TRANSFER PRICING AND TAXATION INTERNATIONAL
A. 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was withdrawn by the government primarily to finance government activities in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.
Any cooperation by all
countries must be agreed in advance by the parties to reach a mutual commitment
contained in a treaty, not the exception agreement in the field of taxation.
Trade transactions between the two countries or countries potentially aspects of taxation, it is certainly to be regulated by the state or the international community in general to boost the economy and trade to countries such cooperation. This is important so as not to impede the flow of investment funds due to burdensome taxation Taxpayers in both countries that perform the transaction.
Trade transactions between the two countries or countries potentially aspects of taxation, it is certainly to be regulated by the state or the international community in general to boost the economy and trade to countries such cooperation. This is important so as not to impede the flow of investment funds due to burdensome taxation Taxpayers in both countries that perform the transaction.
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.
§ International Tax Policy Objectives
Each policy would have
a specific goal 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 international double taxation.
§ Principles Must Be Understood In International Taxation
§ Principles Must Be Understood In International Taxation
Doernberg (1989) mention three elements that
must be met netralis in international taxation policy:
1. Capital Export Neutrality (Domestic Market Neutrality)
1. 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)
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 with 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
3. National Neutrality
Every state has the same tax
on income. So if any foreign taxes that can not be
deducted as an expense credited earnings deduction.
§ Taxation Transnational 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. Then in Indonesia's combined income
with the income tax rate multiplied by the country then Indonesia's domestic
law.
Clashes claim further
compounded if there is a dual resident, where there are two countries together
as a claim to a taxpayer subject to tax in the country which led to his global
hit double taxation. For example: Mr. A work in Indonesia for more
than 183 days but every Saturday and Sunday he returned to his home in
Singapore. Mr. A WPDN considered by Indonesia and Singapore so as to
mandatory reporting and paying taxes on global income in Indonesia and
Singapore.
Division of taxing rights
in relation to this, countries that do tax treaties are divided into two types. The
first is the source country (source country) which is a country where income
tax is the object arises. The second is the state of domicile (resident
country) is the country where the subject of tax residence, domicile or
resident under the provisions of the tax.
Both the source and
country of residence are usually entitled to tax under its domestic law. Taxation
by two tax jurisdictions against one type of income is what usually leads to
double taxation that should be regulated in an agreement between the source and
country of residence.
§ The concept of Double Taxation and Economic Juridical Double Taxation
In a narrow sense, double
taxation occurs in all cases considered taxation a few times on a subject and /
or objects in a single tax the same tax administration. Double taxation
can be caused by taxation by a single ruler (singular power) or by various (layer)
single, for example, can occur in the taxation of the buildings on the resale
value (land and building tax) and income (income tax on rent or profit
transfer). Double taxation is often called economic double taxation
(economic double taxation).
Double taxation in a broad
sense, according to the state (jurisdiction) collecting taxes, double taxation
can be grouped into:
(1) Internal (domestic).
(2) International.
(1) Internal (domestic).
(2) International.
Knechtle, in the book
"Basic Problems in International Fiscal Law", to name a few types of
regulation include:
(1) Factual and potential,
(2) Juridical and economical,
(3) Direct and indirect.
(1) Factual and potential,
(2) Juridical and economical,
(3) Direct and indirect.
Taxation if the claim is
actually implemented by some State jurisdictions there will be a holder of PBI
factual. If the two (or more) State tax claim holders, only one country
who carry the claim that there will be taxation of potential PBI.
While the juridical
regulation occurs when an income (or capital) are taxed in the hands of the
same person (subject) of the same by more than one State, Economic regulation,
which arises when two people (legally) differently taxed on the income (or
capital ; object) the same (by more than one State). Juridical
regulation, taxation by more than one State and the same legal subject. PBI
occurs from indirect taxation on the same thing (the equivalent of Economic
PBI).
