asia tax forum may 9-10, 2012 – raffles, singapore country developments south east asia panel

Asia Tax ForumMay 9-10, 2012 – Raffles, SingaporeMay 9-10, 2012 – Raffles, Singapore

Country developments

South East Asia Panel

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Permana Adi SaputraTaxand Indonesia

Indonesian Scenario

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Tax Challenges in an Age of Scrutiny


Tax Avoidance, Tax Audit, and Tax Incentives

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How Tax Avoidance is Tackled

Determination of dividend of an Indonesian tax payer in relation to its shareholding in a foreign company. (Article 18 par. 2 Income Tax law No. 36/2008 and Minister of Finance Regulation No. 256/PMK.03/2008)

Controlled Foreign Company

Indonesian Tax Office has an authority to re-determine debt as capital

Thin capitalization

Indonesia has signed 61 tax treaties, including the new tax treaty with Hong Kong that will be effective in Indonesia on 1 January 2013DGT issued a DGT-form to provide certainty in applying the tax treaty (Per 61/PJ/2009 and amended with Per 24/PJ/2010)

Treaty shopping

Regulation regarding the application of ALP (Per 43/PJ/2010 as amended by Per 32/PJ/2011) Exchange of Information

Transfer pricing


Challenges and Issues in Audit Process

Tax audit is focused on certain industries:

Mining, palm oil, mass media, chemical, automotive, construction, wholesaler, bank and insurance, real estate, consultancy, processing industry

Individual tax payers are also the focus of tax audit:

Tax consultant, lawyer, notary, and tax payer who has relation with a company which is being or has been audited

Tax audit can be made in the last 5 years, however the tax payer must keep documentation for 10 years

Duration of audit process

Normal audit is 8 months, transfer pricing is 24 months, and gathering / examination of preliminary evidence for a tax criminal case has practically no time limit

Verification is the new audit procedure in Indonesia

Tax revenue target for 2012 is IDR13.30 trillion (US$1.46 billion)


Tax Incentives to Encourage Investment

If the taxpayer already has a tax facility, the tax payer can not propose to get tax holiday

Tax holiday for new capital investment in pioneering industrial sectors

Industries: base metal, oil refinery and base organic chemical, machinery, renewable energy, telecommunication equipment

Corporate income tax holiday for 5 to 10 years after the start of commercial production; 50% income tax reduction for two years after the end of the tax holiday period; a maximum dividend tax rate of 10%

Tax facility for certain industries in certain locations

Accelerated depreciation

Loss compensation of not more than 10 years

10% dividend tax rate

Reduction in net income by 30% of the investment value


Indonesia’s New Transfer Pricing Regime

9

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Authority in Making Adjustments

Article 18(3) of Income Tax Law No. 36/2008 regarding related-party transactions states as follows:

The Director General of Taxes shall be authorized to re-determine the amount of income and deduction as well as determine debts as capital to calculate the amount of taxable income for Taxpayer possessing special relationship with another Taxpayer, in accordance with the Arm’s Length Principle by using the Comparable Uncontrolled Price method, Resale Price Method, Cost Plus Method or other methods


Definition of Related Party

Based on Article 18 (4) part a, b, c of Income Tax Law No. 36/2008, special relationship between tax payers exists under the following circumstances:

Taxpayer has capital participation directly or indirectly, a minimum of 25% (twenty five percent) at another Taxpayer (one or more Taxpayers); or

Taxpayer controls another Taxpayer or two or more Taxpayers are under the common control directly or indirectly; or

There is family relation both biologically and by marriage in vertical and / or horizontal lineage of the first degree


Related Party Transactions

The types of related party transaction to be disclosed in the Corporate Income Tax Return consist of:

Transactions involving Tangible Properties

Transactions involving Capital Goods

Transfer / Utilization of Intangible Properties

Loans

Transfer of ServicesTransfer / Acquisition of Financial Instruments

Cost Allocation Others


Related Party Transactions

Transfer Pricing Documentation is required for the following:

