Page 3 - Newsletter (The Terms of Service of The DGT and Tax Court Temporary Suspension in Response to COVID-19)

DDTC Newsletter Vol.03 | No.06 I March 2020 Page 3 of 8

The Terms of Service of The DGT and Tax Court

Temporary Suspension in Response to COVID-19

Promulgated on 17 March 2020, this regulation has come transfer of assets received by an entity in
into force thereof until further policy or statement. exchange for shares or capital contribution as
outlined in Article 4 paragraph (3) subparagraph
DGT’s Valuation of Taxpayers’ c of the Income Tax Law.
Transactions and Data 4. Transactions of which the value must be based on
arm’s length market prices. In the case of the supply
of Taxable Goods or Taxable Services between
The Director General of Taxes has released a circular
related parties, the provisions will refer to Article 2
stipulating transactions or data requiring valuation from
paragraph (1) of the Value Added Tax (VAT Law).
the Directorate General of Taxes’ (DGT) valuation team.
Valuation is a series of activities carried out by the DGT 5. Transactions of which the value is based on the
on taxpayers to determine a certain value of a valuation limit price as stated in Regulation of the Minister
object at a certain time. of Finance Number 24/PMK.03/2008 concerning
the Procedures for Tax Collection with Distress
Valuation under this regulation is performed to
implement the legislative provisions in the field of Warrant and Immediate Tax Collection (MoF Reg.
No. 24/2008) as amended by Minister of Finance
taxation, including arm’s length analyses, which are
carried out objectively and professionally. Taxpayers, Regulation Number 85/PMK.03/2010 (MoF Reg.
No. 85/2010).

thereby, should be cognizant of what specific values may
be assessed by the DGT with regard to taxation objectives. 6. Transactions of which the value is based on the
results of the valuation conducted by the DGT,
The description of data or transactions requiring
among others, the calculation of the value of net
valuation is outlined in the Director General of Taxes
assets other than cash to implement Law Number
Circular Number SE-05/PJ/2020 concerning Procedures
11 of 2016 concerning Tax Amnesty.
for Valuation for Taxation Purposes (SE-05/PJ/2020).
This regulation was issued to optimize the valuation for Further, the regulation outlines that three other data
taxation purposes. may indicate non-arm’s length dealings thereby the DGT
Under this regulation, transactions that require valuation may conduct a valuation of the dealings in question.
First, data indicating a non-arm’s length acquisition price
are those that, according to tax statutory regulations,
are required to use a certain value. In further detail, 6 or the remaining of the book value of tangible assets
affecting the depreciation costs referred to in Article 11
transactions require a valuation, as below.
of the Income Tax Law.
1. Transactions of which the value is based on the
amount that should be paid or received in the case Second, data indicating non-arm’s length acquisition
price or the remaining of the book value of intangible
of purchase and sale of assets between related
parties as stipulated in Article 10 paragraph (1) of assets affecting the amortization costs referred to in
Article 11A of the Income Tax Law.
the Income Tax Law.
Third, data indicating non-arm’s length income from
2. Transactions that must be based on the market
asset transfer transactions of land and/or buildings,
price, in terms of;
construction service businesses, real estate businesses,
a. the replacement of assets as regulated in Article and leasing of land and/or buildings subject to Article
10 paragraph (2) of Income Tax Law; and/or 4 paragraph (2) subparagraph d of the Income Tax Law
b. acquisition or transfer of assets in the case of final withholding tax.
liquidation, merger, split-up, spin-off, spin-off, The regulation also sets forth that the valuation may
split-off, or taking over of a business, unless be carried out if there are taxable objects for land and
otherwise determined by the Minister of Finance building tax for the sectors of mining, plantation, and
as stipulated in Article 10 paragraph (3) of the forestry that require field valuation.
Income Tax Law.
In addition, this regulation specifies the triggers for
3. Transactions of which the value must be based on valuation on transactions and data. These triggers are
market value, in terms of: classified based on work units and consist of three work
units thereof, i.e. the Tax Office (Kantor Pelayanan Pajak/
a. transfer of assets as referred to in Article
10 paragraph (4) of the Income Tax Law, i.e. KPP), the Regional Office of the Directorate General
of Taxes, and the Directorate of Extensification and
the transfer of gifts that does not meet the
requirements set forth in Article 4 paragraph (3) Valuation.
subparagraph a of the Income Tax Law; Triggers within each work unit differ. In summary, the
types of triggers of the valuation by each work unit can
b. transfer of assets as referred to in Article 10
paragraph (5) of the Income Tax Law, i.e. the be seen in Table 1.