Indonesia: Tax treatment for having special purpose vehicles under the tax amnesty scheme
Taxpayers that have indirect assets held through special purpose vehicles must disclose their ownership of the assets and its related debts when taking advantage of the tax amnesty scheme, but should take care to avoid the potential pitfalls.
There are two implementing regulations of the Tax Amnesty Law that provide provisions about the law's application to special purpose vehicles (SPVs), namely:
1) MOF Regulation No. 118/PMK.03/2016 on the Implementation of Law No. 11 of 2016 on Tax Amnesty (PMK 118/2016), which entered into effect on July 15 2016; and
2) MOF Regulation 127/PMK.010/2016 on Tax Amnesty for Taxpayers that Have Indirect Possession of Assets Through Special Purpose Vehicles (PMK 127/2016), which entered into effect on August 23 2016.
There is no clear definition of what an SPV is under Indonesian laws including the tax amnesty law and the company law which always require all companies to have business purposes. However, PMK 127/2016 states that the SPV under this regulation is the intermediary company which is:
Established solely to conduct certain specific functions for the benefit of its founder(s) such as the purchase and/or finance of certain investment product; and
Is not conducting any active business activities.
Again, the Tax Amnesty Law and PMK 127/2016 are both silent on what constitutes active business activities.
Under PMK 127/2016, taxpayers that have indirect ownership of assets through a SPV must disclose their ownership of both the assets located in Indonesia and abroad. The value of assets through a SPV for tax amnesty ransom calculation is the underlying assets of the SPV. However, it is unclear whether the liabilities of the SPV owned entirely by a taxpayer could be used as a deduction. For taxpayers who have disclosed their shareholding ownership in the SPV in their latest annual income tax report, they must revalue their ownership in the SPV by using the value of the total assets of the SPV, less the value of their shares in the SPV that has been reported in their tax return, then the balance of it times the shareholding percentage of the taxpayer in that SPV. Subsequently, the SPV must be dissolved or the taxpayer must relinquish their ownership in the SPV, and the SPV must transfer its assets to be directly owned by the taxpayer or to an Indonesian company owned by the same taxpayer no later than December 31 2017. In the amendment to PMK 127, issued on September 2016, the SPV will no longer be required to be dissolved.
Unfortunately, PMK 127 is silent on whether the shares in the Indonesian company taking over the assets of the SPV could be transferred to a newly established SPV or trust. If two or more taxpayers jointly own a SPV, it is unclear whether they must apply the same valuation of the SPV in the ransom calculation.
Under PMK 118/2016, taxpayers that have indirect possession of assets through an SPV must disclose their ownership of the assets and its related debts in the list of detailed assets and debts, which is part of the attachment to the declaration letter submitted by taxpayers. On a separate note, the tax authority will issue a new tax rule that governs the tax treatment for trusts and its settlors and beneficiaries.
Ali Budiardjo, Nugroho, Reskodiputro, Law Offices Jakarta Indonesia
Tel: +62 21 250 5125