Download pdf - TaxUpdate 01 2017 - CFC - AHSCahsc.co.id/news/pdf/TaxUpdate 01_2017 - CFC.pdf · TaxUpdate August 2017 Indonesian Controlled Foreign Company (“CFC”) Rules The Minister of Finance

TaxUpdate

August2017

Indonesian Controlled Foreign Company (“CFC”) Rules TheMinisterofFinance(“MoF”)hasissuedRegulationNo.107/PMK.03/2017dated26July2017(“PMK107”)onCFCrules,whichisapplicablefromfiscalyear2017.PMK107revokesMoFRegulationNo.256/PMK.03/2008(“PMK256”).PMK107isfarmorecomprehensivethanitspredecessoranditincludesanappendixthatprovidesillustrationofCFCdetermination,calculationofdeemeddividends,andcalculationofforeigntaxcredit.SelectedkeyfeaturesofPMK107areasfollows:

No KeyFeatures Descriptions Comments

1

CFCcoverage

Onlyapplicabletonon-publiclylistedCFC.CFCcovers:1. DirectCFC(“D-CFC”):atleast50%

ownedbyanIndonesiantaxpayerorcollectivelybyIndonesiantaxpayers;and

2. IndirectCFC(“I-CFC”):atleast50%ownedbyotherCFC(s)orcollectivelyownedbyotherCFC(s)andtheIndonesianshareholder(s).

NochangefromPMK256.PMK256onlycoversD-CFC.DeterminationofI-CFCignorestheeffectivepercentageofownershipbytheIndonesianshareholder,asitfocuseson50%ormoreownershipineachlayerofshareholding.Forexample:anIndonesianshareholderowns50%ofsharesinALtd,andALtdowns50%sharesinBLtd.Inthiscase,ALtdisaD-CFCandBLtdisanI-CFCdespiteeffectiveownershipof25%(i.e.50%x50%)bytheIndonesianshareholder.

2


2

Deemeddividend

Theamountofdeemeddividendisdeterminedbasedon:1. percentageofownershipintheD-CFC

multipliedbythecommercialnetprofitaftertaxoftheD-CFC(onanon-consolidatedbasisiftheD-CFChassubsidiary);and

2. percentageofeffectiveownershipintheI-CFCmultipliedbythecommercialnetprofitaftertaxoftheI-CFC.

DespitethedeterminationofI-CFCignorestheeffectivepercentageofownership(point1above),thedeemeddividendfromI-CFCtakesintoaccounttheeffectiveownershipbytheIndonesianshareholder.ThecommercialnetprofitoftheCFCsubjecttodeemeddividendisexclusiveofshareofprofitinanddividendincomefromthesubsidiaryorassociatedcompany.Unfortunately,thedeemeddividendcalculationdoesnottakeintoaccount:1. anycommerciallossesincurredbythe

CFCinaparticularyear;and2. anyequityreservethatmayneedto

beestablishedbytheCFCunderthelawofthejurisdictionwhereitdomiciles.

Hence,thedeemeddividendcalculationdoesnotconsiderthefactthatdividendisdeclaredfromunrestrictedretainedearningsofCFC(notethatthisisrecognisedundertheIndonesiancorporate/PTLaw).

3 Timing ThedeemeddividendmustberecognisedbytheIndonesianshareholderby:1. theendoffourthmonthfollowingthe

deadlinetosubmitcorporateincometaxreturns(“CITR”)oftheCFC;or

2. theendoftheseventhmonthfollowingtheendofCFC’sfiscalyearinthecasewherethereisnoCITRsubmissionobligationbytheCFC.

NochangefromPMK256

4 Dividenddistributions

ActualdividendreceivedbytheIndonesianshareholderfromCFCmaybeoffsetagainstreporteddeemeddividendsinthepreviousfiveyears.Forexample,dividendreceivedin2022canbeoffsetagainstdeemeddividend

Thisoffsetmechanismmayresultsinamismatchbetweendeemeddividendandtheactualdividenddistributions.Therefore,itisimportanttoplanonactualdividenddistributionstomaximisetheresultsoftheoffset.

3


recognisedin2018upto2022.

ThisisasignificantchangefromPMK256,whichgovernsthattheCFCrulesarenotapplicableifactualdividendhasbeendistributedpriortothedeadlinetorecognisethedeemeddividend(refertoPoint3above).

5 ForeignTaxCredit(“FTC”)

PMK107governslimitofFTC,includinganewprovisiontotakeintoaccountforeigntaxpayableundertherelevanttaxtreaty.AspecificattachmentmustbecompletedandcopyofcertaindocumentsmustbeattachedtotheCITRinordertoclaimtheFTC.

PMK107revokestheFTCprovisionsunderMoFDecisionNo.164/KMK.03/2002.

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