CHAPTER 11
TRANSFER
PRICING AND TAXATION INTERNATIONAL
BASIC
CONCEPTS OF INTERNATIONSL TAX BACKGORUND
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 Function of the tax was withdrawn by the government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 bekedudukan in both countries that perform the transaction.
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 bekedudukan 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.
Purpose of the International Tax Policy Each policy would
have a specific purpose 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 penghindaraan international double taxation.
The principles that must be understood in international
taxation Doernberg (1989) mention three elements that must be met netraliats in
international taxation policy:
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): 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 denagn 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: Every
country has the same tax on income. So if any foreign taxes that can not be
deducted as an expense credited earnings deduction.
Taxation of cross border 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. And in Indonesia with a combined income is then
multiplied by the domestic income tax rate of the domestic law of Indonesia.
Bentokran claim further compounded if there is a dual resident, where there are two states are equally subject to tax as a claim to a taxpayer in the country which he was exposed to global taxation twice. 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.
Bentokran claim further compounded if there is a dual resident, where there are two states are equally subject to tax as a claim to a taxpayer in the country which he was exposed to global taxation twice. 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.
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
juridical double taxation and economic 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) the tax collector, can be grouped into double taxation (1) internal (domestic) and (2) International. Knechtle, in the book "Basic Problems in International Fiscal Law", to name a few types of PBI (1) factual and potential, (2) juridical and economical, and (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).
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) the tax collector, can be grouped into double taxation (1) internal (domestic) and (2) International. Knechtle, in the book "Basic Problems in International Fiscal Law", to name a few types of PBI (1) factual and potential, (2) juridical and economical, and (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).
Sources 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.
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.
Non-discrimination principle 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.
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 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:
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.
Furthermore, in accordance with State taxation
(jurisdiction) the tax collector, double taxation can be grouped into:
1. Internal (domestic)
2. Internationa
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
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.
Disamaping main purpose as mentioned above P3B also have
other specific goals are:
a. Avoid double taxation
burdensome business climate;
With the P3B penganaan 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.
With the P3B penganaan 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 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; 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 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 to report earnings 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 terms of taxation
of the population between the two countries.
P3B mengaatur also the same and equal taxation between the two countries, the principle of mutual benefit and not burden the foreign population between the two countries in running the business. Mengadaka tax treaty countries are bound by the terms of the agreement so that should not be arbitrary in terms of pemajakannya.
P3B mengaatur also the same and equal taxation between the two countries, the principle of mutual benefit and not burden the foreign population between the two countries in running the business. Mengadaka tax treaty countries are bound by the terms of the agreement so that should not be arbitrary in terms of pemajakannya.
Taxation of income from foreign sources and Double Taxation Each
country claims to impose taxes on income generated within its borders. However,
the national philosophy on the taxation of resources from abroad is different
and this is important from the perspective of a tax planner. Foreign Tax Credit
Based on the principle of worldwide taxation, foreign earned
income of a domestic company is taxable in full fine imposed in the host
country or countries of origin. Ununk avoid reluctance among businesses to
expand abroad and to maintain the concept of neutralization abroad, the
domicile of the parent company (country seat) may elect to treat dbayarkan
foreign tax credit against tax liability as a domestic parent company or
deduction as a deduction on income taxable. Creditors of foreign tax can be
calculated as a direct credit on income tax paid on earnings branch or
subsidiary and any tax withheld at source, such as dividends, interest, and
royalties are sent back to domestic investors. The tax credit can also be
estimated if the amount of foreign income tax paid is not too obvious (when the
foreign subsidiary sent most profits come from overseas to domestic holding
company). Dividends are reported in the parent company's tax return should be
calculated gross (gross - up) to cover the amount of tax levy taxes plus all
applicable overseas. This means that the domestic parent companies receiving
dividends which includes taxes owed to foreign governments and then pay the
tax.
Indirect Tax Credit that allowed foreign (foreign income taxes deemed paid) is determined as follows:Payment of dividends (including the entire tax levy) / Profit after income tax of foreign X foreign tax can be credited.Foreign tax credit limitation Some states impose a tax on its source with a tax credit for foreign taxes are the source of a maximum of a related domestic tax on the profits that can be imposed. The maximum tax liability is where the higher the tax rate in the host country or countries of origin. To prevent foreign tax credit can eliminate the tax on domestic income, many states set limits on the amount of general foreign tax can be credited each year. Foreign credit is calculated as follows: Foreign tax credit limitation = taxable income / tax worldwide income before taxes X credit. Foreign tax credit limitation applies separately to U.S. tax on foreign source income tax for each of the following types of income:
Indirect Tax Credit that allowed foreign (foreign income taxes deemed paid) is determined as follows:Payment of dividends (including the entire tax levy) / Profit after income tax of foreign X foreign tax can be credited.Foreign tax credit limitation Some states impose a tax on its source with a tax credit for foreign taxes are the source of a maximum of a related domestic tax on the profits that can be imposed. The maximum tax liability is where the higher the tax rate in the host country or countries of origin. To prevent foreign tax credit can eliminate the tax on domestic income, many states set limits on the amount of general foreign tax can be credited each year. Foreign credit is calculated as follows: Foreign tax credit limitation = taxable income / tax worldwide income before taxes X credit. Foreign tax credit limitation applies separately to U.S. tax on foreign source income tax for each of the following types of income:
1. Passive income (example:
income from investments)
2. Financial services revenue
3. Income levy high taxes
4. Transportation revenue
5. Dividends from each of the
foreign company with a share of ownership by 10% to 50% of its own foreign
policies for the U.S. tax on
Tax Treaty Although the foreign tax credit to protect the sources of foreign tax of double taxation (in some cases), tax treaties can do more than that.
Tax treaties usually contain how taxes and tax incentives will be subject to, respected, shared, or else written off against revenues generated by residents of
Tax Treaty Although the foreign tax credit to protect the sources of foreign tax of double taxation (in some cases), tax treaties can do more than that.
Tax treaties usually contain how taxes and tax incentives will be subject to, respected, shared, or else written off against revenues generated by residents of
States of other countries in
the tax jurisdictions.Tax treaties also affect the tax levy on dividends,
interest, royalties paid by companies in the country to foreign shareholders.Consideration
of Foreign Currencies Gain or Loss on transactions in currencies other than the
functional currency is generally recorded at the point of view Duan
transaction. Under this approach, any gain or loss requires that security be
qualified as a protector of the transaction value of certain foreign currency
can be integrated with the underlying transaction.
TAX
PLANNING IN MULTINATIONAL COMPANIES
In the tax planning of multinational companies have certain
advantages over a purely domestic firm because it has greater flexibility in
determining the geographic location of production and distribution systems.
This flexibility provides the opportunity to utilize their own national tax
ataryuridis differences so as to lower the overall corporate tax burden.
The observation of these tax planning issues at the start with two basic things:
The observation of these tax planning issues at the start with two basic things:
a. Tax considerations should
never mengandalikan business strategy
b. Changes in tax laws are
constantly limit the benefits of tax planning in the long term.
VARIABLES
IN TRANSFER PRICING
Transfer prices set a monetary value on the exchange between
firms that take place between the operating unit and is a substitute for market
prices. In general, the transfer price is recorded as revenue by one unit and
the unit cost by others. Cross-border transactions of multinational
corporations are also open to a number of environmental influences that created
the same time destroying the opportunity to increase profits through transfer
pricing. A number of variables separti tax rate competition infalsi rates,
currency values, limitations on the transfer of funds, political risk and the
interests of joint venture partners are very complicated transfer pricingdecisions.
