Indonesia Expands Its Anti-Tax-Avoidance Measures: A Development to be Aware of in Tax Planning and Compliance

As readers may be aware, the Indonesian legislation has equipped the tax authority with several specific measures to combat tax avoidance practices, such as controlled-foreign corporation (CFC), transfer pricing, thin capitalisation, and indirect transfer of shares regulations. Nonetheless, these measures are insufficient in some circumstances to combat the ever-evolving creative tax avoidance schemes.

Now, the President has further empowered the tax authority by issuing new measures to combat tax avoidance practices under Government Regulation No. 55 of 2022 on Rules Adjustments in Income Tax ("Regulation"), which became effective on 20 December 2022. These measures include formalising the “substance-over-form” principle into a written provision.

Dissecting the Amendment to the Omnibus Law: Which Sectors are Affected and How?

Last November, the Constitutional Court declared Law No. 11 of 2020 on Job Creation or commonly known as the Omnibus Law as “conditionally unconstitutional” and gave the government two years to rectify the Law. While the Law will remain valid during this period, no implementing regulations can be issued.

On 30 December 2022, the government took a step to amend the Omnibus Law by issuing Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation (“Government Regulation”) to revise the Omnibus Law. In principle, the Government Regulation, which became effective immediately upon issuance, amended several laws that the Omnibus Law previously amended. However, after careful assessment, the changes under the Government Regulation are not too drastic, and the content of the Government Regulation is mainly similar to the Omnibus Law. In the Government Regulation, four sectors of the Omnibus Law were amended, namely: employment, tax, water resources, and halal products.

A New Rule Requires Importers of Software or Other Digital Products via Electronic Transmission to Fulfil Customs Obligations

Since 2006, parties importing intangible goods such as software or other digital goods via electronic transmission into Indonesia are required to fulfil customs obligations under Law No. 10 of 1995 on Customs as amended by Law No. 17 of 2006 (“Customs Law”). However, in reality, importers have been unable to comply with this obligation. Likewise, the customs authority has been unable to enforce this requirement due to the lack of procedural rules regarding how to submit customs declarations for importing software or other digital goods via electronic transmission.

To address the above issue, the Minister of Finance has enacted Minister of Finance Regulation No. 190/PMK.04/2022 on Release of Imported Goods for Use (“Regulation”), which sets out the procedural rules for submitting customs declarations for the importation of software or other digital goods via electronic transmission. The Regulation has taken effect on 14 January 2023.

Indonesia’s New Criminal Code Introduces Corporate Crime

On the heel of a lengthy debate and despite the controversy surrounding it, Law No. 1 of 2023 on Indonesian Criminal Code ("Law 1/2023") has been promulgated on 2 January 2023. Law 1/2023 replaces the previous Criminal Code, which dates to the Dutch colonial era.

 One notable change brought about by Law 1/2023 is the recognition of the concept of corporate crime in Indonesia. As many know, the old Criminal Code does not recognise corporations as legal subjects that can be liable for crimes. Indeed, the definition of criminal perpetrators was limited and confined to individuals, which means that typically, the management of a corporation will bear the criminal responsibility.

 The discussion in this Update will examine the concept of corporate crime in Indonesia under Law 1/2023.