Tax disputes in Indonesia involve local government administration by the revenue authority of the province, regency and central government taxes administered by the Ministry of Finance through the Directorate General of Taxes (DGT) and the Directorate General of Customs and Excise (DGCE). Procedures for dispute resolution are governed by the Local Tax Law at the administrative level for local government taxes; by the Customs Law and the Excises Law for taxes administered by the DGCE; and by the General Rules of Taxation Law (GRT Law) for taxes administered by the DGT.

The number of tax disputes filed for resolution in the Tax Court in 2016 amounted to 10,153 applications, decreased by 17 per cent compared with the number of tax dispute applications in 2015.2 The number of Tax Court decisions issued in 2016 was 12,852, an increase of 30 per cent compared with 2015. It seems that the large number of tax disputes filed for resolution in the Tax Court is the result of legal uncertainty in Indonesian tax laws. In this regard, 44 per cent of Tax Court decisions were fully in favour of taxpayers, 14 per cent were partially in favour of taxpayers and 28 per cent denied requests from taxpayers.

Out of a total of 3,487 cases, 1,845 tax disputes were carried over to civil review requests at the Supreme Court in 2015.3 Typically, the increase in the number of official assessments has been caused by a high tax revenue target. In addition to the receipts from Indonesia’s tax amnesty policy, a database of taxpayers and their assets profiles would provide the DGT with information for the purpose of monitoring and engaging taxpayers in better tax compliance.

Official assessments by the DGT are usually performed by tax audit. The quality of the tax audit is determined by its key indicators: high-tax revenue contribution and refund discrepancy. Official assessments by the DGT are required whenever a taxpayer requests a refund. In February 2016, the DGT issued DGT Circular Letter No. SE-06/PJ/2016, regarding its tax audit policy. The Circular Letter provides guidelines for carrying out tax audits whose objectives are monitoring tax audit procedural compliance, increased audit coverage ratio and increased tax revenues resulting from tax audits.

The Circular Letter also provides selection criteria for tax audit, which include:

  1. transfer pricing;
  2. change-of-book periods;
  3. mergers and acquisitions;
  4. business restructuring;
  5. advance refunds;
  6. tax returns requesting refunds;
  7. tax returns carrying forward advance taxes; and
  8. fixed assets revaluations.

However, the tax audit policy has been held up by the issuance of DGT Instruction Letter No. INS-03/PJ/2016 on August 2016, which requires all DGT officers to promote the Tax Amnesty Law upon carrying out tax audits. The instructions given by the Director General are, inter alia:

  1. to not issue or to cancel audit instruction letters (that have not been delivered to taxpayers) until 31 March 2017, except for those concerning tax refund audit criteria or regarding tax audits related to the administrative aspects of taxpayers’ rights;
  2. to inform taxpayers to whom tax audit instruction letters have been delivered about the tax amnesty policy;
  3. in the event that a taxpayer opts to implement the tax amnesty policy, an ongoing tax audit shall be stopped and shall not be subject to the issuance of any assessment; and
  4. tax audits that are stopped due to the implementation of the tax amnesty policy shall be considered as tax auditors 100 per cent conversion performance indicator.

Below, we provide a summary of tax dispute resolution procedures under the Indonesian tax system, focusing on the central government taxes administered by the DGT and customs duties administered by the DGCE. Since the tax dispute statistics for excise and local government taxes are relatively small, we do not provide explanations for them.


i Taxes administered by the DGCE

Generally, tax disputes administered by the DGCE begin with an assessment of import and export declarations, customs facilities requests or renewals, and unloading activities declared in a certain area. The DGCE assesses these, and can issue:

  1. a customs official assessment resulting in an import duties tariff or value assessment, and other items;
  2. a customs audit resulting in an assessment other than that of a customs tariff or value, and penalties; or
  3. a customs audit resulting in a customs tariff and duties assessment.