§ Source of International Tax Law
International taxation
agreement was first coined by the League of Nations in 1921, is the basis for a
model that was developed in 1928 which was then used by the countries belonging
to the Organization for Economic Cooperation and Development (OECD) is
originally a bilateral convention The members of the Council of the
European Organization For Economic Cooperation (OEEC) with 70 member countries.
This model was later
refined in mexico Model 1943 and Model London in 1946, the OECD fiscal
committee then drafted a convention to solve the problems of double taxation in
order to be accepted by all OECD members, later in 1963 made a final report
with the title of the draft convention on double taxation income and
capital which is then modified several times.
Then for Tax Treaty
agreements for developing countries, made by the Economic and Social Council Of
The United Nation in 1967. Then changed again in 1980 as The Group Of
Experts whose members are drawn from 25 countries, comprising 10 developed and
15 developing countries. Then in 1974 and 1979. In 1979 the group of
experts to review again the draft United Nations Model Convention and amended
several times in 1995,1997,1998,1999, 2000 and finally 2005. Conventions
is then a source of international tax law. In this world, there are two
models of treaty that is often used as a reference in drafting a treaty that is
the model OECD and UN models.
§ The principle of non discrimination
§ The principle of non discrimination
These principles governing
equations are given by the NII tax treatment to nationals of a country and to
non-citizens. A tax treaty-bound states have an obligation to provide the
same tax treatment for its citizens and to those who are not citizens. This
same tax treatment means that in the same conditions, those who are not
citizens of a country should not bear the tax liability which is heavier than
that borne by the citizens of that country. The same treatment should be
given to those who are not nationals of both countries are bound to the
agreement.
§ The concept of the Avoidance of Double Taxation
Taxation on an income
simultaneously by applying state of residence and source countries that apply
the principle cause of international double taxation (international double
taxation). By investors and entrepreneurs, double taxation shall be deemed
to lack the mobility to facilitate the flow of investment, business and
international trade. therefore, need to be removed or granted waivers. In
addition to the provisions stipulated in domestic tax, double tax relief is
generally well organized in P3B.International Taxation (hereinafter in this
module is called PBI) appears when there is a conflict of jurisdiction of
taxation, both attached to the central government (state) and local governments
(provinces, cities and counties), and are attached to each state (overlapping
of tax jurisdiction in the international sphere). While people will
question why these collisions to occur? The right of taxation, we realize
that every sovereign state will implement the taxation of the subject and / or
objects that have a fiscal linkage (fiscal allegiance) to the state tax
collectors and are within its territory under the provisions of the domestic. Should
the domestic provisions of the countries that tax collectors are an exception
or exemption from taxes on the subject or object or domiciled outside the
territory it will not happen because it might not happen PBI impact of taxation
rights with other countries. or if the tax rate in the country of source
of taxable income and domicile is quite low, the burden of taxation imposed on
the country as a source of primary taxing rights holder (primary taxing rights)
and the wear on your country of residence as a secondary taxing rights holder
(secondary taxing rights) still fairly reasonable in amount by the
taxpayer.
In sales tax, for example,
PBI may occur if the exporting country adheres to the principle of country of
origin (origin principle; taxation by the country of origin of goods and
services), on the other hand, importing countries adhere to the principle of
country of destination (destination principle; Taxation by country of
destination or consumer countries) . PBI with respect to income tax,
as has been noted earlier in this section, when the collision occurred taxing
rights between the countries have economic ties, applying the principle of
division of the right of taxation is not the same.
§ Definition and Purpose of the Avoidance of Double Taxation (P3B)
In connection with the notion of double taxation
(double taxation), Knechtle in his book entitled "Basic Problems in
International Fiscal Law" (1979) provide a detailed discussion. Knechtle
distinguish the notion of double taxation, namely:
a. By Area, Double taxation is a form of taxation and other levies more than once, which can double or more over a fiscal fact.
b. In Narrow, Double taxation occurs in all cases considered taxation a few times on a subject and / or objects in a single tax the same tax administration, which ruled out the imposition of taxes by local governments.
a. By Area, Double taxation is a form of taxation and other levies more than once, which can double or more over a fiscal fact.
b. In Narrow, Double taxation occurs in all cases considered taxation a few times on a subject and / or objects in a single tax the same tax administration, which ruled out the imposition of taxes by local governments.
