New Provisions on Mutual Agreement Procedure

published on 09 October 2019

Indonesia needs to adopt the international tax development associated with the implementation of the minimum standards according to action plan Number 14 of the OECD/G20 Base Erosion and Profit Shifting (BEPS) regulations concerning the prevention and resolution of international tax disputes. Therefore, the Minister of Finance (MoF) issued MoF Regulation No. 49/PMK.03/2019 (PMK 49), dated 26 April 2019, regarding MAP - revoking the previous PMK 240 on the same subject. The main objective of PMK 49 is to provide legal certainty pertaining to the procedure, timeline and follow-up actions of the Mutual Agreement Procedure (MAP) requirements.

MAP PROCEEDINGS

Taxpayers may request an MAP when the Competent Authority (CA) on the part of the treaty partner does not treat the taxpayer appropriately in accordance with the tax treaty. Besides, the MAP may also be requested by Indonesian citizens with dual residency, by the Indonesian Director of Tax or by the Tax Authority of a treaty partner through the relevant CA.

Upon approval of the request, the Tax Directorate General (DGT) shall conduct bilateral negotiations with the CA of the contractual partner within 24 months after either receiving the MAP request from the CA of the treaty partner, or after submitting the request to the CA of the treaty partner. During the negotiation process, the DGT is authorized to request additional information, to visit the business location of the applicant, to perform a tax information exchange, and/or to conduct a tax audit. Meanwhile, the CA of the treaty partner may only request additional information through applying for an exchange of information with the DGT and/or through a direct request during the negotiation process. If the aforementioned provisions are not met, the negotiations may be discontinued. Nevertheless, the applicant may as well withdraw his request prior to the agreement coming into force. The result of the negotiations may either be an agreement or a disagreement, while in the latter case the DGT or the Indonesian taxpayer will still need to perform follow-up actions depending on the result.

In conclusion, PMK 49 does provide legal certainty with regard to MAP, being expected to offer alternatives as to the resolution of international tax disputes.