Assessments resulting from (a) and (b) could be opposed by filing an objection letter to the DGCE within 60 days of the assessment date. This generally requires bonds equivalent to the amount of taxes or duties assessed to be provided. The DGCE will make a decision regarding a taxpayer’s objection within 60 days after receipt of the objection letter. If the DGCE has not made a decision regarding the objection within 60 days, the taxpayer’s objection will be deemed granted, and the bonds will be released back. A customs tariff and duties reassessment and objection decision can only be appealed to the Tax Court within 60 days of the date of the assessment or objection decision. When filing an appeal to the Tax Court regarding a DGCE objection or customs tariff and duties assessment (resulting from an audit), the taxpayer is required to pay the full amount of assessed taxes.

ii Taxes administered by the DGT

Taxes administered by the DGT include income tax (corporate income tax and individual income tax), VAT and sales tax on luxury goods. Pursuant to Article 3, Paragraph 1 of the GRT Law, the self-assessment system must be completed by taxpayers filing tax returns and paying taxes due without reliance on DGT assessments. DGT assessments subject to dispute with taxpayers can be classified as follows: a tax collection notification letter; a tax assessment letter (and withholding tax receipt); and other tax letters (i.e., private letters).

Generally, tax collection notification letters and tax assessment letters are the result of tax audits or tax verification. Tax verification, although not standardised in the GRT Law, is included in Government Regulation (GR) No. 74 (2011). Other tax letters issued by the DGT could be subject to dispute depending on the content of such letters. Tax collection notification letters and tax assessment letters issued based on tax verification will only cover a certain area (e.g., revenue) and will not cover all areas of a particular type of tax. Although tax collection notification letters or tax assessment letters have been issued based on tax verification, the DGT can still audit taxpayers and issue such assessments again. However, some articles, including those concerning tax verification under GR No. 74 (2011), have been invalidated by Supreme Court Decision No. 73 P/HUM/2013 concerning a judicial review requested by the Indonesian Chamber of Commerce.

A tax audit is generally initiated by a taxpayer’s request for a refund. Almost every tax refund request is followed by a tax audit. The tax refund audit timeline is 12 months from the date the tax return requesting a refund is filed. A taxpayer’s refund request is deemed granted if the DGT fails to issue a tax assessment letter within 12 months. In a non-tax refund audit, while there is a procedural timeline, an audit exceeding such timeline cannot be invalidated. A taxpayer who meets certain criteria can receive an advance tax refund, but the DGT still has the authority to audit and issue an assessment. In the case of a tax assessment letter issued in relation to the previously administered advance tax refund, if the tax assessment letter issued shows that the taxpayer has been underpaid, the unpaid tax is added with a penalty of 100 per cent. The DGT can also audit a taxpayer based on selective criteria, according to DGT audit policy, for a certain year. The DGT has only recently focused on auditing certain transactions such as related-party transactions and corporate restructurings, and transactions in certain areas of industry, such as agriculture and mining.

During an audit, a tax audit officer will perform direct and indirect tests as governed by DGT audit procedures. In some cases, a tax audit officer will perform indirect testing such as reconciliation of tax accounts with financial accounts on a tax adjustment basis. However, tax laws require that tax adjustments by the tax officer be based on valid and competent evidence, which in our view does not include the results of indirect testing. Tax Court judges, confirmed by Supreme Court judges, also hold this view. Thus, reconciliation of tax accounts with financial accounts would not qualify as evidence.4

Pursuant to Article 12, Paragraph 3 of the GRT Law, the DGT can only issue a tax assessment letter if it has evidence that the tax disclosed in the tax return is incorrect. This sets the foundation that the burden of proof under the Indonesian tax system lies with the tax authority. The notion that the burden of proof lies with the DGT has been confirmed in a civil review decision by Supreme Court judges.5 However, this would not be the case for a taxpayer who does not maintain proper accounts and records. In such case, the DGT can issue a tax assessment letter with an underpaid amount, and add a 50 per cent penalty in the case of income tax, and a 100 per cent penalty in the case of withholding tax, VAT and sales tax on luxury goods.

