Technical Guidelines for The Indonesia-Japan MLI Agreement Will Be Released Soon

Friday, 19 June 2020

Technical Guidelines for The Indonesia-Japan MLI Agreement Will Be Released Soon

JAKARTA. As an effort to reduce or prevent the practice of Base Erosion and Profit Shifting (BEPS) through misuse of the Double Taxation Avoidance Agreement (P3B) or Tax Treaty, the Indonesian government has ratified the Multileral Instrument (MLI).This is stated in Presidential Regulation No.  77/2019 concerning Ratification of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI). 

Indonesia has registered 47 tax treaty to be modified through the MLI instrument. Until now, there have been 21 jurisdictions that have ratified their MLI with Indonesia, including Japan. Related to this, recently, the Japanese Ministry of Finance released a tax treaty document between Indonesia and Japan that has been modified in accordance with MLI. This document was prepared on the basis of the reservations and notifications submitted by the two countries to the Secretary-General of the Organisation for Economic Co-operation and Development (OECD) which act as Depositary. 

However, it was emphasized that the document was only to facilitate understanding regarding the application of MLI between the two countries, so it was not a source of law. The authentic texts of the tax treaty agreement and the MLI are the only legal texts applicable. In the document, there have been some changes to the language terminology of the MLI provisions, but did not change the substance.

The Governments of Japan and Indonesia have already submitted the MLI instrument of ratification on 26 September, 2018 and 28 April, 2020, to the OECD. Therefore, MLI came into force for Japan on 1 January 2019 and will be valid for Indonesia on 1 August 2020.

Regarding the matter, the government of Indonesia in this case the Directorate General of Taxes (DGT) said they would do the same thing as Japan. Director of International Taxation DGT, John Hutagaol said, if the tax treaty that has been renewed through the MLI mechanism which has been effective, the DGT will issue a Circular Letter (SE). "It (SE) will be a technical guide for its implementation. So it is more or less the same as what Japan did," he said, in Jakarta (18/6).

John explained, the Convention on Implementing the Tax Treaty Related Measures to Prevent BEPS or abbreviated MLI is a multilateral instrument used to adopt BEPS Actions Deliverables related to tax treaty, namely BEPS Action 2 on hybrid mismatch arrangements, Action 6 on treaty abuse, Action 7 on Artificial  Permanent Establishment and Action 14 Dispute Resolution-Mutual Agreement Procedure / MAP. The purpose of MLI is to modify the tax treaty in a synchronized and efficient manner by immediately adopting anti BEPS provisions, as well as streamlining and simplifying the tax treaty amendment process both in terms of time and cost. (Ken) 


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