Transactions between a tax payer or Permanent Establishment in Indonesia, and a taxpayer outside Indonesia

Transactions between two tax payers or Permanent Establishment in Indonesia that are subject to different tax rates due to, among others:

Imposition of final and non-final income tax in certain business sector

Imposition of sales tax on luxury goods

Transactions conducted with a taxpayer-contractor under an Oil & Gas Cooperation Contract


Safe Harbor

Transfer Pricing Documentation is not required for related party transactions with total value not exceeding IDR10 billion (approximately US$1.1 million) in one fiscal year for each counterparty

Note: Transactions below the threshold limit

Must still be disclosed in the Corporate Income Tax Return

Must still comply with the arm’s length principle

May still be the subject of a tax audit


Selection of Transfer Pricing Methods

The hierarchical application of Transfer Pricing methods has been replaced with the ‘most appropriate method’ approach

Transactional Net Margin Method (TNMM) is no longer the last-resort method and can be appropriately applied if one of the transaction parties performs either special contribution or complex / closely linked transactions


Intangible Assets

Intangibles are assets which generally have long useful life, have no physical form, are used in business operation, and are not for resale

Intangible assets can be classified as:

Marketing Intangibles(e.g. trademark, trade name)

Trade Intangibles(e.g. patent, know-how)


Obligation to Submit TP Documentation

Submission of Transfer Pricing Documentation along with the Corporate Income Tax Return (four months after fiscal year-end with two months extension) is required

No specific penalty shall apply in case of failure to comply with the above


Transfer Pricing Penalties

Administrative sanction in the form of interest at 2% per month for a maximum of 24 months on the amount of tax underpayment in the Tax Assessment Letter (SKPKB)

No specific Transfer Pricing

penalties

The following penalties apply in case of non-payment of tax or tax underpayment arising from Transfer Pricing adjustments


Mutual Agreement Procedure (MAP)

The Indonesian Tax Authority issued in 2010 the regulation regarding procedure in applying for a MAP

MAP application can be processed simultaneously with the filing of objection or appeal


Advance Pricing Agreement (APA)

The Indonesian Tax Authority issued in 2010 the regulation regarding procedure in applying for an APA

Important provisions in the APA regulation:

Validity Period is three (3) years

Submit of annual compliance report is required

Tax payer’s documents and information during the APA process shall remain private and confidential


Thank you


Euney Marie J. Mata-PerezTaxand Philippines

Philippines Scenario

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Exchange of Information Regulations

Overview

No consolidated rules on anti-tax avoidance

Revenue drivenSource of rules:

Legislation

Regulations issued by the Commissioner of Internal Revenue

Court decisions


Exchange of Information Regulations

Access of Taxpayers Information

RA 10021: exchange of Information Act of 2009

Prior to RA 10021: authority of the CIR to inquire into taxpayer’s bank deposits is limited to two grounds:(1) determining estate of a decedent, and (2) when taxpayer files an application for compromise. (Exceptions to Bank Secrecy Act)

New ground: a taxpayer subject of request for supply of tax information from a foreign tax authority pursuant to an international convention or agreement


New Tax Treaty Relief Procedures

Prior Tax Treaty Relief Application

Filing of Tax Treaty Relief Applications (TTRA) is mandatory before a transaction

Before the occurrence of the first taxable event

Failure of observe the period shall have the effect of disqualifying the TTRA

But the BIR does necessarily act on the application, so doubt on interpretation remains


New Additional FS Disclosures

Additional Disclosure Requirements - FS

Disclosure on information on taxes, duties and license fees paid or accrued during the year in the audited financial statements (2010)

Some implications:

Entail additional administrative burden

Premature or untimely disclosure of assessments and pending cases


Supplemental Information Return

Additional Disclosure Requirements - ITR

Additional disclosures to the ITRS:Requiring information on passive and tax exempt income

