Indonesia seeks to curb use of tax havens by companies

[JAKARTA] Indonesia hopes its plans for a tax amnesty will dissuade companies from channelling profits through overseas tax havens and shopping around for the most advantageous tax treaties, its finance minister said on Wednesday.

Bambang Brodjonegoro said he suspected Indonesian firms of setting up "special purpose vehicles" (SPVs) to benefit both from tax treaties between Indonesia and other countries, and from low tax rates in those countries.

The tax amnesty, which offers hefty tax discounts to individuals and companies who declare concealed untaxed wealth, would allow SPVs to declare or repatriate money stashed overseas.

"Regarding the tax amnesty, these SPVs deposit their money not in Indonesia. But they are certainly 100 per cent Indonesian in terms of ownership," Mr Brodjonegoro told foreign correspondents.

"We'll ask them to join the amnesty first, but if they refuse, then we'll knock them," he said.

Mr Brodjonegoro was quoted by media as saying the tax authority has identified 2,000 SPVs set up by Indonesian firms and 6,000 saving accounts in tax-haven countries.

The British Virgin Islands and the Cook Islands topped the list of countries favoured by Indonesian firms for their SPVs, Mr Brodjonegoro said, and that has resulted in the two tiny island nations becoming among the biggest sources of foreign direct investment into Southeast Asia's largest economy.

This also distorts Indonesia's FDI records, Mr Brodjonegoro said, making inward investment look larger than it actually is.

Shareholder loans and lending from a parent company in a tax haven to its Indonesian subsidiary also inflated Indonesia's foreign debt figures, he said.

In 2015, Indonesia issued a decree tightening rules for tax deductions based on offshore loans in a bid to tackle such practices.

This year, the government also is looking to impose a minimum tax on thousands of serial loss-making foreign companies, suspecting them of avoiding taxes.

While those efforts might lift revenue in the longer term, the government is counting on the tax amnesty bill for a short-term boost, but it has been delayed until at least April amid parliamentary wrangling.

The governmnent risks missing its revenue target by 250 trillion rupiah (S$25.96 billion) this year without the amnesty, Mr Brodjonegoro said.

Previously, he has said the amnesty could bring in about 100 trillion rupiah of additional income and broaden Indonesia's tax base.

On Wednesday, Mr Brodjonegoro also said a decision on whether to lower the rate of corporate income tax would only be taken after the tax amnesty had been implemented successfully.

REUTERS