TAX NEWS - January 2010

Indonesia: Tax authorities issue guidance on exchange of information provision in tax treaties

The Directorate General of Taxation recently issued a regulation that standardizes the procedure for exchanges of information under Indonesia's tax treaties. The regulation is also in line with the DGT's objective of preventing tax treaty abuse and its current focus on transfer pricing issues. A tax treaty exchange of information provision allows the Indonesian government to obtain tax-related data or information (i.e. tax information available based on the tax law of the relevant countries) from the treaty partner country and vice versa.

According to the regulation, an exchange of information can be made in the following cases:

- Inspection, audit, investigation or review of a taxpayer's objection application that relates to international transactions; and

- Where it is suspected that a transaction is implemented to avoid Indonesian tax or only to obtain treaty benefits.

The following types of exchanges are possible:

- Exchange of information based on request – An exchange of information based on a specific request with respect to a tax audit and/or tax investigation process;

- Automatic or routine information exchange – An exchange of information that is carried out periodically with respect to income received by a taxpayer (i.e. dividends, interest, royalties, salary, pensions, etc.) with the competent authorities of a treaty country; and

- Spontaneous exchange of information – An exchange of information that is made spontaneously with regard to the result of a tax audit/tax investigation.

Any information and data exchanged must be treated as confidential and only disclosed to the relevant persons or entities and authorities in accordance with the provisions in Indonesia's Law on General Provisions and Procedures for Taxation.