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BRIEF REVIEW ABOUT "RELATED PARTIES"

Rule Section 18 sentence ( 4) Income tax [Code/Law]

Problem " related parties" tightly of its(the relationship with proper price pixing problem ( arm's length price), if an transaction of indication contains atypical conditions as have done party(sides that is is not is influenced " related parties". Therefore jargon " related parties" need to be given constrain as bottom to fiskus does proofreading to transaction happened between the party(sides in the case of its(the transaction not arm's length.

Cognition " related parties" formulated in Section 18 sentence ( 4) Income tax [Code/Law], which its(the formula is as follows:

"4. Related parties as referred to at sentence ( 3), Section 18 sentence ( 4), Section 9 sentence ( 1) letter f, and Section 10 sentence ( 1) assumed there is if:

a. Taxpayer has indirect or direct investment equal to 25% or more at other taxpayer, or relation between taxpayer with investment of 25% or more at two taxpayers or more, and so do relation between two taxpayers or more so-called last; or

b. Taxpayer masters other taxpayer or two or more taxpayer below the same domination either direct and also indirect; or

c. There is blood relation either as of blood and also matrineal in right descendant and/or kesamping one degrees."

Related parties as mentioned in above c letter will not be discussed in this article. Solution will be dititikberatkan to rule of letter an and b.

Sentence rule ( 4) letter a requires existence of investment of legal capital equal to 25% or more, and from the aspect of its(the applying approach this thing is enough transparents.

Sentence ( 4) letter ( b) applies test " domination ( control)" which in explanation of from the section include;covers two things that is pengusaan through management and technology usage. However cognition " domination through management" and " technology usage" is not elaborated furthermore. This thing will cause the happening of difference of interpretation between taxpayers with fiskus.

OECD ( Organization for Economic Cooperation and Development) Model

OECD MODEL formulates this related parties in the relation with proper price pixing ( arm's length) by giving directive that there is participation in management area, control and legal capital either directly and also indirect. However the jargons is not given constrain that is clear. For sharpness let us corrects reading rule sound arranged in OECD Model Pasal 9:

“Article 9 – Associated enterprises

1. Where

(a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or
(b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,

and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then .......”

Requiring above rule existence of participation in management area, control or legal capital, either directly and also indirect.

Participation is area " management" as formulated to be above also invites some questions. Does test to detect existence of related parties requires that the " manager" is involving in a transaction is being in research must same. Or can be told that if two or more company is assumed to has related parties if the its(the managers having blood relation, for example its(the old fellow and children, or you contains.

Jargon " domination" ( control) cans be in the form of " de facto control" atau"de jure control". De facto control is not difficult is diditeksi by its(the measuring rod explains that is level of investment in other company.

While " de jure control" covers authority owned by one of company to determine policy and decisions related to monetary policys and operational. Becoming problem is determine limits " de jure control" this.

In context Perjanjian Penghindaran Pajak Berganda ( P3B), jargon Used in by depth, which is not is given [by] definition hence the jargon is given [by] meaning pursuant to domestic of state executing P3B [ Section 3 sentence ( 2) Model OECD]. Rule Section 3 sentence ( 2) from OECD Model is as follows:

“2. As regards the application of the Convention at any time by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning that it has at that time under the law of that State for the purposes of the taxes to which the Convention applies, any meaningunder the applicable tax laws of that State prevailing over a meaning given to the term under other laws of that State.”
In OECD MODEL cognition " management" and " control" is not given definition.

If corrected reading [by] above rule hence in the case of there is P3B referring to the determining existence of related parties, hence from the aspect of Indonesia approach, pengeritian about " participate in control and management" must refer definition based on domestic [code/law].

As told above explanation of from Section 18 sentence ( 4) hardly minim, because doesn't elaborate furthermore cognition from the jargons.

Based on explanation of the sentence is domination through technological usage also is indication there is of related parties. Goods has of course this test must be applied together with other test because technological usage in a transaction which arm's length earns is just happened.

Comparison with other nations

It is better is corrected reading rule embraced in some states in the relation with cognition about " related parties", the always tightly related to fair price pixing to transactions happened between the party(sides.

" Australian:

i. the relation of domination is not required,

ii. order transfer of pricing also applicable to transactions with aim to tax evasion tax avoidance or.

" Brasil:

i. not necessarily there are investment; exclusive agent, distributor or dealer for purchasing or sale of merchandise property of company, services and rights;

ii. relationship done is continuous with company livinging in nations with lower rate from 20%.

" Dutch: follows formula Section 9 sentence ( 1) OECD MODEL.

" Germany:

i. Investment which substansial ( minimum of 25%);

ii. Has influence to do control;

iii. Having importance to income from other company.

