particularly relevant because it sets out the procedures for applying treaty benefits, including documentary requirements, residence certification, and the domestic approach to preventing treaty abuse. Accordingly, disputes that later enter MAP may arise not only from transfer pricing or profit attribution adjustments, but also from disagreements over entitlement to treaty relief, beneficial ownership, permanent establishment thresholds, or the interpretation of treaty-based limitations on Indonesian taxing rights.

From a dispute resolution perspective, the treaty context is important because MAP in Indonesia is not merely an extension of domestic controversy procedures, rather, it is a mechanism for giving effect to treaty obligations where two jurisdictions adopt competing or inconsistent interpretations. This is particularly significant in cases involving reduced withholding tax rates, residence tie-breaker issues, the existence of a permanent establishment, corresponding adjustments to transfer pricing, and situations in which a taxpayer asserts that Indonesia or the treaty partner has taxed income in a manner inconsistent with the agreement. For this reason, any analysis of MAP involving Indonesia should be anchored in the specific treaty text, the domestic implementation rules, and the practical stance of the competent authorities involved.

Although Indonesia has, in principle, adopted the MAP’s provisions contained in the OECD Model Convention as the standard foundation for inclusion in its Tax Treaty, Indonesia has not elected to replicate those provisions identically. Indonesia has deliberately chosen not to insert the provision under Article 25(5) OECD Model Convention to its Tax Treaty. 

Fundamentally, Article 25(5) of the OECD Model Tax Convention provides that, where the competent authorities of the contracting states are unable to reach agreement within the prescribed time frame under the MAP, any unresolved issues shall, upon request, be submitted to arbitration, provided that such issues have not already been adjudicated by a court or administrative tribunal of either state. This provision demonstrates that MAP, while serving as an additional dispute resolution mechanism alongside domestic proceedings through negotiation, does not guarantee consensus, as each tax authority naturally pursues its own sovereign interests. Accordingly, arbitration is contemplated as a safeguard against deadlock.

Although the OECD Model Convention envisages arbitration as a solution to MAP deadlock, Indonesia has exercised its right to reserve against the application of Article 25(5) of OECD Model Convention. As a result, arbitration is not available under Indonesia’s Tax Treaty in the event MAP negotiations fail, save for the Agreement between the Government of the Republic of Indonesia and the Government of the United Mexican States for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, which expressly incorporates an arbitration clause. This reservation implicitly reflects Indonesia’s policy preference to prioritize negotiation between sovereign states as a means of preserving tax sovereignty. Consequently, arbitration clauses in the context of MAP deadlocks are of limited relevance within Indonesia’s treaty practice, particularly when compared to other jurisdictions that have adopted the arbitration mechanism under Article 25(5) of the OECD Model Convention.

2026 MEMAP and Its Relevance to Indonesia

The OECD Manual on Effective Mutual Agreement Procedures (“MEMAP”), newly issued in 2026, establishes 59 best practices governing the conduct of MAP. The MEMAP is particularly relevant to Indonesia, as statistical data (see the table in number 4 below) indicates that Indonesia maintains an inventory of more than ten MAP cases, thereby classifying it among jurisdictions with medium to large case inventories. Accordingly, the MEMAP serves as a pertinent framework for regulating MAP mechanisms in line with prevailing international best practices.

The MEMAP prescribes best practices applicable to both sides of the procedure: (i) the jurisdictional authority as the competent authority, and (ii) the taxpayer as the applicant. With respect to taxpayers, the practical implementation of best practices in Indonesia cannot be definitively ascertained, as such application varies depending on the experience and familiarity of the relevant taxpayers. Conversely, Indonesia, in its capacity as a jurisdiction, has already incorporated several best practices into its domestic legal framework. For instances: 

1. Best Practice 1 requires jurisdictions to incorporate the full text of Article 25 paragraph (1) until (4) of the OECD Model Convention, which Indonesia has already adopted in most of its tax treaties.
2. Best Practice 13 requires jurisdictions to aim to resolve MAP cases within 24 months of initiation. Indonesia’s 2024 annual report records an average resolution time of 20.72 months, thereby meeting this standard.
3. Best Practice 16 requires jurisdictions to publish clear and accessible MAP guidance. Indonesia’s DGT has implemented this through its official website (https://www.pajak.go.id/id/apa-map#MAP), albeit the guidance does not yet fully encompass all elements prescribed under Best Practice 16.