Includes final taxes withheld on each type of income

Basis for exemptions clearly indicated

Difficult to comply and implement

Additional attachment to ITRs of individuals


Allocation of costs and expenses amongst income earnings of banks and financial institutions

Promulgation of Allocation Rules

Prescribed methods:Specific identification

Allocation based on gross income earnings

Rules on the allocation of costs and expenses among the income earnings of banks and financial institutions


Refusal to issue rulings that these are exempt

VAT on tax-free transfers

Review/Reversal of Previous Interpretations

Upstream mergers

Further control in a tax-exempt transfer to gain control no longer tax exempt


Taxpayer Monitoring

Requiring withholding agents to apply for TIN on behalf of non-resident aliens not engaged in trade or business in the Philippines

Benchmarking

Matching

Improvement of data capturingMachine readable returns

Additional disclosures


Challenges/Issues in Audit Procedures

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Audit Challenges

Over-riding

Persistent call for the Commissioner of Internal Revenue to meet increasing targets

New Interpretations on Prescription

Technicalities on VAT refunds (Aichi case)

Failure to indicate details of the transaction in the required return is tantamount to a non-filing of return (10 years)


Audit Challenges

Authority to receive assessment noticesNo case or regulations address the issue on the authority of a corporation’s employee to receive assessment notices for purposes of due process

Stricter rules on evidence

Due process

Assessment of tax-exempt entities who are making profits


Incentives to Encourage Investments

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Incentive Laws

RA 7916, Special Economic Zone Act of 1995 (PEZA)

EO 226, Omnibus Investments Code (BOI)

RA 7227, Bases Conversion & Dev. Act (BCDA)

Tourism Act

180 other laws

No new laws

Existing laws


General Incentives

Income tax holiday

5% tax on gross income, in lieu of other taxes

Exemption from duties and taxes on importation of capital equipment and raw materials

Exemption from local taxes except real property tax

Net operating loss carry-over


Others

Relaxation of nationality restriction

Generally, foreign ownership in all forms of gambling is limited to 40%

2011 list added an exception: except those covered by investment agreements with PAGCOR operating in ecozones administered by PEZA

Inclusion in the Investments

Priorities Plan

Amendment to the Negative List


Recent Developments

House Bill 4935

Creation of an Investment Promotion Action Center at the Board of Investments

Various Senate Bills – for harmonization

DOF Version

Limited scope and period of incentives

Proposed reduction of VAT from 12% to 10%

Harmonization of Incentives


Thank you


Chinapat VisuttipatTaxand Thailand

Thailand Scenario

www.taxand.com


Overview

No specific rules on anti-tax avoidance

Source of rules:

Tax competition in the region

Civil and Commercial Code

Tax Legislations

Court Decisions


Integrating System Among Three Tax Authorities

Integration with E-filing

Bank transactions and records

Reconciliation via online data of tax filings

The Customs Department

The Revenue Department

The Excise Department


Transactions in Focus of Tax Authorities

Cross-border transactions among related parties

Royalties transactions

Complicate and unexplainable transactions

Management and consultingservices

Import of goods with separation of license

Cost allocation and reimbursable expenses


Anti-avoidance Tools Under Consideration

Transfer pricing

Controlled foreign company

Thin capitalization

General anti-avoidance rules

Treaty shopping


Challenges and Issues in Audit Procedures

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Challenges in Audit Process

When taxpayers are the winner in game

Nike’s case (customs issues on license fee)

Halliburton’s case (taxpoint on profit remittance)

What if they lost the game

Pizza Hut’s case (royalties taxed on marketing)

ABB’s case (withholding tax on subsidy fund)

SGS’s case (VAT 0% on export of service)

Time / cost and opportunity to play in the game of tax audit


Issues in Audit Process

Tax refund or not refund

Personnel in audit process: Put the right man on the right job

Share premium is not a safe-habor

NEC’s case (tax on deemed subsidy)

Oxychem’s case (tax on deemed subsidy)


Incentives to Encourage Investments

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Incentive Laws and Tax Privileges