" India:

i. Produces and process goods by a company, a real depends on to usage of intelectual property property of other company;

ii. 90% or more raw material and goods used by dipasok by other company, also determines the price.

" Japan:

i. There is ownership of either direct and also indirectly minimum 50% from its(the stock.

ii. One of company senentukan company policy can be other in substansial.

In OECD MODEL cognition " management" and " control" is not given definition.

If corrected reading [by] above rule hence in the case of there is Acceptance of Doubled Tax Avoidance referring to the determining existence of related parties, hence from the aspect of Indonesia approach, pengeritian about " participate in control and management" must refer definition based on domestic [code/law].

As told above explanation of from Section 18 sentence ( 4) hardly minim, because doesn't elaborate furthermore cognition from the jargons.

Based on explanation of the sentence is domination through technological usage also is indication there is of related parties. Goods has of course this test must be applied together with other test because technological usage in a transaction which arm's length earns is just happened.

Comparison with other nations

It is better is corrected reading rule embraced in some states in the relation with cognition about " related parties", the always tightly related to fair price pixing to transactions happened between the party(sides.
 
   * Australian *

the relation of domination is not required,
order transfer of pricing also applicable to transactions with aim to tax evasion tax avoidance or.

   " Brasil *

not necessarily there are investment; exclusive agent, distributor or dealer for purchasing or sale of   merchandise property of company, services and rights;
relationship done is continuous with company livinging in nations with lower rate from 20%.

* Dutch: follows formula Section 9 sentence ( 1) OECD MODEL.

    " Germany *

Investment which substansial ( minimum of 25%);

Has influence to do control;
- Having importance to income from other company.

    * India *

Produces and process goods by a company, a real depends on to usage of intelectual property property of other company;
90% or more raw material and goods used by dipasok by other company, also determines the price.

   " Japan *
There is ownership of either direct and also indirectly minimum 50% from its(the stock.
One of company senentukan company policy can be other in substansial.

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Prevention of double non-taxation in P3B Indonesia

a) Treatment of tax to loss from form of permanent business

Prevention the happening of double non-taxation is concerning " form of permanent business" can be met in P3B with Belgia. Like known Belgia to embrace method " exemption with progression" to eliminate imposition of doubled tax. On that account in the case of a " form of permanent business" is residing in Indonesia from company Belgia, suffers lost hence the loss must be make-good in Indonesia to operating margin from its(the activity. Treatment of this operating margin based on legislation rule of tax [shall] no longer obtain special treatment ( exemption) since have already been make-good with loss before all.

b) Retired and alimoni

In P3B with Denmark is mentioned in Section 18 ( 3) that payment of alimoni from one of state to other state tax subject only taxed in that other state, as long as receiving it is the state tax subject. The rule arranges that based on P3B with Denmark, freehold asset pemajakan to alimoni paid from one of state only be hit tax is state [by] where its(the receiver livings, on the promise that receiving is tax subject. With other word, if simply alimoni receiver is non tax subject hence state source of [is] entitled to synchronized of tax. This thing to prevent the happening " double non-taxation".

The same rule also is met in P3B with Canada.

c) Professor and teacher

In P3B Australia it is arranged that ordinary professor or teacher, livinging in one of state, does activity to teach it in other state, struck from imposition of tax in that other state for a period of 2 year. However exemption in the source state applied if in the fee domicile state is hit [by] tax. Thereby, if in fee domicile state from teaching is not hit tax hence state source of [is] entitled to synchronized of tax to the fee.

The same rule can be met in P3B Denmark in Section 21(1) and P3B Selandia Baru in Section 20(1).

Conclusion

a) Problem double non-taxation arises, in the relation with a P3B, because law and regulation of one of state doesn't synchronized of tax to a production type. If in a P3B it is arranged that freehold asset pemajakan to a production type only be given to domicile state, hence state source of may not synchronized of tax to the production. If domicile state gives special treatment to the production that is struck from imposition of tax hence in P3B need to be given covenant that production obtained from state source of freed [by] only if in production domicile state of sulfur is hit [by] tax.

b) Double non-taxation can happened because that thing of course becomes policy of one of state. Example for this problem is if one of state give taxation incentives in the form of tax holiday. This incentives will be enjoyed by investor only if tax freed in state source of also is freed in domicile state. In the case of that way of course happened double non-taxation.

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Side that, there are still one covenants again which must be fulfilled in the case of applying P3B, that is body or people tax subject must in one of state ( resident). Doube non-taxation there will be if there is certain tax subject struck from by imposition of tax. Pursuant to which now applies, Income tax [Code/Law] doesn't give Iiberation to certain tax subject. The in inviting Income tax is someone is not be obliged to pay [for] income tax if(when its(the production doesn't exceed storey " production doesn't hit tax".