A significant innovation introduced by the MEMAP is the expanded elaboration on MAP arbitration. However, this remains largely irrelevant to Indonesia, as Indonesia has exercised its reservation with respect to Article 25(5) of the OECD Model Convention. While Indonesia has historically been cautious in adopting arbitration clauses in its tax treaties, the OECD’s increasing emphasis on arbitration may influence future treaty negotiations as the MEMAP provides clear guidelines on arbitration. Internationally, arbitration is regarded as a mechanism to enhance tax certainty and avoid unresolved disputes, particularly in cases of deadlock. Nevertheless, as per this date, Indonesia continues to prioritize tax sovereignty in safeguarding domestic interests.

In conclusion, the MEMAP constitutes a material advancement toward a modern, transparent, and efficient system of international tax dispute resolution. For Indonesia, the MEMAP provides both guidance and normative pressure to strengthen its MAP framework. This includes measures to reinforce institutional capacity, enhance the competence of the DGT, expedite dispute resolution processes, improve transparency for taxpayers, and align more closely with international best practices in taxation, thereby achieving the latest global standards. Through the implementation of the MEMAP and the adaptation in Indonesia, hopefully this can result to more predictable resolution for TP adjustments cases. 

Effectiveness of MAP in Indonesia

In general, the MAP is of particular practical importance to multinational enterprises and other cross‑border taxpayers, especially in cases involving transfer pricing adjustments affecting related‑party transactions across jurisdictions, the attribution of profits to a permanent establishment, disputes concerning tax residence, withholding taxes, or the characterisation of income and the need to obtain effective relief where treaty protections may not otherwise be fully realised through domestic processes alone.

However, in Indonesia, the number of tax subjects submitting applications for dispute resolution through the MAP in Indonesia remains relatively low compared to domestic proceedings, though it has shown tendency to increase over the past five years (see table below). As of 2024, official records indicate that 74 MAP applications were still pending resolution. This figure demonstrates that taxpayers have become increasingly proactive in utilizing MAP as a mechanism for resolving international tax disputes.

Year	Number of MAP Application
2020	10
2021	24
2022	13
2023	25
2024	33

The Government of the Republic of Indonesia has likewise demonstrated a strong commitment to enhancing the use of MAP, as evidenced by Indonesia’s active participation in the OECD’s Base Erosion and Profit Shifting (“BEPS”) project, particularly in the implementation of Action 14 recommendations. This reflects Indonesia’s effort to strengthen international tax dispute resolution and align its practices with evolving global standards.

Essentially, the effectiveness of MAP in Indonesia remains constrained. The statutory timeframe for resolving MAP cases is two years, with the possibility of extension for another two years. Although this time frame may appear expedited compared to the tax proceedings in tax court (for the case to attain final and binding status through appeal proceedings), it still presents challenges for certain taxpayers, particularly when considering the possibility of not negotiating directly through the procedures, which may restrict their capacity to influence their strategy.Moreover, in the event of deadlock of the government authorities, Indonesia does not provide for arbitration under Article 25(5) of the OECD Model Convention, having reserved against that provision. This raises concerns about the absence of a binding resolution mechanism where competent authorities of different states, each with divergent domestic interests, fail to reach agreement.

Furthermore, the effectiveness of MAP is also limited by Indonesia’s regulatory framework. Article 51 of MOF Regulation No. 172/2023 grants the DGT the authority to terminate MAP negotiations once a tax court appeal decision or judicial review ruling has been issued on the subject matter of the dispute. This provision underscores the primacy of domestic proceedings over MAP. Although, Article 49 of MOF Regulation No. 172/2023 stipulates that the notification of MAP outcomes may be accompanied by a request that the taxpayer submit a declaration to withdraw or not to pursue other dispute resolution proceedings outside MAP.

While some taxpayers perceive the MAP as a more effective alternative to litigation for cross-border disputes, the protracted nature of the process can indeed introduce uncertainty for taxpayers. Consequently, they tend to favor the use of Advance Pricing Agreements as a preventive measure, reserving the MAP for fallback mechanism.

Accordingly, while MAP is gradually gaining traction among Indonesian taxpayers, its overall effectiveness remains hindered by regulatory constraints and the absence of arbitration as a deadlock mechanism. These factors suggest that MAP in Indonesia continues to function more as a supplementary negotiation tool rather than a fully binding dispute resolution.

Conclusion

While the MAP is internationally recognized as a legitimate mechanism for resolving cross‑border tax disputes, its practical appeal in Indonesia remains limited compared to domestic proceedings. Nonetheless, Indonesia is steadily progressing toward greater alignment with global tax practices. The gradual increase in MAP applications reflects growing taxpayer awareness of treaty‑based remedies. While Indonesia’s active participation in OECD initiatives demonstrates a clear commitment to modernizing its dispute resolution framework. 

