TRANSFER
PRICING AND TAXATION INTERNATIONAL
1.
Defines the basic concepts of international taxation
Indonesia as a
sovereign state has the right to make provisions on taxation. Function of the
tax was withdrawn by the government primarily to finance government activities
in order to provide public goods and services needed by all people of
Indonesia. In addition, the tax also serves to regulate the behavior of
citizens of the State to do or not do something.
Indonesia is also part of the international world is definitely in the running wheels of government to international relations. International relations can be cooperation in defense security, cooperation in the social, economic, cultural and other, but the discussion is limited to the export and import (International Trade Transactions) related to international tax.
For that we need the international tax policy in terms of set the tax applicable in a country, assuming that each country could certainly have been set up in the tax provisions into its sovereign territory. But every country is free to regulate the taxation of the entity or a foreign national, international taxation is a form of international law, in which each state must submit to the international agreement known as the Vienna Convention.
Indonesia is also part of the international world is definitely in the running wheels of government to international relations. International relations can be cooperation in defense security, cooperation in the social, economic, cultural and other, but the discussion is limited to the export and import (International Trade Transactions) related to international tax.
For that we need the international tax policy in terms of set the tax applicable in a country, assuming that each country could certainly have been set up in the tax provisions into its sovereign territory. But every country is free to regulate the taxation of the entity or a foreign national, international taxation is a form of international law, in which each state must submit to the international agreement known as the Vienna Convention.
Purpose of the
International Tax Policy
Each policy would have
a specific purpose to be achieved, as well as international tax policy also has
the objective to be achieved, namely to promote trade between countries,
pushing the pace of investment in each country, the government tried to
minimize the taxes that inhibit trade and investment. One attempt to minimize
the burden is by doing penghindaraan international double taxation.
The principles that must be understood in international taxation. Doernberg (1989) mention three elements that must be met netraliats in international taxation policy:
A. Capital Export
Neutrality (Domestic Market Neutrality): Wherever we invest, the burden of
taxes paid should be the same. So it makes no difference if we invest in
domestic or foreign. So do not get when investing abroad, a greater tax burden
because of the two countries bear the tax. This will underpin Income Tax Act
Art 24 governing foreign tax credits.
2. Capital Import Neutrality (International Market Neutrality): investment from wherever derived, subject to the same tax. So that investors from both domestic or overseas will be subject to the same tax rate when investing in a country. It is the right of taxation of the same underlying denagn taxpayer of the Interior (WPDN) of the permanent establishment (PE) or Fixed Uasah Agency (BUT), which can be a branch of the company or service activities through the time-test of the regulations.
2. Capital Import Neutrality (International Market Neutrality): investment from wherever derived, subject to the same tax. So that investors from both domestic or overseas will be subject to the same tax rate when investing in a country. It is the right of taxation of the same underlying denagn taxpayer of the Interior (WPDN) of the permanent establishment (PE) or Fixed Uasah Agency (BUT), which can be a branch of the company or service activities through the time-test of the regulations.
3. National Neutrality:
Every country has the same tax on income. So if any foreign taxes that can not
be deducted as an expense credited earnings deduction.
Taxation of cross
border transactions
Double taxation occurs
because the clash between the claims of taxation. This is because of the
principle of global taxation for the taxpayer in the country (global principle)
where the income of the foreign and domestic residents are taxed by the state
(state taxpayer's domicile). In addition, there are territorial taxation
(source principle) for foreign taxpayers (WPLN) by the state where the income
source of income that comes from that country are taxed by the source country.
This makes the income is taxed twice, first by country and by source country
residents Example: PT A has a branch in Japan. Branch income is taxed in Japan
by the Japanese tax authorities. And in Indonesia with a combined income is
then multiplied by the domestic income tax rate of the domestic law of
Indonesia.
2.
Understand the concept of linkage with the tax return from abroad
One of the principles
in the Income Tax Act is a substance over form; cost or selling price in every
transaction there is a special relationship must be based on reasonable rates
or prices that should be accepted (Article 10 Income Tax Act). Income taxes are
calculated based on the multiplication rate of VAT to taxable income (PKP).
