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New tax audit procedures in Indonesia

Freddy KaryadiOene Marseille

On November 15 2011, Indonesia's director general of taxes issued two new regulations in relation to tax audit procedures: Regulation No. PER-34/PJ/2011 concerning Tax Audit Procedures to Test the Compliance with the Tax Obligations (PER-34); and Regulation No. PER-35/PJ/2011 concerning Tax Audit Procedures for Other Purposes (PER-35).

Those regulations are the implementation of the Minister of Finance (MoF) Regulation No. 82/PMK.03/2011, which is the amendment to MoF Regulation No. 199/PMK.03/2007 concerning tax audit procedures.

Particularly for PER-34, there are additional provisions in relation to field audits which should be underlined.

Firstly, the reasons for extending a field audit are, among others: (i) the audit is expanded to another tax period/tax year; (ii) the scope of the audit covers all taxes; (iii) there is information provided by third parties; (iv) there is an indication of unusual transfer pricing practice or other manipulation of financial transactions; (v) there is an audit request by the Tax Audit Division of Domicile to the Tax Audit Division of Location; and (vi) by certain consideration from the head of the tax audit division.

If they plan to extend the field audit in relation to the above reasons, the tax auditors must apply for the extension to the head of the Tax Audit Division before the end of the initial timeframe. The Head may approve or reject the extension request. The approval or rejection for that extension must be issued before the end of the initial time frame.

Secondly, if there is a dispute which cannot be settled during the discussion of the tax audit result and the taxpayer wishes to seek an opinion from the Quality Assurance Team, the taxpayer may request a discussion with the Quality Assurance Team at the latest by the next working day after the signing of minutes of the discussion with the tax auditors.

The discussion with the Quality Assurance Team must be attended by the taxpayer, the tax auditors and the Quality Assurance Team. The discussion must be started at the latest three working days after the discussion request is received and must be completed at the latest by the following three working days.

If the taxpayer does not attend the discussion, the discussion still has to be conducted by the tax auditors and the Quality Assurance Team. The absence of the taxpayer will be recorded in a minute regarding the absence of taxpayer as well as a memorandum prepared by the Quality Assurance Team that signed by the Quality Assurance Team and the tax auditors.

Office audits are conducted by tax auditors from the Tax Audit Division of the ITO or Directorate of Tax Audits and Collections of the Directorate General of Taxes. Before the date of the tax audit instruction letter, a summon letter must be delivered to the taxpayer at the latest five working days before the date of a tax audit instruction letter for compliance and the next working day for other purposes.

Provisions are also made in regard to tax audit questionnaires. These are required for the tax audit to perform a compliance test as regulated under PER-34. The tax auditors must deliver the tax audit questionnaire to the taxpayer at the beginning of the tax audit (at the preliminary meeting for a field audit and at the fulfillment of summon letter for an office audit).

The submission of the questionnaire will be closely monitored by the director of Tax Audits and Collections or the head of Regional Tax Office. The questionnaire results will be treated as an input for the director general of taxes in relation to the implementation of the tax audits.

In addition to the issuance of PER-34, the director general of taxes also issued Circular Letter No. SE-85/PJ/2011 (November 15 2011) which provides detailed guidance for the ITO in conducting tax audits to the compliance test; and Regulation of Director General of Taxation No. PER-41/PJ/2011 regarding the tax audit guidelines in light of an exchange of information under the tax treaty (December 28 2011).

This regulation indicates Indonesia's commitment to prevent cross-border tax evasion and abuse of the tax treaty by introducing the audit process. The exchange of information can be conducted by the Directorate General of Tax as the competent authority. The regulation also explains how the competent authority of the other contracting state can request a tax audit in Indonesia.

Oene Marseille and Freddy Karyadi

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