During a tax audit or tax objection, data and document submission should be managed with great caution. The DGT could deny a taxpayer’s objection if the data or documents requested are not submitted during the tax audit pursuant to Article 26A, Paragraph 4 of the GRT Law. The DGT could also request the Tax Court to omit the data or documents submitted in the Tax Court that were not submitted previously during a tax audit and tax objection (other than those in the possession of a third-party), and this has been confirmed by Supreme Court judges.6 In another Supreme Court decision, this would not be the case if the data or documents, although not submitted during a tax audit, are submitted during a tax objection. In such case, they would still qualify as evidence.7

Prior to a tax audit, the taxpayer can amend his or her tax return resulting in overpaid tax or tax loss within three years of the end of the tax period. An amendment resulting in underpaid tax has no time limit, but is subject to a 2 per cent penalty for each month. During a tax audit, taxpayers can voluntarily disclose errors in their tax returns by applying Article 8, Paragraph 4 of the GRT Law, and pay the resulting unpaid tax and a 50 per cent penalty of the unpaid tax prior to submission of a disclosure. However, the DGT would review such disclosure before deciding to accept or deny it.

Prior to the final findings of a tax audit, taxpayers can request a quality assurance review at the higher level of the DGT. The basis for requesting a quality assurance review is if there is a violation of the law and its application by a tax audit officer. The quality assurance team will issue a legally binding decision as a basis for the final findings of a tax audit and its tax assessment letter.

Following a DGT tax collection notification letter, a taxpayer can file for administrative remedies pursuant to Article 36 of the GRT Law as follows: a penalty reduction or write-off (Article 36, Paragraph 1a of the GRT Law); a reduction or cancellation of the tax collection notification letter (Article 36, Paragraph 1c of the GRT Law); and a cancellation of a tax collection notification letter resulting from a tax audit that was completed without the taxpayer receiving temporary audit findings and a final audit closing conference letter (Article 36, Paragraph 1d of the GRT Law).

Following a DGT tax assessment letter, the taxpayer can file administrative remedies pursuant to Article 36 of the GRT Law as follows: a penalty reduction or write-off (Article 36, Paragraph 1a of the GRT Law); a reduction or cancellation of a tax collection notification letter (Article 36, Paragraph 1b of the GRT Law); and a cancellation of a tax assessment letter resulting from a tax audit that was completed without the taxpayer receiving temporary audit findings and a final audit closing conference letter (Article 36, Paragraph 1d of the GRT Law).

Administrative remedies set out in Article 36, Paragraph 1 of the GRT Law are generally resolved within the following timelines:

  1. an indefinite timeline if filing an application for the first time;
  2. a DGT decision is made within six months of receipt of the first application;
  3. a second application is filed within three months of the DGT decision on the first application; and
  4. a DGT decision is made within six months of receipt of the second application.

A taxpayer’s first or second application is deemed granted if the DGT fails to issue a decision letter within six months of the application being received.

Upon a DGT decision on the first or second taxpayer application of Article 36, Paragraph 1 of the GRT Law, the taxpayer can file a lawsuit to the Tax Court appealing the decision. The lawsuit should be made within 30 days of the decision.

Further to the above, following a DGT tax assessment letter and withholding tax receipt, a taxpayer can request administrative remedies pursuant to Article 25 of the GRT Law by filing an objection to the DGT within three months of the tax assessment letter being sent or the date of the withholding tax receipt. The three-month timeline is not applicable when the taxpayer is able to demonstrate a force majeure situation. Upon filing a tax objection, the administrative remedies set out in Article 36, Paragraph 1 of the GRT Law will be denied as long as the two remedies are closely related. Pursuant to Article 26, Paragraph 4 of the GRT Law, the burden of proof still lies with the DGT, unless the tax assessment was issued based on the grounds of insufficient accounts or records.

The taxpayer’s objection will be deemed granted if the DGT fails to issue an objection decision letter within 12 months of the objection letter being received. Upon the DGT objection decision, the taxpayer can file an appeal to the Tax Court. The DGT objection decision could be fully accepted, partially accepted or denied, or could increase the amount of taxes.

