On 28 November 2019 the OECD published a stage 1 peer review report commenting on Indonesia’s compliance with the minimum standard on tax dispute resolution under Action 14 of the project on base erosion and profit shifting (BEPS). 

The peer review report notes that Indonesia has a concluded more than 70 double tax treaties, all of which include a provision on the mutual agreement procedure (MAP). There is some experience of resolving MAP cases and around 59 cases pending on 31 December 2018. The report concludes that Indonesia complies with most of the elements of the minimum standard under BEPS Action 14; and is planning to introduce measures to further align itself with the minimum standard.

The report notes that almost 75% of Indonesia’s tax treaties do not include a provision stating that mutual agreements may be implemented regardless of time limits in the domestic law; and do not contain the alternative provisions in Article 9(1) and Article 7(2) that would set a time limit for making transfer pricing adjustments. The report also notes that more than 40% of Indonesia’s tax treaties set a timeline to file a MAP request that is shorter than three years from the first notification of the relevant action giving rise to the request.

Indonesia therefore needs to amend a number of its double tax treaties. Some of the tax treaties will however be modified as a consequence of the multilateral instrument to implement treaty related BEPS measures, which Indonesia has signed. In addition to the changes to be made under the multilateral instrument, Indonesia intends to update other tax treaties through bilateral negotiations with its treaty partners.

The report notes that access to the MAP is denied where domestic courts have already rendered a decision on the same issues for which a MAP request was submitted, and is also denied where the court decision relates to the same tax assessment but not to the issue for which a MAP request was submitted. Indonesia currently requires taxpayers to file a MAP request with the treaty partner for adjustments made by Indonesia, contrary to the requirements set out in the OECD Model.

Indonesia has introduced a bilateral advance pricing agreement (APA) programme, but the roll-back of bilateral APAs is not permitted in all situations where this could be appropriate.

The report notes that there is a documented bilateral consultation and notification process for cases where the competent authority consider does not consider the taxpayer’s MAP request to be justified. There is also comprehensive guidance on the MAP and is practical application. These provisions are in line with the minimum standard.

In the period 2016-18 MAP cases were closed on average within a timeframe of 24 months, but for attribution or allocation cases the average time was 27.25 months, above the 24-month limit in the minimum standard. There have been some difficulties for other tax authorities in scheduling face-to-face meetings with Indonesia’s competent authority and with obtaining position papers containing sufficient information on a case within a reasonable time. There have also been difficulties obtaining responses to position papers and communicating on pending MAP cases.

Indonesia meets all the other requirements of the minimum standard in relation to MAP cases, as the competent authority is fully independent of the tax audit function and the performance indicators used are suitable for the MAP function.