Let's Understand The International Tax System for Multinational Companies

Let's Understand The International Tax System for Multinational Companies

PPN - 29 Jan, 2024 11:01 WIB

The international tax system was created for several purposes, one of which is preventing tax avoidance. Avoidance is usually carried out by illegally eliminating or reducing tax obligations. Therefore, a good understanding of international taxes is needed.


In general, the international tax system itself regulates two things, namely taxation of domestic tax subjects who receive income or income from sources abroad, as well as foreign tax subjects who receive income or income from domestic sources.


So, for more details regarding the international-based taxation system and taxation of multinational companies, see the following discussion.


International Tax System

In the initial section, we mentioned the objectives of creating an international tax system, one of which is to prevent tax avoidance. However, not only that, this system is also designed to improve global economic prosperity, stimulate international trade, and reduce barriers that may arise in foreign investment.


This international tax system is not a unilateral product, but is the result of a joint agreement in the G20 Forum. This forum involves Central Bank Governors and Ministers of Finance from various countries, and is a place where international tax concepts are formed. One example is taxation of multinational companies, which is an important point in efforts to overcome the problem of cross-border tax avoidance.


Approaching the level of realization, this international tax agreement shows a significant level of support. Of the 139 countries that are members of the G20 Forum, 132 countries have agreed to this agreement. This reflects a global commitment to creating a fair and sustainable international tax system, and shows awareness of the importance of cross-border cooperation in managing global tax issues.


Taxation of Multinational Companies

One of the pillars in the international tax system is to strive to provide fairer taxation rights with legal certainty, while at the same time overcoming challenges arising from Base Erosion Profit Shifting (BEPS).


The agreement on an international tax system also provides an opportunity for Indonesia to obtain tax revenues through multinational companies that sell various kinds of products in Indonesia.


Tax provisions apply to multinational companies with a global turnover of more than 20 billion Euros and profit receipts of at least 10% before tax. As well as multinational companies with a smaller turnover of 750 million Euros with an Income Tax (PPh) rate of at least 15% in the country of residence.


Moreover, within the framework of the international tax system, it is necessary to pay attention to provisions relating to foreign subjects that can be taxed in Indonesia, whether through a Permanent Establishment (BUT) or not. Meanwhile, regulations related to taxation of income originating from Indonesia but not from BUT are explained in the Income Tax Law (UU PPh).


So, in facing the complexity of the global business world, understanding the international tax system is the key to the sustainability and success of multinational companies. In this way, it will help with tax management which will help companies optimize financial performance, maintain compliance with regulations, and encourage sustainable growth.


And no less important, consultation with tax experts will provide an invaluable investment for the continuity of multinational companies in this era of globalization. Why? Because international tax policies are often complex and can affect various aspects of a company's operations and finances. For this reason, we, the Ideatax team, can provide in-depth views, the latest strategies, and adjustments to regulatory changes that can minimize risks and maximize profits.


Find the latest guidance and solutions by consulting with tax experts at Ideatax!

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