Tuesday, 19 October 2021 08:02

New International Tax Agreement Positive Impact for Indonesia

The member countries of the Organization for Economic Co-operation and Development (OECD/G20) recently agreed on an international tax system consisting of two pillars of solutions to address the issue of potential loss of tax due to digitalization and globalization, especially to address Base Erosion Profit Shifting (BEPS). . The possibility of profit shifting in business practices is a tax-related challenge experienced by countries in the world due to tax avoidance practices by multinational companies by taking advantage of existing regulatory loopholes. Losses in the form of reduced/lost tax potential of countries globally are estimated at US$100 to US$240 billion, or equivalent to 4% to 10% of global Gross Domestic Product (GDP).


This year's G20 meeting finally resulted in two important new agreements for digital taxes called the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalization and Globalization of the Economy or two main pillars as the foundation of digital economy taxation which in its development was expanded to all multinational corporate sectors. In the previous tax agreement, the country of origin of the multinational company is able to collect taxes from a multinational company only if the company has a Permanent Establishment (BUT) so that it causes difficulties or is less likely to collect taxes. However, with the Pillar 1 agreement, Unified Approach, the taxation rights of the country of origin are no longer constrained by the provisions related to the BUT.


Meanwhile, Pillar 2 is a proposed solution that seeks to reduce tax competition through the implementation of an effective global minimum corporate income tax rate to protect the tax base which consists of two policy plans. First, the imposition of a minimum corporate income tax of 15% for multinational companies operating in several countries. This means multinational companies have to pay more taxes in whatever country they sell their products or services in. Second, in addition to providing the minimum 15% threshold, companies that generate more than 10% of profits from selling their products or services in other countries must pay taxes to the country in which they operate as well as the country of origin.


Indonesia itself welcomes the results of the decision, with the establishment of a new tax rate, it is hoped that it will eliminate unfair tax rate competition so that it can present a fairer and more inclusive international taxation system. Here, Indonesia also has the opportunity to receive additional taxes from multinational companies domiciled in Indonesia which have an effective income tax rate of below 15%. Minister of Finance Sri Mulyani said the agreement would have a positive impact on market countries such as Indonesia because of the opportunity to receive an allocation of taxation rights on income received by the largest global or multinational digital companies. The resulting agreement is also in line with the tax reforms currently being carried out by the government, particularly in the area of international taxation. Responding to this, Tommy David, Head of Tax Grant Thornton Indonesia said that there is very positive expectation with the new agreement, while of course it is necessary to continue to observe how it is implemented and progressed.


“Regarding this, maybe apart from that, we need to continue to be creative in thinking about what can keep us attractive in the eyes of foreign investors. We also need to continue to observe what countries we consider to be competitors have and will (continue to) do. Because as we all know, in general, every country wants to look attractive in the eyes of business people, including foreign investors," Tommy said in a press release Monday (18/10/2021). which need to be flexible in following developments, but also related to other broader aspects as has also been discussed a lot, for example regarding legal certainty, political stability, etc. "Meanwhile, for international business actors and those who transact with international businessmen, there may be a need to follow continue to develop tax regulations related to the above developments," he added.


Sources: https://www.beritasatu.com/ekonomi/842391/kesepakatan-baru-perpajakan-internasional-berdampak-positif-buat-indonesia

 

 

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