Regarding other letters issued by the DGT, such as tax audit instruction letters or private letters, such letters can be resolved by filing a lawsuit with the Tax Court. Generally, the Tax Court will consider the case and decide whether such letter is subject to resolution in the Tax Court provided that certain criteria are met, especially if such letter has resulted in specific tax consequences for the taxpayer.8 The lawsuit for such letter should be filed within 30 days of the date the letter was sent.

Law No. 30 Year 2014 regarding Governmental Administration (GA Law) provides rules and guidance for governmental bodies when performing their duties. The GA Law is also to be applied by the administrative courts, which system the Tax Court is part of. Administrative products of governmental bodies are defined broadly under the GA Law, which provides more criteria for administrative products. The grounds to challenge administrative products under the GA Law include abuse of power, procedural error and principles of good governance (i.e., the principle of legitimate expectation). However, such grounds have not been applied significantly by Tax Court judges in precedent cases. Nonetheless, the GA Law still arguably provides grounds for the Tax Court in deciding tax disputes both under appeal or lawsuit.

In 2015, the Supreme Court issued Supreme Court Regulation No. 5 of 2015, which allows persons to file a ‘request for decision’ to the administrative court with regard to their rights to receive an administrative decision from a government body. The ground to file such ‘request for decision’ is generally when a person’s prior request to a government body is deemed granted, but the government body has not issued an executorial decision. With regards to taxation, it has happened that a taxpayer’s request for interest has been granted ultimately by the Tax Court, but the DGT has not issued any executorial decision allowing the interest to be paid to the taxpayer.

A seizure letter as a result of tax collection forces a taxpayer to surrender an amount of money or assets to settle the taxes owed. The taxpayer can file a lawsuit on such seizure letter within 14 days of the date of the letter in the following situations: where the taxpayer has filed for dispute resolution on the taxes due and is in financial distress, and thus requests that any tax collection, including seizure, be halted until the relevant dispute resolution has been issued; or where the process of seizure is procedurally flawed, which could result in the reprocessing of the seizure.

Unpaid taxes or penalties set out in a tax collection notification letter should be followed by active tax collection efforts, including those that end in a seizure letter. On the other hand, the collection of unpaid taxes and penalties set out in a tax assessment letter should be postponed pursuant to the taxpayer’s objection to the DGT. However, such unpaid taxes and penalties are subject to a 50 per cent penalty of the unpaid amount if the DGT issues a decision partially granting or denying the taxpayer’s objection. The 50 per cent penalty is not imposed if the taxpayer paid the unpaid taxes and penalties prior to objection, or if the taxpayer has filed a tax appeal to the Tax Court. The 2 per cent interest each month imposed on an unpaid tax assessment letter will not be imposed if the taxpayer files an objection to the DGT.


Tax dispute resolution at the judicial level is first settled in the Tax Court. If the taxpayer or tax authority wants to challenge the Tax Court decision, either or both can file a civil review to the Supreme Court. The Tax Court will only be able to accept an application for a lawsuit or an appeal from the taxpayer.

The Tax Court is part of the administrative court system under the judicial power of the Supreme Court, pursuant to Article 27 Paragraph 1 of the Judicial Authority Law. It is located in Jakarta, and uses several cities as its place of trials or hearings, including Jakarta, Yogyakarta and Surabaya. For the purpose of developing its judiciary techniques, the Tax Court is managed by the Supreme Court, while for the purpose of developing its organisation, administration and finance, it is managed by the Ministry of Finance. Although it is managed by two different institutions, Tax Court judges are independent in resolving tax disputes (Article 5 of the Tax Court Law).