Reduced taxable income derived from the deduction of income (Article 16 Income
Tax Act).
In transactions between
the taxpayer that is a special relationship, often items of income and
deduction not necessarily the same proficiency level when compared to
transactions conducted an independent party Atar, the impact of reporting
income and deduction to calculate taxable income is not in accordance with the
principles of fairness and the predominance of business. Therefore in
accordance with the provisions of Article 18 paragraph (3) Income Tax Act, the
Director General of Taxation has the right to adjust the amount of income and
deduction which becomes the basis for calculating taxable income.
Core regulatory
Core regulatory
PER 43/PJ-2010 a
guideline for the taxpayer in the application of the principles of fairness and
the prevalence of business, in order to reach a fair price and reasonable
profit in the transaction between the parties that have links istimewa.Harga
fair or reasonable profit, the pricing or profit in the transaction that there
should be the same or related parties in certain price ranges when compared to
similar transactions between independent parties.
The method of
proportionality
There are five methods
are applied in sequence, namely:
a) Comparable
Uncontrolled Price Method (CUPM) commonly known as the CUP Method), suitable
for comparing prices between transactions that have a special relationship with
the independent parties in comparable conditions (identical goods and
services).
b) Resale Price Method (RPM), to compare the transaction price minus gross natural product that reflects the functions, assets and risks in independent transactions (identical functions, although different goods and services).
b) Resale Price Method (RPM), to compare the transaction price minus gross natural product that reflects the functions, assets and risks in independent transactions (identical functions, although different goods and services).
c) Cost Plus Method
(CPM) to compare the normal gross profit obtained by the company's gross profit
would be similar to other companies that are comparable, at a Cost of Goods
Sold in accordance with the Arm's Length Price (ALP). Transaction in the form
of intermediate goods, transaction services, there are joint facilities or
long-term agreement).
d) Profit Split Method (PSM) or a transactional profit method of determination by identifying the combined profit to be distributed to the parties affiliated with acceptable basic economics that provides a reasonable estimate of earnings when the transaction is independent (there is a unique form of goods not , and there are no appropriate comparators).
e) Transactional Net Margin Method (TNMM), a method which compares with operating earnings of profits, sales, assets, the percentage of net operating income is comparable if performed by an independent party. The fourth method is used when the above is not applicable).
The proportionality test includes:
d) Profit Split Method (PSM) or a transactional profit method of determination by identifying the combined profit to be distributed to the parties affiliated with acceptable basic economics that provides a reasonable estimate of earnings when the transaction is independent (there is a unique form of goods not , and there are no appropriate comparators).
e) Transactional Net Margin Method (TNMM), a method which compares with operating earnings of profits, sales, assets, the percentage of net operating income is comparable if performed by an independent party. The fourth method is used when the above is not applicable).
The proportionality test includes:
A. Characteristics of goods
or services traded both tangible goods (characteristic of quality, durability,
availability, etc.), not the form of goods or services (transaction really
occurred, geography etc.)
2. Function of each of
the transacting parties (organization structure, the primary function of an
organization, the type of assets used, risks, etc.)
3. Term of contract
(the level of responsibility, risk, shared benefits, etc.)
4. Economic conditions
(conditions that are relevant to the geographic location, competition,
market area, the level
of supply and demand, and ketersediaaan items)
5. Business strategy
(level of product innovation, product diversification, market penetration rate,
etc).
Bookkeeping Process
Analysis of proportionality
A. Taxpayers are
required to record and document the steps of determining the principles of
fairness and the predominance of business, the selection of comparators, the
factors which influence the proportionality, as well as the analysis of
proportionality, in accordance with Article 28 of UU KUP.
2. Document the
information supporting the determination of the reasonableness of such
principles, overview and organizational structure, business group structure,
ownership structure, operasinal aspects of business, its competitors, and the
corporate environment, price setting and cost alocation.
3. Transactions between
the taxpayer with the parties that have a Related Party has a value of income
or expenditure does not exceed Rp 10,000,000.00 (ten million rupiah) are not
required to conduct proportionality analysis, determine the methods, analysis
and documentation of proportionality, but the taxpayer still required comply
with the provisions of Article 28 of Law KUP.
