Implementing Regulation of PMK 213/PMK.03/2016 regarding the Procedure of Country-by-Country Report (CbCR) Preparation
In mid of January 2018, Indonesia’s Directorate General of Taxes (DGT) announced the newest regulation No. PER-29/PJ/2017 (“PER-29”) dated December 29th, 2017 regarding the administration procedures of Country-by-Country Report (CbCR). The regulation provides some clarification and details guidance of Indonesia’s Minister of Finance regulation PMK-213/PMK.03/2016 (“PMK-213”) dated December 30th, 2016 concerning the documentation and/or additional information that must be maintained by taxpayers engaged in the controlled transactions. While PMK-213 is mostly concerning about three-tiered types of Transfer Pricing Documentations (e.g. Local File, Master File, and Country-by-Country Report) that should be prepared and maintained by the eligible taxpayers, PER-29 is specifically focusing on the administration procedure and the preparation of CbCR for Indonesia’s taxpayers that has not yet been covered in detail by the PMK-213.
Here are the salient points of PER-29;
Domestic Parent Entity
Under PMK-213, domestic taxpayer that fulfils master file and local file requirements, must also check whether it is required to prepare CbCR. In summary, CbCR obligation is applicable to domestic parent entity and surrogate parent entity. For domestic parent entity, its eligibility for CbCR is determined by all of the following criteria as set forth in Article 1 number 8 and Article 2 Paragraph (3) of PMK 213:
- control either directly or indirectly one or more member entities in the group,
- has obligation to prepare Consolidated Financial Statements pursuant to the accounting standard prevailing in Indonesia and/or the regulations applied for public listed company in Indonesia, and
- report consolidated gross revenue equal or more than IDR 11 trillion for the reporting fiscal year.
If in a group there are more than one consolidating parent entity residing in Indonesia and each of them meets with all of the above criteria, then all of these eligible parents are required to prepare CbCR in Indonesia. However, under PER-29 such multiple reporting entities would not occur as further explained below.
Surrogate Parent Entity
Domestic parent entity ineligible for the above criteria and owned by the foreign parent entity or domestic subsidiary owned by foreign parent entity should further check whether the country of its foreign parent entity may fall under one of the following criteria of surrogate parent entity as set forth in Article 2 Paragraph (4) of PMK-213:
- has no requirement of CbCR;
- has no agreement on exchange of information in effect with Indonesia;
- has the agreement in effect with Indonesia but CbCR cannot be acquired by Indonesia from such country.
Once the country of foreign parent entity conforms one of the above criteria then, then domestic subsidiary of such foreign parent may be regarded as surrogate parent entity and will assume its foreign parent obligation to submit CbCR in Indonesia.
Ultimate Parent Entity
Like PMK-213, PER-29 enacts that domestic parent and surrogate parent entity are subject to CbCR obligation in addition to Master File and Local File requirements. However, PER-29 adds more criteria for both types in order to assess whether they are eligible for CbCR obligation or not.
Under PER-29, the ultimate parent entity rather than parent entity is required to submit CbCR. The governing principle to determine the ultimate parent and its group is to follow accounting consolidation rules. The criteria of domestic parent entity as set forth in PMK-213 above are maintained in PER-29, and the additional criteria of ultimate parent are added in Article 2 Paragraph (3) of PER-29. In accordance with such provision, one of the following criteria must be met in order to assess whether domestic parent entity is ultimate parent of the group and eligible for CbCR obligation:
- there is no other constituent entity in the group that owns directly or indirectly an interest in such domestic parent entity, or
- there is other constituent entity in the group that owns such domestic parent, but the later has no obligation to consolidate the financial statement of such domestic parent entity;
To summarize, domestic taxpayer matching the criteria under Article 1 number 8 and Article 2 Paragraph (3) of PMK-213, is considered as the parent entity and subject to CbCR obligation. However, such criteria are no longer sufficient to confirm the domestic parent’ eligibility for CbCR obligation under PER-29, the parent entity must also be the ultimate parent of the group as determined by the criteria of Article 2 Paragraph (3) of PER-29.
Surrogate Parent Entity
PER-29 also rules further guidance of PMK-213 to assess whether the domestic taxpayer can be regarded as the surrogate parent entity and is required to submit CbCR. The guidance is reflected in the provisions concerning the criteria of the foreign parent of which the domestic taxpayer must assume its CbCR obligation in exchange, the criteria of domestic taxpayer eligible to submit CbCR for its parent, the meaning of the country not having the agreement on exchange of information with Indonesia, and of no access to acquire CbCR by Indonesia from the country.
All of those guidance are explained further as follows:
1. Domestic taxpayer’ criteria
PER-29 sets forth that not all domestic taxpayer owned directly or indirectly by the foreign ultimate parent can be regarded as surrogate parent entity and subject to CbCR obligation. Therefore, it provides further guidance of the characteristics of domestic taxpayer eligible to submit CbCR for its foreign ultimate parent. PER-29 defines this eligible taxpayer with the term “constituent entity”. The first step of assessing CbCR eligibility is to confirm whether domestic taxpayer falls under one of the following criteria as set forth in Article 3 Paragraph (2) of PER-29 :
a) Separate entity which is a member of the MNE group and its financial statements are consolidated by its parent entity;
b) Every entity which is a member of the MNE group and its financial statements are not consolidated due to business size and materiality;
c) Permanent establishment of the entity as set forth in a) and b) which has prepared separate financial statements for the purpose of financial reporting, enforcement of tax regulations, tax compliance reporting, and internal management control.