Full Tax Court decisions are not provided by the Tax Court. Instead, the Tax Court provides a summary of a Court decision, which is available on its website9 and on the Supreme Court website.10 The Secretary of the Tax Court has said that full tax court decisions were not allowed due to the instruction of the Tax Court Chief.11 Contrary to that, a full Supreme Court decision, even one concerning a tax dispute, is provided by the Supreme Court on its website.12

Pursuant to Article 81 of the Tax Court Law, the Tax Court is required to issue a decision on an appeal within 15 months (12 months plus a three-month extension) and on a lawsuit within nine months (six months plus a three-month extension). Tax Court decisions that exceed such timeline will not cause the decision to be invalidated by the Supreme Court.13

In a lawsuit, a taxpayer is not required to pay unpaid taxes as a procedural requirement, while in an appeal, a taxpayer is required to pay at least 50 per cent of unpaid taxes (Article 36, Paragraph 4 of the Tax Court Law). When an appeal is made on decisions or assessments by the DGCE, by law the unpaid taxes must be paid in full. However, the Supreme Court has issued two decisions ruling that the requirement to pay unpaid taxes for appeals on DGCE decisions or assessments is omitted and not required based on jurisprudence or precedent.14 For appeals made on objection decisions by the DGT, the unpaid taxes in dispute are not required to be paid, as the unpaid taxes are deemed postponed until one month after the Tax Court decision is made (Article 27, Paragraph 5a of the GRT Law). Prior to an appeal on the DGT objection decision, a taxpayer is only required to pay the amount of unpaid taxes agreed during the tax audit.

If the Tax Court decision is considered unfavourable to either taxpayer or tax authority, either or both could file a civil review application to the Supreme Court. The grounds for such application are (under Article 91 of the Tax Court Law):

  1. the tax court decision was made based on deception by the counterparty, which was only known after the case was decided, or the Tax Court decision was made based on unauthentic evidence adjudicated by a civil court;
  2. there is new written evidence that is decisive and that, if known during the court proceedings, will result in a different decision;
  3. an ultra petita decision;
  4. part of the requisition has been decided without consideration; and
  5. the Tax Court decision clearly violated the applicable laws.

A civil review application is required to be filed within three months of:

  1. the discovery of a deception or a civil court decision adjudicating that there is an unauthentic evidence (Article 91a of the Tax Court Law);
  2. the discovery of new evidence of which the date of discovery must be made under oath and authorised by a competent authority (Article 91b of the Tax Court Law); or
  3. the Tax Court decision being sent (Article 91c–e of the Tax Court Law).


In addition to the use of tax audits for official assessment, tax audits can be used to collect preliminary evidence where a tax crime is suspected. Where a tax audit has been completed, provided that a tax crime investigation has not commenced, a taxpayer could voluntarily disclose an inaccuracy and pay any underpaid tax along with a penalty of 150 per cent of the underpaid tax. Thus, a tax crime investigation will not commence provided that the DGT accepts such voluntary disclosure.

The punishments for a tax crime would be imprisonment and a financial penalty. Generally, the individual taxpayer or the director of a company and his or her accomplices will be held accountable for the tax crime, and only the person or company charged with the tax crime will bear the punishment. Not reporting a tax return or reporting an incorrect or incomplete tax return, or attaching incorrect information in the tax return, are generally considered as tax crimes. There is a difference between ‘intention’ and ‘gross neglect’: in the latter, if conducted by a taxpayer for the first time, the taxpayer may avoid imprisonment if he or she pays the monetary penalties. There are further, although not significant, differences between intention and gross neglect.

In the case of a Tax Court decision that denies or partially grants an appeal, the taxpayer is subject to a penalty of 100 per cent of the amount of unpaid tax less the tax paid prior to filing an objection to the DGT. Payments made after filing an objection to the DGT will not be considered in the penalty computation. On the other hand, if a Tax Court decision partially or fully grants an appeal on an underpaid objection decision, the taxpayer cannot request interest on the taxes paid prior to the objection or appeal. Interest of 2 per cent for a 24-month maximum period for taxpayers from the DGT could be available in the event that an overpaid tax in a tax return was not granted for refund during a tax audit, yet was granted for refund during a tax objection or appeal. If the DGT is late in issuing a tax refund instruction letter, the taxpayer could also request interest of 2 per cent from the time limit of the issuance of the tax refund instruction letter to the actual date of issuance of the tax refund instruction letter.


i Recovering overpaid tax

As explained in Section II, a taxpayer can request a tax refund by stating such request in his or her tax return.

