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New implementing regulation to general tax law

Indonesia's new implementing regulation of the General Provisions of Taxation Law explained

Oene MarseileFreddy Karyadi

The Indonesian government recently issued Regulation No.74/2011 (GR-74) as the new main implementing regulation of the General Provisions of Taxation Law. GR-74 was dated December 29 2011 and came into effect on January 1 2012. It covers various important rules and implements changes from earlier regulations.

The Director General of Taxation issued Regulation No.48/PJ/2010 (PER-48) in 2010 regarding mutual agreement procedures (MAPs). A MAP can be applied for to reach mutual agreement to resolve tax disputes regarding cross-border related party transactions. The main issue from PER-48 that relates to tax administrative procedures is the limitation on taxpayers choosing between applying for an MAP or continuing the dispute resolution process through a tax objection or appeal in Indonesia. Both processes cannot be carried out simultaneously.

GR-74 provides flexibility for taxpayers to apply for an MAP and to continue local dispute resolution at the same time. Local dispute resolution includes applying for a tax objection, appealing to the Tax Court and requesting for a reduction or cancellation of administrative sanctions. However, GR-74 includes the restriction that an MAP application will be discontinued if an appeal decision is declared by the Tax Court before the finalisation of the MAP. If one of the parties is not satisfied with the Tax Court decision, a judicial review by the Supreme Court is still allowed.

GR-74 also stipulates that any documents used during the negotiation of an advance pricing agreement should be returned to the taxpayer if no agreement is reached and the documents cannot be used by the Indonesian Tax Office as the basis to conduct a tax audit or audit for preliminary evidence.

In addition, GR-74 stipulates the tax overpayment conditions in which interest compensation cannot be granted, as follows:

(i) overpayments attributable to decisions on objections, decisions on appeal or decisions on judicial reviews of underpaid tax assessments or additional underpaid tax assessments approved in the audit closing conference or verification result and already paid before submitting an objection; or

(ii) overpayments attributable to decisions on objections, decisions on appeal or decisions on judicial reviews of the amount of tax stipulated in an underpaid tax assessment or additional underpaid tax assessment not approved in the audit closing conference or verification result, but paid before the submission of an objection, application for appeal, or application for judicial review or before the issue of a decision on objection, decision on appeal or decision on judicial review.

GR-74 strengthens the limitations on the granting of interest compensation to taxpayers compared to the provisions of GR-80; for example a taxpayer would no longer be granted interest compensation on an overpayment attributable to a decision on objection, decision on appeal or decision on judicial review, although the taxpayer only agreed with part of the underpaid tax assessment or additional underpaid tax assessment.

Oene Marseile & Freddy Karyadi

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