References

1. APA and MAP Statistics, https://pajak.go.id/en/apa-and-map-statistics.
2. MOF Regulation No. 172/2023.
3. OECD, Model Tax Convention on Income and on Capital, Article 25 (Mutual Agreement Procedure), in particular Article 25(1) (taxpayer access to MAP), Article 25(2) (obligation of the competent authorities to endeavour to resolve cases by mutual agreement), Article 25(3) (resolution of difficulties or doubts concerning interpretation or application of the treaty), and Article 25(6) as reflected in the 2025 Update to the OECD Model Tax Convention; see also the Commentary on Article 25, including the paragraphs addressing taxpayer access, competent authority consultations, implementation of agreements notwithstanding domestic time limits, and the treatment of cases not expressly provided for in the treaty.
4. OECD, Manual on Effective Mutual Agreement Procedures (MEMAP) (2026 Edition), especially the sections dealing with access to MAP, unilateral relief, bilateral discussions between competent authorities, practical guidance on MAP arbitration, and the annexed templates for MAP requests, position papers, and closing letters.
5. OECD/G20 BEPS Project, materials under Action 14 on making dispute resolution mechanisms more effective, including the Action 14 minimum standard, the related terms of reference and assessment methodology for peer review, the targeted average timeframe of 24 months for MAP case resolution, published MAP profiles, and Making Dispute Resolution More Effective – Consolidated Information on Mutual Agreement Procedures 2024.
6. OECD (2019), Model Tax Convention on Income and on Capital 2017 (Full Version), OECD Publishing. http://dx.doi.org/10.1787/g2g972ee-en.
7. OECD (2021), Making Dispute Resolution More Effective – MAP Peer Review Report, Indonesia (Stage 2): Inclusive Framework on BEPS: Action 14, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, https://doi.org/10.1787/8095f743-en.
8. OECD (2025), Making Dispute Resolution More Effective – Consolidated Information on Mutual Agreement Procedures 2025, OECD/G20 Base Erosion and Profit Shifting Project, https://www.oecd.org/content/dam/oecd/en/topics/policy-sub-issues/dispute-resolution/consolidated-information-on-mutualagreement-procedures-2025.pdf.
9. OECD (2026), Manual on Effective Mutual Agreement Procedures (2026 Edition): Inclusive Framework on BEPS, OECD Publishing, Paris, https://doi.org/10.1787/076ac4bd-en.   
10. Sekretariat Pengadilan Pajak Kementerian Keuangan, “Statistik Jumlah Berkas Sengketa dan Penyelesaian Sengketa Tahun 2021 -2025”, https://setpp.kemenkeu.go.id/statistik.  

For further information, please contact: 

MetaLAW, Legal & Tax Consultant, Jakarta, Indonesia 

maser@metalaw.id

1. Sekretariat Pengadilan Pajak Kementerian Keuangan, “Statistik Jumlah Berkas Sengketa dan Penyelesaian Sengketa Tahun 2021 -2025”, https://setpp.kemenkeu.go.id/statistik, accessed on 28 May 2026.  
2. OECD (2019), Model Tax Convention on Income and on Capital 2017 (Full Version), OECD Publishing. http://dx.doi.org/10.1787/g2g972ee-en, paragraph 76, page C(25)-40. 
3. Article 41(12) MOF Regulation No. 172/2023.
4. OECD (2021), Making Dispute Resolution More Effective – MAP Peer Review Report, Indonesia (Stage 2): Inclusive Framework on BEPS: Action 14, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, https://doi.org/10.1787/8095f743-en, paragraph 344, page 93.
5. OECD (2026), Manual on Effective Mutual Agreement Procedures (2026 Edition): Inclusive Framework on BEPS, OECD Publishing, Paris, https://doi.org/10.1787/076ac4bd-en.   
6. OECD (2025), Making Dispute Resolution More Effective – Consolidated Information on Mutual Agreement Procedures 2025, OECD/G20 Base Erosion and Profit Shifting Project, https://www.oecd.org/content/dam/oecd/en/topics/policy-sub-issues/dispute-resolution/consolidated-information-on-mutualagreement-procedures-2025.pdf, page 212.
7. APA and MAP Statistics, https://pajak.go.id/en/apa-and-map-statistics.
8. APA and MAP Statistics, https://pajak.go.id/en/apa-and-map-statistics.
9. Article 45 paragraph (3) and (4) MOF Regulation No. 172/2023.