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Jakarta, Ideatax -- In the previous article we have discussed a lot about tax treaty, transfer pricing and international tax. It should be understood that the existence of tax treaty between countries, aggressive transfer pricing treatment from tax authorities and international tax provisions in each tax jurisdiction have more or less caused international tax disputes. Such disputes can be in the form of data and fact disputes (question of fact), as well as disputes over legal interpretation (question of law).
To resolve such disputes, there are basically two main mechanisms that can be taken: the Mutual Agreement Procedures (MAP) mechanism and the Advance Pricing Agreement (APA) mechanism. MAP is an international tax dispute resolution instrument when a party feels that the actions of a tax authority cause inconsistency with the tax treaty provisions (Valente & Vincenti, 2021). On the other hand, APA is a written agreement between a taxpayer and a tax authority to determine the method of resolving transfer pricing issues prior to filing a tax return (HMRC, 2011). However, we will first discuss MAP in this article.
OECD BEPS (Base Erosion and Profit Shifting) action 14 states that a more effective tax dispute resolution mechanism is needed. In its explanation, the OECD explains that effective dispute resolution can only be realized through the commitment of member countries to implement a minimum standard to ensure that tax treaty-related disputes are conducted in a timely, effective and efficient manner, one of which is by implementing mutual agreement procedures (OECD, 2023).
In domestic Indonesian provisions, the provisions regarding MAP have been regulated since 2010 through Director General of Taxes Regulation Number 48 of 2010 concerning Procedures for Implementing Mutual Agreement Procedures Based on Double Taxation Avoidance Agreements as amended by Director General of Taxes Regulation Number 16 of 2020 concerning Handling Requests for Implementation of Mutual Agreement Procedures and Settlement of Follow-up to Mutual Agreements.
Based on these provisions, among others, it is regulated that the Mutual Agreement procedure is an administrative procedure regulated in the double tax avoidance agreement (P3B) to resolve problems arising in the application of P3B.
There are four parties that can submit MAP, namely: domestic taxpayers in the event of tax treatment by the tax authority of the P3B partner that is not in accordance with the provisions of the P3B, Indonesian citizens through the Director General of Taxes, the Director General of Taxes and partner tax authorities through authorized officials. Furthermore, the Director General Regulation also regulates that there are four conditions that allow MAP to arise, including the following:
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Indonesian Domestic Taxpayer is or will be taxed due to Transfer Pricing practice in relation to transaction with Domestic Taxpayer of P3B Partner Country that has special relation.
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Indonesian Domestic Taxpayer considers that the action of P3B Partner Country results or will result in tax imposition that is not in accordance with the provisions of P3B in relation to the existence or income of permanent establishment owned by Indonesian Domestic Taxpayer in P3B Partner Country;
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Indonesian Domestic Taxpayer considers that the action of the DTA Partner Country results in or will result in the imposition of tax that is not in accordance with the provisions of the DTA in connection with withholding tax in the DTA Partner Country; or
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An Indonesian Domestic Taxpayer who is also a Domestic Taxpayer of a P3B Partner Country requests the implementation of consultation in the framework of MAP to determine his/her status as a domestic taxpayer of one of these countries.
Based on the MAP request, DGT through the discussing committee will conduct negotiations with the authorized officials of the DTA partner within a certain period of time. The discussing committee is the committee in charge of determining the negotiating position and/or scope of agreement in the context of MAP negotiations and determining the approval of the renewal of the MAP implementation request.
Although MAP is a tax dispute resolution process, the Minister of Finance Regulation Number 49 of 2019 regulates that the submission of MAP does not remove the taxpayer's right to submit legal efforts in the form of objections, appeals, or reductions. This means that taxpayers can submit MAP at the same time as filing objections, appeals or reductions as long as the material submitted by MAP is included in the material of legal remedies in the form of objections, appeals or reductions.
In addition, the Minister of Finance Regulation also regulates that the filing of an appeal does not delay the obligation to pay the tax payable or the implementation of tax collection. This is different from the general provision which regulates that the obligation to pay taxes payable for taxpayers who file an appeal, their tax obligations are suspended for one month after the appeal decision is pronounced.
To file an MAP, the applicant must fulfill the formal requirements including the following:
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Submitted in writing in Bahasa Indonesia;
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Disclosed the incompatibility of the application of P3B according to the applicant;
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Submitted within the period as regulated in the tax treaty or a maximum of three years from the date of SKP, date of withholding/collection;
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Signed by the applicant; and
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Attached with a domicile certificate, list of evidence information or information showing that the tax treatment by the tax authority of the partner country is not in accordance with the provisions of the P3B.
The latest arrangement
In its development, the provisions regarding MAP are regulated in the body of law number 7 of 2021 concerning harmonization of tax regulations. In the law on the HPP cluster of the KUP Law, it is regulated that if the implementation of MAP has not resulted in a mutual agreement until the appeal verdict or reconsideration verdict is pronounced, the Director General of Taxes will continue negotiations in the event that the dispute material decided in the appeal or reconsideration verdict is not the material submitted for MAP.
In the event that the material decided in the appeal or judicial review decision is the material submitted by MAP, then DGT uses the appeal or judicial review decision as a position in negotiation or termination of negotiation. The arrangement as referred to in Article 27C of the KUP Law has never been contained in the previous KUP Law. Thus, it can be concluded that the MAP regulation in Article 27 C is a positive breakthrough in achieving legal certainty in taxation. Additionally, Article 27 C also regulates that DGT may follow up the result of MAP implementation by issuing a decision letter on mutual agreement.
That is a brief explanation of the mutual agreement procedure. In the upcoming articles, we will discuss more about international taxation series.
Related provisions
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Law No. 6 of 1983 on General Provisions and Procedures for Taxation as last amended by Law No. 7 of 2021 on Harmonization of Tax Regulations
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Minister of Finance Regulation Number 49 of 2019 concerning Procedures for Implementing Mutual Approval Procedures
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Regulation of the Director General of Taxes Number 48 of 2010 concerning Procedures for Implementing Mutual Agreement Procedures Based on Double Taxation Avoidance Agreements as Amended by Regulation of the Director General of Taxes Number 16 of 2020 concerning Handling Requests for Implementation of Mutual Agreement Procedures and Completion of Follow-Up of Mutual Agreements
References
HMRC. (2011, May 2). Advance Pricing Agreements for oil and gas . Retrieved from Her Majesty Revenue and Customs: https://www.gov.uk/guidance/oil-gas-and-mining-advance-pricing-agreements
OECD. (2023, March 31). Mutual Agreement Procedure Profiles. Retrieved from OECD: Better Policies for Better Lives: https://www.oecd.org/tax/dispute/country-map-profiles.htm
Valente, A., & Vincenti, F. (2021, March 21). The importance of mutual agreement procedures in international tax disputes . Retrieved from International Tax Review: https://www.internationaltaxreview.com/article/2a6a8ayk2vg7s1jh3f5ds/the-importance-of-mutual-agreement-procedures-in-international-tax-disputes
