Indonesia – The Revamped Anti Tax Avoidance Rule On Financial Data.
On 18 July 2024, the Ministry of Finance (“MOF”) has recently amended the MOF Regulation No. 70/PMK.03/2017 on Technical Guidelines for Access to Financial Information for Tax Purposes, as amended previously by the MOF Regulation No. 73/PMK.03/2017 of 2017 and the MOF Regulation No. 19/PMK.03/2018 of 2018 (“MOF Regulation 70/2017”). Such change is made by enacting MOF Regulation No. 47 of 2024 on the Third Amendment to MOF Regulation 70/2017 (“Reg 47”). Prior to this update, MOF Regulation 70/2017 was implemented for an automatic exchange of information (“AEOI”) in light of Common Reporting Standards (“CRS”) from financial services institutions and other institution for taxation purposes, with which Reg 47 attempts to fulfil some voids of governance for anti-avoidance and other matters for a tighter supervision.
Servicing by Financial Institutions
As ascribed by Article 7 (1), 7 (2), and 9 of MOF Regulation 70/2017, reporting financial institutions are obliged to provide a report for every financial account they manage that are required to be reported to the Directorate General of Tax (“TAX AUTHORITY”), of which such financial account shall undergo certain mandatory identification and documentation procedures. The types of financial accounts required to be reported per Article 7 (2) – 7 (7) are as follows:
| Types of Owners | Criteria |
| One or more individuals | Every individual that are domestic tax subjects of the participating jurisdiction for the Indonesian Government in conducting AEOI obligation (to be considered as “Reporting Destination Jurisdiction” per Article 1 (18);Inheritances that are yet to be divided by an individual that has passed away. |
| Entities | Every entity within the country of domicile of the Reporting Destination Jurisdiction, except: (a) company whose shares are traded in one or more stock exchange; (b) related entities to the company in point (a); (c) governmental entity; (d) international organization; (e) central bank; or (f) certain financial institutions or other institutions as contained within the Appendix of MOF Regulation 70/2017;Old financial accounts that do not hold more than USD250,000 (two hundred fifty thousand United States Dollars) on 30 June 2017, 31 December 2017, and every 31 December of the next year. |
| Passive non-financial entities | Entities that are non-financial active entities which details are contained in Appendix of MOF Regulation 70/2017;Investment entities whose country of domicile is not in a participating jurisdiction, whose gross revenue originates from investment, reinvestment, or asset trade activities, and is managed by other entities that are depository institution, custodian institution, certain insurance companies, or investment entity. |
To this end, Reg 47 introduced Article 10A in which financial institutions are prohibited from providing services on: (a) opening a new financial account for an individual and/or entity; or (b) new transaction regarding a financial account for owners of old financial accounts (inter alia, making a deposit, withdrawal, transfer, account opening or contract creation for banking customers; account opening, purchase or transfer transactions for capital market customers; closing of new policy; and other transaction activities on the reporting financial institution) who rejected to fulfil the identification requirements within Article 9 of MOF Regulation 70/2017.
Such prohibition would immediately be effective as of the individual and/or entity reject the identification requirements, except for certain financial transactions for old financial account holders (inter alia, the fulfilment of obligations which has been executed previously by the owner of the old financial account holder and the reporting financial institution; closing an account; or fulfilment of obligations based on the laws and regulations).
Anti-Avoidance
Reg 47 introduced a more comprehensive provision for anti-avoidance requirements. Article 30A (1) prohibit every person, including: (a) financial institutions, (b) other financial institutions, (c) other entities, (d) head and/or staff of the financial institution, (e) head and/or staff of the other financial institution, (f) head and/or staff of other entities, (g) individual financial account holder, (h) entities financial account holder, (i) service provider, (j) broker, and/or (k) other parties (Person) to enter into an agreement and/or practice for the purposes of avoiding obligations on access of financial information for taxation purposes.
Moreover, Article 30A (2) further regulate that should such agreement and/or practice occurs, then it would be considered as: (a) ineffective and/or to have never occurred, and (b) such obligation within MOF Regulation 70/2017 shall be always observed to by every Person. The TAX AUTHORITY is empowered with the authority: (i) to determine if an agreement and/or practice is entered for the purposes of avoiding obligations on access of financial information for taxation purposes; and (ii) to obtain any and all information required to determine such actions have taken place per Article 30A (3), with which information shall not be falsified, hidden, or reduced under Article 30A (4) – 30A (5).
Sanction
Reg 47 updated the provision on sanctions in which Article 31 (1) – 31 (1b) now provides the TAX AUTHORITY with the power to conduct investigations over the compliance requirements for mandatory reporting of financial accounts (Article 7), identification and documentation for financial accounts (Article 9 – 10), provision of information and/or evidence or statements based on requests (Article 15 and 25), AEOI and its report (Article 17, 19), and/or anti avoidance (Article 30A).
Based on such investigation, the TAX AUTHORITY may then inquire to the financial institutions, other financial institutions, and other institutions, should there be an indication of violation of the terms required for the identification and documentation of financial account (Article 9 – 10). The TAX AUTHORITY may also provide a request to every Person for the indication of violation of the prohibition for any agreement and/or practice of avoiding access of financial information for tax purposes (Article 30A (1)) and falsifying information (Article 30A (4)) requirements in anti-avoidance.
Pursuant to Article 32 (1), the TAX AUTHORITY would then provide a written warning to financial institutions, other financial institutions, and/or other entities that: (a) fail to provide a clarification or provide clarification but not entirely fulfil the identification and documentation of financial account (Article 9 – 10), within 14 (fourteen) calendar days since the receipt of clarification request, or (b) based on the TAX AUTHORITY’s investigation, such financial institutions, other financial institutions, and/or other entities does not fulfil the provision of compliance requirements for mandatory reporting of financial accounts (Article 7), provision of information and/or evidence or statements based on requests (Article 15 and 25), AEOI and its report (Article 17, 19).
The TAX AUTHORITY may also provide such written warning to any Person who fails to provide a clarification or a sufficient one within 14 (fourteen) days since the receipt of clarification request per Article 32 (1a). Should the failure to abide by the foregoing be found, the TAX AUTHORITY shall conduct another investigation based on the laws and regulation, wherein any suspected criminal offenses found would be analysed as preliminary evidence and may thereafter be used for prosecution.
Conclusion
In summary, the enactment of Reg 47 aims to strengthen the position of mandatory identification and documentation of financial accounts for tax, as well as anti-tax avoidance requirements within the AEOI system. TAX AUTHORITY is currently even more so empowered on the enforcement of the provisions, namely to process and investigate any incompliance of the foregoing. Such measure is expected to be more adequate to combat tax avoidance by ill-willed parties.
For further information, please contact:
MetaLAW, Legal Consultant, Jakarta, Indonesia
general@metalaw.id