Where a foreign company’s income tax exceeding its tax limitation in a tax treaty is being withheld, such overpayment could be recovered through the application by an Indonesian taxpayer to the DGT.

ii Challenging administrative decisions

The principle of equal treatment is applicable as a ground in resolving tax disputes, as explained in Article 31a of the Income Tax Law, Article 16b of the Law on VAT and Sales Tax on Luxury Goods, and Article 28d Paragraph 1 of the Indonesian Constitution. To confirm this, a Supreme Court decision upheld a Tax Court decision allowing a taxpayer’s appeal against the DGT objection decision on the ground of the principle of equal treatment.15


The Tax Court does not have the power to adjudicate costs related to legal proceedings to a taxpayer or the tax authorities. However, the Supreme Court can adjudicate the cost of a civil review application in an amount of 2.5 million rupiah, to be borne by the losing party.


Indonesian tax laws do not provide for arbitration or mediation for tax disputes between taxpayers and the tax authorities in Indonesia. The same applies regarding advance rulings. However, a taxpayer could request a letter to confirm certain tax rules or the tax treatment of a transaction. The DGT is not bound to respond to such a confirmation letter. If the DGT responds, a private letter will be issued and would be legally binding under the principles of legitimate expectation. In many cases, the DGT can also arrange a consultative hearing with the taxpayer, and provide a non-written explanation that is not legally binding.

During a tax dispute resolution at the administrative or court level, both the taxpayer and the tax authority can agree on something previously disputed without mediation.


Indonesian tax laws do not have a general anti-avoidance rule with a straightforward meaning. There has been discussion by scholars that the principle of substance over form implicitly embodied in Article 4, Paragraph 1 of the Income Tax Law, and in the Indonesian accepted accounting standards, is the Indonesian general anti-avoidance rule. The substance over form principle is also applied by the Tax Court in relation to the interpretation of the term ‘beneficial owner’ in tax treaties. Surprisingly, in February 2017, the Supreme Court held that the Tax Court verdict was incorrect because the tax court had applied the substance-over-form principle to recharacterise a transaction.16

The Indonesian Income Tax Law also embodies specific anti-avoidance rules:

  1. thin capitalisation rules (Article 18, Paragraph 1 and Article 18, Paragraph 3): In September 2015, the Ministry of Finance again issued a debt-to equity ratio for denying interest deductions by companies. According to Ministry of Finance Decree No. PMK-169/PMK.101/2015, in effect since January 2016, the applicable debt-to-equity ratio is 4:1;
  2. transfer pricing rules (Article 18, Paragraph 3) states that related-party transactions should be based on an arm’s-length principle by applying transfer pricing methods, namely comparable uncontrolled price, cost-plus, resale price, profit split and the transactional net margin methods. Indonesia’s first transfer pricing guideline was DGT Decree No. KEP-01/PJ.7/1993, which was an audit guideline for tax officers and which was subsequently replaced by DGT Regulation No. PER-43/PJ/2010 on 6 September 2010 and further amended by DGT Regulation PER-32/PJ/2011, which adopts most of the OECD Transfer Pricing Guidelines 2010;
  3. controlled foreign corporation (CFC) rules (Article 18, Paragraph 2 and Ministry of Finance Regulation No. PMK-107/PMK.03/2017): ‘Controlled’ is defined as directly or indirectly owning 50 per cent of shares in a foreign corporation. The Indonesia CFC rules operate a deemed dividends approach, whereby the undistributed profits net-after-tax income of the CFC is deemed to be distributed as dividends in accordance with shareholdings in the CFC. Further, the CFC regulation will also be applied to a CFC domiciled in a jurisdiction with a tax rate higher than Indonesia;
  4. indirect transfer of shares (Article 18, Paragraph 3c and Ministry of Finance Decree No. PMK-258/PMK.03/2008); and
  5. beneficial owner test: This was modified from limitations on benefits rules (DGT Regulation No. 10/PJ/2017). The rules specify criteria and forms to be filed by foreign taxpayers to be entitled to a treaty benefit. One questionnaire form includes a checklist concerning beneficial ownership that adopts the limitation on benefits test.