2. Foreign Ultimate Parent
Once the domestic taxpayer meets one of the eligible characteristics as above mentioned, the second step is to determine the ultimate parent entity of the group and whether the country of the ultimate parent requires filling of CbCR or not. To assess whether the foreign parent entity is the ultimate parent of the group, all of a), b), and c) criteria below as set forth in Article 3 Paragraph (1) of PER 29 must be met :
a) owns either directly or indirectly in more than one constituent entities in the MNE group,
b) has obligation to prepare Consolidated Financial Statements under accounting standard or other relevant regulations applied in the residence jurisdiction,
c) is not owned either directly or indirectly by other constituent entity in the MNE group, or is owned by other constituent entity in the MNE group, but such other entity is not required to consolidate the financial statements of such foreign parent,
If the foreign parent entity does not fall under all of the criteria, then further check must be performed up to the ultimate consolidating entity fulfilling all criteria above. Once the ultimate parent can be ascertained, further assessment is to verify whether the country of the ultimate parent entity requires filing of CbCR or not. If the country has no CbCR requirement, then the criteria in d)1 below as set forth in Article 3 Paragraph (1) d 1) of PER-29 should be applied to the ultimate parent entity, and if the country has so, then the criteria in d)2 below as set forth in Article 3 Paragraph (1) d 2) of PER-29 should be applied to the ultimate parent:
d) reports consolidated gross revenue in the reporting fiscal year equal or more than
- €750,000,000 based on the exchange rate of the functional currency of such foreign parent on 1 January 2015 provided that the residence country of such foreign parent is not required to file CbCR; or
- the threshold amount for the purpose of determining the obligation of CbCR as ruled by the residence country of such foreign parent entity.
- The country where the foreign ultimate parent is resident
The third step is to confirm whether the country of the ultimate parent has no agreement on exchange of information with Indonesia or not, and if the country has so whether Indonesia has access to acquire CbCR. Such criteria are basically restating those ruled by PMK-213, but PER-29 adds the following provisions concerning the meaning of the agreement on exchange of information with Indonesia and Indonesia having no access to acquire CbCR as set forth in Article 3 Paragraph (3) and (4) of PER-29 applicable for the country requiring CbCR :
a) The provision: “agreement on exchange of information” is defined as Qualifying Competent Authority Agreement (QCAA)
b) The provision: “CbCR cannot be acquired by Indonesia” means that (1) delay in exercising exchange of information due to the factors other those prescribed by QCAA, or (2) recurring failure to automatically exchange CbCR.
PER-29 enacts several criteria to verify whether domestic taxpayer is eligible for CbCR submission in exchange of its foreign ultimate parent, therefore, the assessment to determine surrogate parent entity must be carefully taken.
Exemption from CbCR obligation for Surrogate Parent Entity
PER-29 provides exemption from CbCR obligation for surrogate parent entity. However, the same exemption is not given to the domestic ultimate parent. The domestic taxpayer which can be regarded as surrogate parent entity and is subject to CbCR in exchange of its foreign ultimate parent, may be exempted from filling CbCR in Indonesia, provided that it conforms all of the following requirements as set forth in Article 2 Paragraph (5) and (6) of PER-29:
- notify DGT with regard to the foreign constituent company assigned as the substitute of its parent entity;
- the residence country of assigned foreign constituent entity requires CbCR to be submitted and has the qualifying competent authority agreement (“QCAA”) in effect with Indonesia; and Indonesia has access to acquire such CbCR; and
- such foreign constituent entity must also the sole entity for the purpose of CbCR submission in the relevant country.
Notification and CbCR Filling
Notification as ruled in Article 4 and 5 of PER-29 may aim to provide the information to DGT whether the domestic taxpayer can be regarded as the ultimate parent, or surrogate parent entity and whether such domestic taxpayer is eligible for CbCR obligation or not. Notification must be filled by corporate taxpayer which is a constituent entity or concluded the controlled transactions with its related parties.
As set forth in Article 5 of PER-29, notification contains declaration by domestic taxpayer concerning:
- identification of domestic taxpayer regarded as the parent entity;
- identification of domestic taxpayer not regarded as the parent entity;
- obligation statement of filling CbCR
In addition to notification, eligible taxpayer for CbCR obligation must also file CbCR attached with CbCR worksheet. The deadlines to submit notification and/or CbCR as ruled in Article 4 Paragraph (3) of PER-29 are:
a. at the latest sixteen months (16) after the end of fiscal year for 2016
b. at the latest twelve months (12) after the end of fiscal year for 2017 onwards.
Filling of notification and/or CbCR must be made through DJP Online or manual if DJP Online is inaccessible. For the submission of the CbCR and Notification, taxpayer will be given a receipt which can later be used as a substitute for the submission of CbCR in the CITR.
Additionally, taxpayers should prepare and submit the CbCR under the common schema e.g. in the format of Extensible Markup Language.
Treaty Partner Countries/Jurisdictions Announcement
For the purpose of determining whether domestic taxpayer is surrogate parent entity and required to file CbCR for its foreign parent, DGT will announce a list of partner countries/jurisdictions having the following agreement with Indonesia:
- Tax treaties;
- Qualifying Competent Authority Agreement (QCAA);and
- QCAA but the CbCR cannot be obtained.
Please refer to Indonesia’s DGT official website for the list of QCAA country members that will be published by the end of the year or anytime the list of country members are being updated. As per December 2017, Indonesia has already concluded bilateral agreement with 46 countries according to OECD’s website (https://www.oecd.org/tax/automatic-exchange/country-by-country-exchange-relationships.htm)