3.
Understanding the reasons for a foreign tax credit
Crediting provisions of
the Income Tax paid or payable in foreign countries
Under the terms of taxation, the taxpayer of the State tax payable on taxable income from all income received or obtained either from domestic or from abroad (World Wide Income). To avoid double taxation and provide the same taxation treatment of income received or accrued by the taxpayer of the State of foreign income received or accrued from Indonesia, then the tax paid or payable from the income derived from abroad may credited to the tax payable in the same tax year.
Under the terms of taxation, the taxpayer of the State tax payable on taxable income from all income received or obtained either from domestic or from abroad (World Wide Income). To avoid double taxation and provide the same taxation treatment of income received or accrued by the taxpayer of the State of foreign income received or accrued from Indonesia, then the tax paid or payable from the income derived from abroad may credited to the tax payable in the same tax year.
The incorporation of
income from abroad is done as follows:
- For income from
business done in the year earned income tax
- For income in the
form of dividends, was conducted in the tax year when the acquisition of such
dividends (SE-22/PJ.4/1995 Jo SE-35/PJ.4/1995)
- For other income,
carried out in the receipt of such income tax year
- Losses incurred abroad should not be combined in calculating taxable income in Indonesia.
Income tax is creditable against income tax payable in Indonesia is a lesser amount of tax paid on overseas income by an amount calculated according to a specific comparison, namely: the amount of foreign income / Total income x number of PPh terhutang.Apabila amount of income from abroad came from several countries, the calculation of Income Tax Article 24 carried out for each country.
- Losses incurred abroad should not be combined in calculating taxable income in Indonesia.
Income tax is creditable against income tax payable in Indonesia is a lesser amount of tax paid on overseas income by an amount calculated according to a specific comparison, namely: the amount of foreign income / Total income x number of PPh terhutang.Apabila amount of income from abroad came from several countries, the calculation of Income Tax Article 24 carried out for each country.
The crediting mechanism
Tax Paid Abroad
(164/KMK.03/2002)
Income tax paid or
payable in the State may be credited against income tax payable on income tax
paid Indonesia.Pengkreditan Abroad (PPh Article 24) conducted in fiscal year
income from abroad Combined with income in Indonesia.
Number of Income Tax
Article 24 which can be credited to a maximum of a lower amount of income tax
paid or payable in Foreign Countries and the number calculated by the ratio
between income from abroad and the entire taxable income, or the maximum amount
of income tax payable on all taxable tax in the country in terms of loss
(income from LN is greater than the amount of taxable income).
4.
Being sensitive to international tax planning within multinational corporations
In general, U.S.
corporate taxes based on income at a rate of 35%, without considering the
income derived from domestic or from abroad of its subsidiaries. Due to
subsidiaries of U.S.
companies pay income
tax on his country, the U.S. eliminate double taxation by allowing companies to
US'nya tax credit against taxes paid abroad. Because tax rates vary widely
between countries, U.S. foreign tax credit becomes more rumit.Sebagai example,
a home-based computer company obtained $ 100 jt in the U.S. and $ 100 jt of the
firm's subsidiary in Sweden. Under a pure worldwide system, the company is
taxed in the U.S. 35jt% and imposed $ 35jt in Sweden. In order to prevent
double taxation on income in Sweden, the U.S. foreign tax credits $ 28 jt paid
to Sweden at a rate of 28%. Under the U.S. tax system, the company still owes
taxes on $ 7jt residual income in Sweden. These numbers illustrate the
difference between the amount to be paid to the mother country and the amount
that was taxed at US.Terdapat limit the amount of tax credits that can be
taken, the limit is comparable to U.S. rates.
The complexity of the
U.S. system is the fact that the U.S. system does not impose a tax for income
received from abroad until the company actually returning profits to the U.S..
Part of the U.S. international tax system is called "deferral"
because the company can defer tax payments on overseas income for income
re-invested enterprises in subsidiaries are active in foreign countries.