Even though Indonesia is not a member of OECD, Indonesia has expressed to its support of OECD views that BEPS presents a high risk to state revenue. As part of Indonesia’s commitment to the implementation of the BEPS Action Plan related to tax treaties, Indonesia has signed the Multilateral Instrument (MLI) to implement BEPS Action Plan 15. Indonesia chooses to adopt the principal purpose test and simplified limitation on benefits with respect to the Action Plan on prevention of treaty abuse. With respect to Action Plan 13, the minister of Finance has released regulation concerning the country-by-country (CbC) reporting and its corresponding updates to transfer pricing documentation. In general, the contents required in the local file, master file, and CbC report pursuant to the Minister of Finance Regulation are in line with the BEPS Action Plan 13 recommendations.

The DGT has issued regulation on tax treaty application to strengthen anti-treaty abuse rules (DGT Regulation No. 10/PJ/2017). According to the DGT’s view, tax treaty abuse takes place when the main purpose or one of the main purposes of the transaction arrangement transaction is to obtain the benefit of the treaty and it violates the purposes and intention of the tax treaty. In the DGT’s view, there is no treaty abuse if:

  1. there is economic substance in the establishment of the entity and carry out of transaction;
  2. the legal form is same as the economic substance in the establishment of the entity or carry out of transaction;
  3. the business activities are managed by a company’s own management that has sufficient authority to carry out the transactions;
  4. there are fixed assets and non-fixed assets (other than the assets generating income from Indonesia) that are adequate and sufficient in the carrying out of business activities in that treaty partner jurisdiction;
  5. it has sufficient employees with the expertise and certain skills in accordance with its line of business; and
  6. it has activities or an active business other than receiving income in the form of dividend, interest, royalty from Indonesia. The definition of active business is the actual circumstances of business activity that is indicated by the cost incurred, efforts made or sacrifices that relate directly to its business activity in order to earn, collect and maintain income, including significant activities undertaken to maintain operation as a going concern.

The BEPS effects will heavily impact transfer pricing and the entitlement to treaty benefits rules in Indonesia. These topics have been the major issues in the international tax disputes arena in Indonesia. In the author’s opinion, the DGT regulation on treaty abuse could bring a wave of disputes related to the entitlement of treaty benefits owing to no valid measures or definition in that regulation concerning economic substance. In addition, the DGT will be tempted to presume intention simply because of the presence of benefits. It seems that the wording of the anti-treaty abuse rules makes it easy for the DGT to assume treaty abuse. In the author’s view, it is important to undertake an objective analysis of the aim and objects of all persons involved in putting that arrangement or transaction in place. All relevant facts and circumstances should be weighed to determine whether it is reasonable to conclude that an arrangement or transactions were undertaken or arranged for such purpose. The author agrees with Weber’s opinion that an assessment based solely on the effects of an arrangement is not sufficient and merely reviewing the effects of an arrangement will not usually enable a conclusion to be drawn about its purposes.17


Indonesia has concluded and ratified tax treaties with 67 countries (including with the governments of Lao and Armenia, ratified in 2016), which prevail over Indonesian domestic tax laws according to Article 32A of the Income Tax Law. In 2014, Indonesia ratified the Convention on Mutual Administrative Assistance in Tax Matters, and treaties on exchange of information with the governments of Bermuda, the Isle of Man, Guernsey and Jersey. Although Indonesia is not a party to the Vienna Convention on the Law of Treaties, it has a law concerning international treaties that governs that international treaties shall be applied in good faith. This is similar to what is directed in the Vienna Convention. In many Tax Court cases concerning limitations on the benefits of tax treaties, the Tax Court has unanimously held that the domestic rules of limitation on the benefits of tax treaties shall not be applied in excess of that which has been agreed in such tax treaties.

