Indonesian-Swiss MLA ACT to Minimize Tax Avoidance

JAKARTA. Another instrument to minimize the tax avoidance gap is owned by the Indonesian government, after on Tuesday (14/7) the House of Representatives (DPR) passed the Law on Ratification of the Agreement on Reciprocal Legal Assistance in Criminal Issues or Mutual Legal Assistance (MLA) between Indonesia  and the Swiss Confederation.

In fact, the MLA between the governments of Indonesia and Switzerland regulates the legal assistance that will be provided by the two countries in relation to the disclosure of cases involving a citizen residing in Switzerland or Indonesia. Including tracking, freezing to the confiscation and return of assets owned by Indonesian citizens stored in Switzerland.

Quoting Kontan.co.id, although the scope of this agreement is related to general criminal act, but if it turns out that it has to do with efforts to avoid tax by Indonesian citizens in Switzerland, it can be followed up by the tax authorities.

So far, Switzerland is indeed known as one of the tax haven countries or tax haven and is often used by many people to hide their assets from the pursuit of tax authorities. Switzerland is also known as the largest financial center in Europe and is supported by qualified information technology.

Thus, this collaboration is considered very strategic for Indonesia. Moreover, the Indonesia-Swiss MLA agreement does not apply retroactively, meaning that criminal acts that could have been done before this regulation was published could be revealed.

Completing AEoI

The existence of this agreement can later complement other instruments owned by the government in suppressing tax avoidance efforts, by moving assets or income to other countries (profit shifting). One of the instruments has been already owned is the automatic exchange of financial information or Automatic Exchange of Information (AEoI).

The MLA agreement between the two countries has gone through a fairly long process. Citing dpr.go.id, the two countries first conducted negotiation in the year 2015 and then the negotiation was completed in 2017 in Bern, Switzerland.   

Previously, Indonesia already had MLA agreements with several other countries, such as ASEAN, Australia, Hong Kong, China, South Korea, India, Vietnam, United Arab Emirates and Iran. Then, Indonesia has also been able to exchange information with 103 countries or jurisdictions that have activated the Mutual Competent Authority Agreement on the Automatic Exchange of Financial Account Information.
It is also important to remember that the efforts of various countries in the world in narrowing the tax avoidance gap still continued. By using a tax avoidance effort guide through Based Shifting (BEPS) Action Plan, a number of countries tightened their tax regulations, especially in terms of transfer pricing and various cross-border economic activities such as the digital economy.

The OECD also targets to complete the preparation of global consensus, related to taxation of digital transactions and earnings derived by digital companies with cross-border transactions by the end of 2020.