More detail, the U.S.
has a system of "anti-defferal" which is also owned by another
country, where taxes from state sources in one year earned U.S. parent company
was not returned to their home countries. Complex rules are known as
"Subpart F", as stated in U.S. tax law.
Complicated regulations
Not surprisingly, most
economists and tax practitioners agreed that the U.S. International Tax System
is not effective, complex, and provide a high cost. For example, according to
the tax office on 1672 survey of large enterprises, it was found that there are
high costs to meet the U.S. International Tax System, approximately 39% of the
overall tax burden.
Taxation issues
The cost of not only
the burden of taxation International tax law. Multinational companies are also
trying to consider tax planning resources to minimize the tax burden. Contrary
to what is believed to be the authors of the law on corporate behavior, the
study illustrates how sensitive the economy of multinational corporations to
tax rates and tax laws, and what to do with the company in order to minimize
taxes.
Not only in U.S.
companies that are sensitive to differences in tax rates abroad, but foreign
investors are also sensitive to U.S. tax; main corporate tax rate (the body).
The study found that tax rates have a significant influence on the location of
the new plant. One is a study which revealed that high tax rates gives a
negative effect on the establishment of new plants and plant expansions that
have been established (meaning: the higher the tax rate, investment will be
smaller), but the high tax rate would be positively correlated to the purchase
of domestic firms by foreign companies.
Strategies to minimize
taxes
There are several ways
that multinationals taken to minimize the tax burden (tax worldwide). One
method that has been developed known as "Transfer Pricing", which is
the parent company where the price of commodities transferred to affiliated
companies (products, components and trademarks) in foreign countries. Although
very complex in practice, this technique is very simple goal is to allocate a
greater burden on countries with high tax rates, with the goal of minimizing
taxes, and allocating a large income in a country with lower tax rates.
5. Knowing the variables in the international transfer pricing
5. Knowing the variables in the international transfer pricing
A. INITIAL CONCEPT
The complexity of the
laws and rules that determine the tax for foreign companies and the profits
generated abroad actually derived from some basic concepts
a. Tax neutrality is that the tax has no effect (or neutral) of the resource allocation decisions.
b. Tax equity is that taxpayers who are facing similar situations should pay similar taxes and the same thing but on disagreements between how to implement this concept.
a. Tax neutrality is that the tax has no effect (or neutral) of the resource allocation decisions.
b. Tax equity is that taxpayers who are facing similar situations should pay similar taxes and the same thing but on disagreements between how to implement this concept.
2. PROFIT FROM THE
SUMBAR taxation abroad,
Some States separti
french, costal Rica, hongkong panama south africa, swiss and venezuala apply
the principle of territorial taxation and impose taxes on companies that are
domiciled in the country that profits generated outside the State. While most
countries (including Australia, Brazil, China, Czech Republic, Germany, Japan,
Mexico, Netherlands, UK, and Amarika States) to apply the principles throughout
the world and impose taxes on profits or income of companies and citizens in
it, regardless of the territory of the .
3. FOREIGN TAX CREDIT
The tax credit can be
expected if the amount of foreign income tax paid is not too obvious (ie when
the foreign subsidiary sent most profits come from overseas to the domestic
parent company). Dividends are reported here in the parent company's tax return
should be calculated gross (gross-up) to cover the amount of taxes (which are
considered paid) plus all foreign levies taxes applicable. This means that as
if the parent company receives dividends domestically which includes taxes
payable kepeda foreign government and then pay the tax.
4. TAX PLANNING IN
MULTINATIONAL COMPANIES
In the tax planning of
multinational companies have certain advantages over a purely domestic firm
because it has greater flexibility in determining the geographic location of
production and distribution systems. This flexibility provides the opportunity
to utilize their own national tax ataryuridis differences so as to lower the
overall corporate tax burden.
The observation of these tax planning issues at the start with two basic things:
a. Tax considerations should never mengandalikan business strategy
b. Changes in tax laws are constantly limit the benefits of tax planning in the long term.
The observation of these tax planning issues at the start with two basic things:
a. Tax considerations should never mengandalikan business strategy
b. Changes in tax laws are constantly limit the benefits of tax planning in the long term.
