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Tech giants to face tighter tax scrutiny
The government has been in a long battle to tax foreign digital companies such as Google, Facebook, Twitter and Netflix, which base their businesses in countries with low tax tariffs and profit from domestic consumers. Such a practice leads to unfair tax treatments, particularly for domestic businesses.
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Netflix (Shutterstock.com/sitthiphong )
Indonesia will follow in the footsteps of several major economies by taxing digital companies, with a newly proposed taxation bill set to serve as legal footing for the government to collect corporate income tax from foreign tech giants doing businesses in the domestic market.
The government has been in a long battle to tax foreign digital companies such as Google, Facebook, Twitter and Netflix, which base their businesses in countries with low tax tariffs and profit from domestic consumers. Such a practice leads to unfair tax treatments, particularly for domestic businesses.
Finance Ministry Taxation Director General Robert Pakpahan said the government was looking to revise the definition of tax subjects in the new bill in a bid to better tax such companies.
“We’re now trying to define the BUT [permanent establishment] beyond a physical presence to cover significant economic presence while waiting for a G20 [Group of 20] solution,” he said.
In their latest meeting in Fukuoka, Japan, in June, finance ministers and central bankers from G20 countries issued a communique endorsing and approach taken by the Inclusive Framework on Base Erosion Profit Shifting (BEPS), marking another step closer to a unified and consistent global tax treatment for digital companies.
The significant economic presence concept is one of the two pillars endorsed by the framework, a working group under the Organization for Economic Cooperation and Development (OECD), which brings together over 125 countries and jurisdictions to fight against global tax avoidance.
The concept enables a country to tax companies that create value from their business models despite a minimal physical presence, or indeed none at all, in its market jurisdictions.