If a certain body struck from imposition of tax pursuant to [code/law] a state hence the body shouldn't enter in category " resident" as arranged in Section 4 sentence ( 1) OECD MODEL. In the case of that way hence if the body receive Indonesian production and hit [by] tax hence will not happened double non-taxation.

In practicing, to enjoy the rule in P3B someone or body must can show domicile letter ( certificate of residence), as evidence the respected fulfills criterion " liable to tax".

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From the aspect of Indonesia approach, basically the happening of double non-taxation will not happened remembers Synchronized income tax invitors of tax to all production types, except if(when Indonesia still giving incentives in the form " tax holiday". And so do if seen from the aspect of tax subject approach, there is no tax subject struck from by imposition of income tax.

To prevent the happening of double non-taxation, approach gone through in outline P3B in the form of addition of covenant like for example " subject-to-tax provisions".

This article will comment rules in P3B which has applied, with aim to avoid the happening of double non-taxation.

Principal applying in OECD Model to prevent " non-taxation

Like known, one of covenant that personal someone or body [is] entitled to to treatment of tax in P3B is if people or the body

be man which is mandatory pays [for] tax in its(the state ( liable to tax). Interpretation from " liable to tax" must be given widely. Mean if a body build in Indonesia then in a year book suffers hit, the body still entering in category " liable to tax", as according to criterion arranged in inviting Income tax. Hit suffered in a year can be make-good with income in the next year. This thing indicates that the body fulfills criterion " liable to tax".

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PROBLEM " DOUBLE NON-TAXATION" IN ACCEPTANCE of DOUBLED TAX AVOIDANCE INDONESIA

Problem double non-taxation in the relation with Persetujuan Penghindaran Pajak Berganda ( P3B), closely related with law and regulation rule in one of state, what gives special treatment to a certain production type. Like known, intention from signed [by] it a P3B is prevent imposition of doubled tax, do not create situation that to enable the happening of double non-taxation.

The happening of double non-taxation, usually in consequence of treatment of tax to a production type which its(the pemajakan freehold asset resides in domicile state, while domicile state x'self doesn't synchronized of tax to the production. This thing is not quit of of taxation policy of each state. For example, in some pension states received by the state subject was not hit tax again. If for example the relation of job(activity during the before pension entangles two states and in state source of of from the pension doesn't synchronized of tax, although paid to the order of overseas tax subject hence which there will be is double non-taxation. Sometimes double non-taxation designedly is given by with reference to incentives given to investor for the agenda of pushing investment. Double non-taxation can happened if one of state to give tax facility in the form " tax holiday", and state where investor livings gives " tax sparing".

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RECOMMENDATIONOECD FISCAL COMMITTEE CONCERNING "CONDUIT COMPANIES"


Usage " conduit companies" by multinational corporations has become part of tax its(the planning. Usually " conduit companies" build in nations tax haven or state which its(the tax rate is low relative. In the relation with tax planning, conduit companies might possibly be build in nations having treaty net work, as a mean to obtains benefit from a tax treaty. Like known [by] law and regulation in some states enables conduit companies considered as taxpayer in country ( resident taxpayer) in its(the state. If conduit companies resides in state having treaty net work which is wide enough hence conduit companies can be exploited by company or people for the agenda of tax planning. In the case of that way " conduit companies" can be conceived of " stepping-stone companies".

This problem has become attention from OECD Fiscal Committee in its(the relationship with effort prevents the happening " harmful tax practice".

How is it preventable passed acceptance of doubled tax avoidance ( P3B)? Which during the time has been done in the effort preventing them which shouldn't [is] entitled to to treatment based on P3B, be by applying concept " beneficial owner" what applied to production in the form of interest, dividend and royalty, although still have not adequate.

Some approachs to the problem has on the market by OECD Fiscal Committee, shortly is elaborated hereunder.

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Look-through approach

Prevents that conduit companies cannot enjoy facility Acceptance of Doubled Tax Avoidance, basically is gone through by adding additional covenant that company livinging in state P3B to have shareholder which is state tax subject ( resident taxpayer).

With other word, if company in one of state ( what has P3B) owned or mastered by people or body which is not tax subject one of state hence the company [have] no business be considered as tax subject ( tax resident) as referred to in Article 4 ( Resident) from Acceptance of Doubled Tax Avoidance, that is rule arranging about people or body included by the P3B. Formula from Article 4, based on OECD Model and also United Nations Model ( UN MODEL) be as in under this: