Taxation of Intercompany Financing

When:
Tuesday, 10 October 2017

Activity Time:
09.00 a.m. to 05.00 p.m

Where:
DDTC Academy
Menara Satu Sentra Kelapa Gading 5th Floor,
Unit #0501
Jl. Bulevar Kelapa Gading LA3 No.1 Summarecon
Kelapa Gading Jakarta Utara 14240

Investment:
IDR 3.000.000,-
(Click here for discount)

Background:
Different tax treatment among debt and equity creates a distortionary effect on financing decision. Financing strategy through debt is more preferable regarding to tax base reduction, and as a consequence, lower cost of capital. This is also supported by the idea of the optimal value cost of capital which can be measured through a weighted average of the cost of debt and cost of equity (weighted cost of capital), where cost of debt is considered after tax cost of debt. As a result, taxable firms will react by preferring more debt in their capital structure, particularly in the context of cross-border financing.

The idea of cross border excessive debt will be much more important if they take place within multinational enterprises (intra-group). With their common strategy and ability to coordinate under the same effective control, multinational enterprises would have the flexibility to build any debt scheme and to place debt in a high tax country. For instance, the use of hybrid financial instrument has gained significance in international finance, while thin capitalization and back to back loan has received attention from G20 countries on their BEPS project. Further, intercompany financing also received some attention from transfer pricing issues. Apart from the theory and intentional best practices, the seminar concludes with recent domestic law and how companies should comply with the rules.

Topics Covered:

• Tax debt bias and business behavior,
• Hybrid financial instrument,
• OECD/G20 BEPS Action 2 and 4,
• Thin capitalization and interest limitation rule,
• Debt to equity ratio vs. arm’s length capital structure,
• Arm’s length financing behavior and interest rate,
• Managing tax compliance toward DER rule in Indonesia.