With respect to policy making, the government is trying to renegotiate several tax treaties that are not beneficial to Indonesia, and to promote automatic exchange of information in tax treaties. In November 2011, Indonesia signed the Multilateral Convention on Mutual Administrative Matters, which was ratified through Presidential Decree No. 159/2014. The Minister of Finance subsequently signed the Multilateral Competent Authority Agreement on 3 June 2015 and committed to automatic exchange of information by 2018;18 however, it is expected that Indonesia will expedite from September 2017.19 The minister of Finance has also issued the regulation concerning exchange of information that more specific details are to apply the automatic exchange of information with OECD Common Reporting Standard (CRS).20


As previously mentioned, tax disputes mostly arise from audits of tax returns with refund requests. A refund discrepancy is the primary key performance indicator in a tax audit; thus, the tax refund will most likely be reduced. Transfer pricing is still the main focus of tax audits, followed by the mining and agricultural industry, which contributes significantly to the tax revenue. Corporate restructurings involving transfer of intangible properties and workforce, both domestic and international, are also targeted.


The government is planning to amend the Law on General Rules of Taxation and to include in the national legislation a 2015–2019 programme to promote lower compliance costs, and to promote efficient and effective tax administration through, inter alia, electronic self-assessment mechanisms and the payment of taxes in currencies other than the Indonesian rupiah.21 In addition, the government plans to implement technical measures to increase the taxation database with data from other regulatory and governmental bodies. In addition, following the arrest of a senior tax officer by the Corruption Eradication Commission, the Ministry of Finance has established two teams that will oversee and direct the reform of Indonesia’s taxation and customs system.22

The tax revenue collection policy will be focused on intensified law enforcement and the continued implementation of the exchange of information.

1 David Hamzah Damian is a partner at DDTC Consulting.

2 http://www.setpp.kemenkeu.go.id/Ind/Statistik/StatBerkas.asp.

3 kepaniteraan.mahkamahagung.go.id/images/LAPORAN_TAHUNAN_MARI_2015_FINAL.pdf.

4 See Supreme Court Decision No. 492/B/PK/PJK/2010.

5 See Supreme Court Decision No. 161/B//PK/PJK/2010 and 79/B/PK/PJK/2005.

6 See Supreme Court Decision No. 1026/B/PK/PJK/2014.

7 See Supreme Court Decision No. 877/B/PK/PJK/2013.

8 See Supreme Court Decision No. 110/B/PK/PJK/2008 and Supreme Court Decision No. 141/B/PK/PJK/2010.

9 www.setpp.depkeu.go.id/Ind/News/Risalah.asp.

10 putusan.mahkamahagung.go.id/pengadilan/pengadilan-pajak.

11 Inside Tax Magazine, p. 30: www.ddtc.co.id/en/publication/42/pengadilan-pajak-sudahkah-transparan/.

12 putusan.mahkamahagung.go.id.

13 See Supreme Court Decision No. 274/B/PK/PJK/2011.

14 See Supreme Court Decision Nos. 1015/B/PK/PJK/2014 and 300/C/PK/PJK/2009.

15 See Supreme Court Decision No. 566/B/PJK/2013.

16 See Supreme Court Decision No. 135/B/PK/PJK/2017.

17 Denis Weber, ‘The Reasonable Test of the Principal Purpose Test Rule in OECD BEPS Action Plan 6 (Tax Treaty Abuse) versus the EU Principle of Legal Certainty and the EU Abuse of Law Case Law’, Erasmus Law Review, August 2017.

18 See kemenkeu.go.id/en/node/46126 and www.oecd.org/tax/transparency/AEOI-commitments.pdf.

19 See www.thejakartapost.com/news/2015/11/15/indonesia-end-bank-secrecy-2017.html.

20 The Minister of Finance Regulation No. 70/ PMK.03/2016.

21 Financial Note and State Budget 2016 – II.3-2.

22 One of the team advisers is our firm’s managing partner, Darussalam: jakartaglobe.id/economy/finance-ministry-sets-two-teams-reform-tax-office.