Investment Promotion (BOI): Tax and non-tax

3/5/8 years tax holiday

Land ownership

Foreign business restriction

Work permit and visa for expat

Revenue CodeROH / IPC

Entire business transfer / Amalgamation


Recent Developments

Corporate tax rate reduction from 30%To 23% in 2012

To 20% in 2013 and 2014

Personal tax rate reduction from progressive tax rate 10-37% to 10-35% will be enacted in 2012

AEC full entry in 2015Free flow of capital and labor


Thank you


Morrie ChengSun Life Financial, Asia-Pacific Head of Tax

In-house perspective


Euney Marie Mata-PerezTaxand Philippines

Doing Business in the Philippines: Business Process Outsourcing (BPO)

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Business Process Outsourcing (BPO)

BPO Background

BPOincludes

Information and communications technology (ICT)

Contact centers

Business/knowledge process

outsourcing

Software development;

animation

Data transcription

Engineering design

ICT support services


BPO Background

Governing Law

Foreign Investments Act of 1991

General policyNo foreign equity restriction for export enterprises

Allows 100% foreign ownership in domestic market enterprise (except those included in negative list)

BPO/IT business can be 100% foreign-owned as an export enterprise


BPO Background

Foreign Investments Act of 1991

General Policy:BPO/IT business can be 100% foreign-owned as an export enterprise

Common forms of business presence

Branch

Subsidiary


BPO Background

Volume

2011: US$11 Billion in revenues in Philippines

638,000 or 22% more employees in the same period

24% higher in 2010; 21% growth in 2011

By the end of 2011

416,000 employees

US$7.4 billion in services to the world

Largest contact center hub in the world

Remained largest sector of Philippines IT-BPO at 65% of total industry


Growth Potential

By 2016 (according to BPAP):

Philippine IT-BPO could more than double to US$25 billion

Equivalent to 10% share of global market

BPO Background

To meet goal, industry must:

Accelerate its talent development initiatives

Obtain stronger government support

If achieved, IT-BPO industry could employ up to 1.3 million Filipinos and account of 9% of GDP


BPO Background

Competitive Advantages

Global leader in voice BPO (over 340,000 employees)

No. 2 destination for non-voice IT-BPO services (over 200,000 employees)

Low infrastructure and labor costs (up to 80% less than in developed countries)

Large pool of college graduates each year (over 400,000 graduates)

Good English-speaking skills (over 70% of college graduates speak English)


BPO Background

Competitive Advantages

Young and fresh talent pool

Large developed Central Business Districts suitable for BPOs (2 million square kilometers leased to BPOs)

Customer-centric, warm, and hospitable culture (positive customer feedback)

Strong government and academe support (training and curriculum support)

Various investment incentives


Incentives

Source of Incentives

Omnibus Investments Code (EO 226)

Special Economic Zone Act of 1995 (PEZA Law)

Bases Conversion and Development Act of 1992 (BCDA Law)


BOI Incentives

2011 Investment Priorities Plan includes BPO activities, information technology (IT), and IT-enabled services

IPP: minimum investment cost of USD2,500 per seat, for contact center project

Covers cost of equipment, fixtures and fixed assets, except land

ICT Projects with project cost of USD5 million in the initial year qualifies for pioneer status

Incentives


Current Issues

PEZA

BPO using e-commerce may be registered with PEZA for enjoyment of incentives under the PEZA law

Must be located in an ECOZONE (including buildings)

At present, majority of the firms in the ICT industry are PEZA-registered

As of March 2012, there are 159 PEZA-registered IT Parks/Centers


Current Issues

PEZA incentive of 5% on gross income

BIR has issued a ruling that royalties are not deductible from gross income

Allowable deductions: Direct salaries; production supervision salaries; raw materials used in manufacture; goods in process; finished goods; supplies and fuels used in production; depreciation of machinery and equipment; rent and utility charges; financing charges associated with fixed assets


BIR not yet so strict on transfer pricing

Proposed transfer pricing regulations not yet issued, although the BIR adheres to OECD transfer pricing guidelines in principle

Current Issues

Local Governments

Since 5% tax on gross income is in lieu of all other taxes, local governments are reluctant to endorse new PEZA buildings

Transfer pricing


Thank you


Presenter Profiles

South East Asia Panel

www.taxand.com


E.T.