Furthermore, in accordance
with State taxation (jurisdiction) the tax collector, double taxation can be
grouped into:
1. Internal (domestic)
2. International
1. Internal (domestic)
2. International
In both groups there is
double taxation vertical, horizontal and diagonal (especially in the form of
federal state).
Another definition is the
avoidance of double taxation agreement between the two countries bilateral
agreement governing the division of taxing rights on income earned or received
by the population by one or both of the countries party to the agreement (Both
Constacting State). Or a tax treaty between the two countries made in
order to minimize double taxation and tax evasion efforts. This agreement
is used by residents of two states to determine the tax aspects arising from a
transaction between them. The determination was made based on the tax
aspects of the clauses contained in the relevant tax treaty according to the
type of transaction at hand.
Each tax treaty principles
have more or less the same, as part of an international convention in which each
country involved in a tax treaty treaty was compiled each based on models of
internationally recognized treaties. In this world, there are two models
of treaty that is often used as a reference in drafting a treaty that is the
model OECD and UN models.
Understanding the
applicable treaty between the country with other countries, could begin by
understanding the basic principles. In fact, the understanding of a tax
treaty is not as easy as turning the palm of the hand. The language used,
the number of clauses that pretty much, one's understanding of the fundamentals
of taxation and various other causes are things that can affect these
difficulties. By understanding the basic principles and general principles
applicable in a treaty, a person will become easier to understand a treaty that
specifically applies to a particular country.
As a treaty, a treaty is a
contract that binds a country to country in terms of tax treatment. Therefore, it always
contains the clauses, chapters and verses pertaining to a particular aspect of
the transaction and the particular. The articles or paragraphs (article or
articles) contained in a tax treaty can basically be grouped into four major
parts, namely the part that reveals the scope of a tax treaty, which regulates
the minimization of double taxation, the prevention of tax evasion and the include
other matters.
All the parts that tend to
be more readily understood from the various definitions, terms and
understanding that is often mentioned in a tax treaty. Various definitions,
terms and understanding that is the more important to understand each party
specifically related to the interest in daily business practices.
Besides the main purpose
of the aforementioned P3B also have other specific goals are:
a) Avoidance of double taxation burdensome business climate;
a) Avoidance of double taxation burdensome business climate;
With the P3B use tax on business profits
can not be worn in both places (the source and country of residence). Operating
income is taxed at the place where they are domiciled. With this
provision, the business is expected to get the rule of law, since paying taxes
is only charged once in your country of residence.
b) Increase of capital investment from abroad;
b) Increase of capital investment from abroad;
Taxation on investment in
the form of interest on loans, dividends of planting stock, royalties from the
copyright owner, if subject to high taxation, it is certain occupation or
foreign nationals will consider to invest, as a result of the investment is not
as expected.
c) Improvement of human resources;
c) Improvement of human resources;
With the tax exemption on
student and employee training in the country where they take education and
training, it can increase the number of education and training abroad, the
impact will increase the sending country's human resources training and
education of participants. Conversely, if income students and employees
who attended training would cost the then taxed them so they do not depart out
of this country will adversely affects human resource development.
d) Exchange of information in order to prevent tax evasion;
d) Exchange of information in order to prevent tax evasion;
By building a good
communication network between the two countries, the information about the
population that does not meet the tax obligations in both countries will be
detected (to intensify tax revenue). State associated with the Tax Treaty
may report income of foreign residents in the state sources, such as by sending
the receipt of income from state sources, revenue information should be
reported by recipients of income in the country of residence, and counted again
at the end of the tax year.
e) Fairness in taxation of the population between the two countries.
e) Fairness in taxation of the population between the two countries.
P3B also the same and
equal taxation between the two countries, the principle of mutual benefit and
not burden foreign population between the two countries in running the
business. Tax treaty countries are bound by the terms of the agreement
so that should not be arbitrary in terms.
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