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ndonesian tax authorities are now able to probe tax evasion allegedly conducted by foreign companies with business interests in Indonesia under existing tax treaties on prevention of double taxation.

 Taxation Director General Fuad Rahmani said that Indonesia had signed tax treaties on prevention of double taxation and on exchanges of tax information with most G-20 countries including the United States, Japan and Australia.

“All countries that have signed the agreement will cooperate in taxation data exchanges and collections,” Fuad told The Jakarta Post by phone on Wednesday.

“This agreement opens more opportunities for us to collect taxes abroad,” he added. Fuad also said that he had issued a standard operating procedure (SOP) for his officers on how to probe the finances of Indonesian companies’ taxation data abroad.

According to the SOP, a copy of which has been obtained by the Post, Indonesian tax authorities would cooperate with local tax officers in probing companies that obtained income from their businesses in Indonesia.

“Our officers will not directly probe the companies, but the local tax authorities abroad will,” Fuad said. On the other hand, foreign tax authorities are also able to ask Indonesian tax officers for assistance in probing tax fraud such as tax evasion conducted by their companies that operate in Indonesia.

Indonesian Corruption Watch (ICW) researcher Firdaus Ilyas said that the agreement should also enable the taxation directorate general to intensify tax collections in order to support the state income.

“With this agreement, we can exchange data with other countries. So, this is one of the tools to optimize our tax income. This agreement would also enable us to uncover the practices of transfer pricing, commonly conducted by Indonesian multinational companies abroad,” he said.

Transfer pricing refers to the practice of transferring goods and services from one responsibility center to another or from one company to another that belongs to the same group.

Multinational companies usually use this method to avoid paying a higher tax rate in their country of origin. For example, an Indonesian multinational corporation can export its goods at a low price to a Singapore-based company, which it partly owns. The goods are then exported again at a higher price from Singapore, which has a lower tax rate than Indonesia, and this practice allows the Indonesian corporation to avoid paying higher taxes to the Indonesian government.

“These transfer pricing practices are common but we have yet to see firm sanctions imposed upon companies that use this kind of tax manipulation. We rarely see these companies brought to justice for conducting transfer pricing,” Firdaus said.