TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Popular Reads
Top Results
No results found. Please check your search term and try again
Can't find what you're looking for?
View all search results
Popular Reads
Top Results
No results found. Please check your search term and try again
Can't find what you're looking for?
View all search resultsTaxing cross-border transactions
Indonesia’s Directorate General of Taxation has accused Google of having tax arrears of almost Rp 5 trillion. Google has not established a permanent establishment in the country.
Change text size
Gift Premium Articles
to Anyone
Share the best of The Jakarta Post with friends, family, or colleagues. As a subscriber, you can gift 3 to 5 articles each month that anyone can read—no subscription needed!
This Wednesday, April 26, 2017, photo shows the Google mobile phone icon, in Philadelphia. Alphabet Inc., parent company of Google, reports financial results, Thursday, April 27, 2017. (AP/Matt Rourke)
C
onducting transactions digitally has become a method of tax avoidance, especially in developing countries such as Indonesia. By this way, providers can provide goods or services to customers in other countries without establishing a fixed office, because they can carry out transactions through the internet.
As a result, the tax base in the country where the income is generated will be reduced. This is caused by a condition whereby a taxpayer in one country claims expenses on a payment upon benefit received from a service provider in another country. Meanwhile, the income received by the service provider is taxed in the country in which they reside, which is commonly a country with a low tax rate. This condition is commonly called “base erosion.”
Based on international tax norms, a country has a primary right to tax income that has its source in that country. The model introduced by the Organization for Economic Cooperation and Development (OECD) is a reference used by many countries to design a tax treaty.
Regarding to the right to tax business income, Article 7 of the OECD model states that the profit of an enterprise of a country shall be taxable only in that country unless the enterprise conducts business in another country through a permanent establishment situated therein. Accordingly, having a permanent establishment is a requirement to tax business income received by a non-resident company in the source country.