5. VARIABLES IN
TRANSFER PRICING
Transfer prices set a
monetary value on the exchange between firms that take place between the
operating unit and is a substitute for market prices. In general, the transfer
price is recorded as revenue by one unit and the unit cost by others.
Cross-border transactions of multinational corporations are also open to a
number of environmental influences that created the same time destroying the
opportunity to increase profits through transfer pricing. A number of variables
separti tax rate competition infalsi rates, currency values, limitations on the
transfer of funds, political risk and the interests of joint venture partners
are very complicated transfer pricing decisions.
6. Tax factor
Reasonable transaction
price is the price to be received by parties not related to special items the
same or similar in the exact same situation or similar. Reasonable method of
determining the transaction price that is acceptable is:
(1) the method of
determining the comparable uncontrolled price.
(2) method of
determining the resale price.
(3) plus the cost price
determination methods and
(4) other methods of
assessment rates
6.
Understanding the fundamental problems in the transfer pricing method
In the method of
determining a fair price or a reasonable profit shall be conducted a study to
determine the Transfer Pricing methods are most appropriate.
Transfer Pricing Methods that can be applied are:
Transfer Pricing Methods that can be applied are:
A. method of price
comparison between the independent (comparable uncontrolled price / CUP);
2. the resale price method (resale price method / RPM) or cost-plus method (cost plus method / CPM);
2. the resale price method (resale price method / RPM) or cost-plus method (cost plus method / CPM);
3. method of
distribution of profit (profit split method / PSM) or the transactional net
income method (transactional net margin method / TNMM).
In applying the
Transfer Pricing methods must consider the following matters:
A. application of Transfer Pricing method performed in a hierarchical manner starting by applying the method of price comparison between the independent (comparable uncontrolled price / CUP) in accordance with appropriate conditions;
A. application of Transfer Pricing method performed in a hierarchical manner starting by applying the method of price comparison between the independent (comparable uncontrolled price / CUP) in accordance with appropriate conditions;
2. in terms of price
comparison between the methods are independent (comparable uncontrolled price /
CUP) is not appropriate to apply, must apply the method resale (resale price
method / RPM) or cost-plus method (cost plus method / CPM) in accordance with
the right conditions ;
Price Comparison method
between the Independent Party (comparable uncontrolled price / CUP)
Method of price comparison between the independent (comparable uncontrolled price / CUP) is a method of Transfer Pricing is done by comparing the prices in transactions between parties who have Excellent prices in transactions between parties who do not have a Special Relationship in comparable conditions or circumstances.
Method of price comparison between the independent (comparable uncontrolled price / CUP) is a method of Transfer Pricing is done by comparing the prices in transactions between parties who have Excellent prices in transactions between parties who do not have a Special Relationship in comparable conditions or circumstances.
Right conditions in
applying the method of price comparison between the independent (comparable
uncontrolled price / CUP) is:
1. traded goods or
services have characteristics that are identical in comparable conditions, or
2. conditions of transactions between parties who have a Special Relationship with parties who do not have identical or Related Parties have a high degree of proportionality or accurate adjustments can be done to eliminate the influence of different conditions that arise.
2. conditions of transactions between parties who have a Special Relationship with parties who do not have identical or Related Parties have a high degree of proportionality or accurate adjustments can be done to eliminate the influence of different conditions that arise.
The resale price
method (resale price method / RPM)
The resale price method
(resale price method / RPM) is a method of Transfer Pricing is done by
comparing the transaction price of a product is made between the parties that
have a Special Relationship with the resale price of the product after
deducting reasonable gross profit, which reflects the function , assets and
risks, the resale of such products to others who do not have the Related
Parties or the resale of products made in fair condition.
Right conditions in applying the method resell (resale price method / RPM) is:
Right conditions in applying the method resell (resale price method / RPM) is:
1. a high degree of
proportionality between the transaction between the taxpayer who has a Special
Relationship with the transaction between the taxpayer has no Related Parties,
in particular the level of proportionality based on the results of analytic
functions, although the goods or services are bought and sold different; and
2. the seller's return
(reseller) does not provide significant added value for goods or services sold.