Indonesia: Singapore And Indonesia Get Serious About Tax Co-Operation

Last Updated: 20 February 2016
Article by Ratih (Ipop) Nawangsari

The Inland Revenue Authority of Singapore (IRAS) is actively granting assistance to Indonesia's Directorate General of Taxation in support of Indonesian tax audits. The assistance includes formal information requests to Singapore resident service providers regarding the use of offshore entities managed through Singapore agents.

Abstract

In documents we have seen, IRAS is using its powers under Section 105F and 65B of the Income Tax Act (Cap 134) to compel disclosure of information on offshore entities managed through Singapore corporate agents - we believe with a view to establishing either that: (i) the offshore company is a related party of an Indonesian company (with the effect that the Indonesian tax authorities may determine the transfer pricing of any trades); (ii) the offshore company is managed through Indonesia (with the effect that the offshore company may be deemed to have a permanent establishment in Indonesia and subject to Indonesian income tax); and/or (iii) that the offshore company is a controlled foreign corporation of an Indonesian tax resident individual (with the effect that the Indonesian individual would be subject to personal tax on the profits of the controlled foreign corporation). The corporate agent is required by law to provide this information and is not able to refuse or provide misleading information.

Who does this affect

This directly affects any Indonesian business trading with Singapore entities or offshore entities managed through Singapore in circumstances where these could be linked to related parties of the Indonesian business. It may also affect Indonesian individuals who are legal or beneficial owners of property located or managed in Singapore to the extent not fully disclosed on their SPT forms.

What can be done

Active enquiries need to be handled sensitively based on a thorough review of the relevant circumstances. In many cases, it may be too late to change the past, and the focus will need to be on minimising exposure. Where there are no active enquiries, Indonesian businesses which are trading through Singapore-managed companies may wish to take a comprehensive look at their trading arrangements for compliance with domestic and international tax rules in advance of any potential enquiries.

Originally published by Ashurst.

Singapore And Indonesia Get Serious About Tax Co-Operation

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