Page 7 - Newsletter (Recent Regulations on Tax Holiday Incentives and Super Tax Deduction for R&D Activities)

DDTC Newsletter Vol.04 | No.08 I October 2020 Page 7 of 13

Recent Regulations on Tax Holiday Incentives and
Super Tax Deduction for R&D Activities

government affairs in the field of science and This policy contains several important points in
technology conducts research on the conformity of implementing APA. First, Article 2 of PER-17/2020
the proposed R&D activities with the provisions of the outlines the procedures for applying for APA to the
proposal as referred to in Article 7 paragraph (2) and Director General of Taxes. This application may take the
the criteria in Article 4 of MoF Reg. 153/2020. form of a taxpayer’s initiative or written notification
from the Director General of Taxes in connection with
In the event that the Research and Development
the application for a bilateral APA submitted by a non-
activity proposal is declared to conform to or not in
resident taxpayer. Non-resident taxpayers may submit
accordance with the provisions, the taxpayer will
written applications for bilateral APA before the start
receive a notification via OSS for applications through
of the APA period at the latest.
OSS or notification letters if the applications are not via
the OSS system due to problems with the OSS system. Requirements in the proposed transfer pricing include
that it meets the arm’s length principle. The proposed
Next, taxpayers that have received notification that the
transfer pricing should not result in a lower operating
R&D proposal has met the provisions under Article 7
profit than the operating profit reported in the annual
paragraph (2) and Article 4 of MoF Reg. 153/2020 are
corporate income tax returns (Surat Pemberitahuan/
required to submit a report on R&D costs every tax
SPT) for the past 3 years.
year to the Director General of Taxes and the ministry
that organizes government affairs in the field of Regarding the APA application, the Director General
science and technology through OSS. of Taxes is to follow up on the application accordingly
and fulfill document requirements. Next, the Director
The R&D cost report must be submitted no later than
General of Taxes will also conduct APA negotiations
the filing of the Annual Corporate Income Tax Return
with the taxpayer or competent authority of the tax
for the tax year concerned. The R&D cost report is
treaty (Perjanjian Penghindaran Pajak Berganda/
submitted as per the sample Format of the R&D Cost
P3B) partner. If the bilateral APA application has been
Report Submission for each Tax Year as listed in the
negotiated through the Mutual Agreement Procedure
Appendix of MoF Reg. 153/2020.
(MAP) but has not resulted in a mutual agreement, a
request for MAP implementation may be renewed in
Taxpayers that perform R&D activities prior to the
the context of bilateral APA negotiations.
promulgation of MoF Reg. 153/2020 may also obtain
an additional gross income reduction of up to 200%.
The Director General of Taxes also establishes a
The additional gross income reduction may be
discussion committee to complete APA applications.
granted if the R&D results have not been registered
This committee is tasked with determining the
to obtain intellectual property rights in the form of
negotiating position, the scope of the agreement in the
patents or PVT rights and/or have not reached the
APA negotiations, approval of the renewal of the MAP
commercialization stage. request in the context of bilateral APA negotiations,
and cancellation of the agreement in the APA.
Procedures for the Completion of As per Article 2 paragraph (8) of PER-17/2020,
taxpayers also have the right to revoke APA applications.
Applications, Implementation, and In the event that the application for bilateral APA is
Evaluation of APA withdrawn, the competent authority of the tax treaty
will notify in writing that the APA negotiations cannot
be followed up.
The Director General of Taxes has issued a regulation
on the procedures for completing applications,
Second, Article 3 outlines the research to fulfill the
implementing, and evaluating Advance Pricing
provisions of the proposed transfer pricing in the APA
Agreement (APA). This policy is outlined in the
application. The Director General of Taxes delegates
Director General of Taxes Regulation No. PER-17/
the research to the Director of International Taxation.
PJ/2020 concerning the Procedures for the Completion
The research is aimed at determining the terms of
of Applications, Implementation, and Evaluation of
the transfer pricing that does not result in a lower
Advance Pricing Agreement (PER-17/2020). This
operating profit.
policy is an implementing regulation of the Minister of
Finance Regulation No. 22/PMK.03/2020 concerning This is confirmed by comparing the lowest profit rate
Procedures for the Implementation of Advance Pricing in the projected financial statements for the APA period
Agreement. which is greater than or equal to the lowest profit rate