Indonesia to Revise Tax Regulations on Foreign Companies

The Directorate General of Taxation is looking to revise a rule on controlled foreign companies (better known as CFC) in a bid to prevent tax losses for locals with controlling interest in a foreign business.

The proposed amendment related to Finance Ministerial Regulation No. 256/ PMK.03/2008 which seeks to put the spotlight on taxpayers who did not report their dividend earnings from foreign investments. This much is true according to the Directorate General of Taxation reform team chairman Suryo Utomo. "We are concerned about the dividend income report. Some taxpayers have already had investments in foreign companies for more than 15 years but never received dividends – that is strange," said Utomo, as quoted by The Jakarta Post. He added that the tax office did not have enough data to know whether taxpayers falsified their tax forms. He also said tax evaders have started leveraging a loophole in the current rule, which says the government can only charges tax on a foreign company's dividends if a local citizen has controlling interest.

With this in mind, the chairman said that his office may change the definition of what constitutes “controlling interest”. In the end, this would be faster than updating the current tax law, he added.