[email protected] (632) 811-2498

‘Euney’ Marie Mata-Perez is based in Taxand Philippines where she is a Partner of Salvador & Associates. “Euney” has more than 19 years’ experience in tax practice and commercial transactions. Euney specialises in tax and corporate matters, and has extensive experience in mergers and acquisitions, infrastructure projects, project finance and loan transactions, tax advisory work and advocacy work involving refunds and assessments. She was previously a Senior Associate in SyCip, Salazar, Hernandez & Gatmaitan, where she worked for more than 10 years. Euney graduated Salutatorian of her class from the Ateneo de Manila University College of Law (1992), and summa cum laude in her undergraduate course from the University of San Carlos, Cebu City. Euney is a Certified Public Accountant, and worked as an auditor with SGV & Co. She has contributed to several foreign and local publications, including CCH Doing Business in Asia, and is a lecturer at the TAXAND Regional Junior School. At present, she is the Executive Vice President of the Tax Management Association of the Philippines.

Euney Marie J. Mata-Perez

Taxand Philippines

Presenter Profile


E.T.

[email protected]+852 2918 3839

Morrie Cheng is Head of Tax, Asia of Sun Life Financial. He has responsibility for Sun Life's tax function in Asia. Mr. Cheng joined Sun Life in 2008. Mr. Cheng has a wide range of international tax and insurance tax experience including Associate Asia Tax Director at Swiss Re and Regional Head of Tax at Henkel. Mr. Cheng holds a Bachelor of Arts in Accountancy from City University of Hong Kong and is a qualified chartered accountant.

Morrie ChengAsia-Pacific Head of Tax

Sun Life Financial

Presenter Profile


E.T.

[email protected] +62 21 835 6363

Permana Adi Saputra is based in Taxand Indonesia where he serves as a Transfer Pricing Partner with PB Taxand. Permana’s experience includes assisting clients with the preparation of transfer pricing documentation, representing clients in tax audit, tax objection and appeals related to transfer pricing cases, and assisting clients in applying for Advance Pricing Agreements. His expertise also includes supply chain management and price / profit structuring. Permana actively participates in discussions with Tax Officers regarding transfer pricing issues. Permana is also very active in conducting in-house Transfer Pricing seminars and workshops in for businesses as well as taking part in the local and international Transfer Pricing Summit. Permana started his career in 1992 as a government auditor and worked for more than 6 years with the Ministry of Finance - Republic of Indonesia. Permana then worked for Deloitte before joining PB Taxand to establish the Transfer Pricing Division.

Permana Adi Saputra

Taxand Indonesia

Presenter Profile


E.T.

[email protected]+66 (0) 2 632 1800

Chinapat Visuttipat is based in Taxand Thailand where he is a Partner / Director and the head of Tax Services at HNP Counsellors Ltd – Taxand Thailand. Chinapat has more than 20 years of experience in tax and legal advising multinationals on corporate and commercial contracts, cross-border transactions, hotel and property, M&A and transactional tax, private equity fund, tax audit supports as well as tax litigation including tax planning for inbound and outbound investment. He is now a visiting lecturer for the master degrees tax program at both state and private universities in Thailand and has presenting at several public tax seminars and conferences. Chinapat has contributed to many international and local publications on tax, including International Tax Review and Bloomberg BusinessWeek Thailand. At present, Chinapat is a member of Tax Committee under the Thai Chamber of Commerce and Board of Trade of Thailand including Tax Mediator under the Central Tax Court.

Chinapat Visuttipat

Taxand Thailand

Presenter Profile

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asia tax forum may 9-10, 2012 – raffles, singapore country developments south east asia panel

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