Income Tax on Oil and Gas Industry in Indonesia

Report
Centre for Administrative Science
Faculty of Social and Political Science
University of Indonesia
Income Tax on Oil and Gas
a
Industry in
Indonesia
(Law No. 22/2001)
South- South Sharing of Successful Tax Practices
LAW No. 22/2001
Upstream
Industry
Exploration
Exploitation
Downstream
Industry
Processing
Trasportation
Storage
Retail
 Exploration : Any activities aimed at obtaining
information on geological data to find hydrocarbon
deposit and estimation of its reserve.
Explotation Activities:
o Drilling & Well Cementing
o Construction of Transport Infrastructures
o Processing (including refinery)
 Upstream Industry; can only be carried out by:
o A business entity; or
o A permanent establishment
 Provision in Indonesia Oil and Gas Law (art 10):
o A business entity/Permanent Establishment
(PE) that is engaged in the upstream industry
is prohobited to engage in downstream
industry
o A business entity that is engaged in the
downstream industry is not allowed to
conduct business in the downstream industry
A Contract in the Upstream Industry
• A Business Entity Or
BP MIGAS
• A Permanenet
Establishment
CONTRACT
(MAX. 30 YEARS)
Any Contract in the upstream industry must be reported to
the parliament ( as stated in article 11 paragraph 2 Law No.
22/2001)
BP MIGAS
A State Owned
Legal Entity
The budget for its
operation is based on fee
from the government
A Contract in the upstream industry:
o The owner of the natural resources remains in the
hands of the government
o BP Migas holds the management of the operation
o The business enity or PE will make available
funding and bear the risk
The contract contains among other things (in art. 11):
o Government revenue;
o The expenditures obligation;
o The obligation to supply oil & gas for domestic
market
o The transfer of rights and obligation
o Reporting requirements
 The applicable tax laws and their implementing
regulations go into effect at the time the contract was
signed, OR, the laws and their implementing regulations
currently in force.
Tax Revenue
Tax Revenue
Non Tax Revenue
Taxes
Customs and Excise on
Import
Local Taxes and Retribution
State’s Shares
Dead Rent & Exploitation
and Exploration fees
Bonuses
Income Tax Treatment
Exploration Period
Lasts for 6 years,
can be extended
for another 4
years
Exploration Cost
(Pre-Production
Cost)
Income Tax
Treatment
Exploitation Period
State Revenue
A Certain Percatage of
Net Production
Issue that may affect the income tax treatment in relation to
state shares:
Is the state shares of oil geared to tax revenue?
Is a Permanent Establishment treated differenetly from an
Indonesian business enterprise in term of the state revenue?
Transfer of Interest
Capital Gains
Taxable in
Indonesia
Implementing
Regulation
Transfer of Interest
Non Resident Tax
Payer
Non Resident Tax
Payer
Mining Area
Split Shares of Oil and Gas
Tax Rate
Oil
Gas
35%
71,1540
:
28,8460
42,3077
:
57,6923
30%
73,2143
:
26,7857
46,4286
:
53,5714
International Tax Aspects
Ring Fencing Policy
Deductibles Expenses of A Permanent
Establishment
Capital Gains
Branch Profit Tax
Expatriate’s Income Tax
Ring Fencing
OILCO JAMBI Ltd.
OILCO SORONG
LTD.
OILCO LTD.
GERMANY
INDONESIA
BP MIGAS
CAYMAN ISLAND
WA-1
WA-2
Ring Fencing
CAYMAN ISLAND
OILCO LTD.
OILCO JAMBI
GERMANY
INDONESIA
DESPATCH OF
PERSONNEL
TAX ISSUES:
• PE OF OILCO LTD.
• WITHHOLDING BY OILCO JAMBI
• VAT
WORKING AREA-1
Deductible Expenses of A
Permanent Establishment
Operating Cost
Cost incurred for
opeation
Bonuses
Head Office Allocation
Administration cost (HO
allocation
Interest expenses
charged to PE
Operating Cost (OECD Model Article 7)
“ In Determining the profits of a Permanent
Establishment, there shall be allowed as deduction
expenses which are incurred for the purpose of the
permanent establishment, including executive and
general administrative expenses so incurred whether in
the state in which the permanent establishment is
situated
Head Office Allocation Cost:
1. Administrative cost; shall not exceed the ratio of sales of the
PE to world
wide sale.
2. Interest expenses payable to a third party is deductible by
the PE insofar as the fund is used to finance the operation of
the PE
Interest Expenses:
o Interest paid to its HO is not deductible by the PE
o Interest paid to a third party by the HO is deductible in
the hands of the PE only if the fund is used for the
purpose of the operation of the PE
Capital Gains (Article 13 OECD Model)
Gains derived by a resident of a contracting state from the alienation of
immoveable property referred to in Article 6 and situated in the other
contracting state may be taxed in that other state.
Article 6
The term immoveable property shall have the meaning which it has under
the law of the contracting state in which the property in question is situated.
The term shall in any cases include property accessory to immovable
property, livestock and equipment used in agriculture and forestry, rights to
which the provisions of general law respecting landed property and rights to
variable of fixed payments as consideration for the working of, or the right
to work, mineral deposits, source and other natural resources, ships, boats
and aircrafts shall bot be regarded as immoveable property
CAPITAL GAINS
CAYMAN ISLAND
OILCO LTD.
OILCO JEPARA
USA
INDONESIA
WORKING AREA-1
OILCO JEPARA
TRANSFERS OF ITS
INTEREST WORKING
AREA-1 TO OTHER
PARTY
ISSUES:
• THE IMPLEMENTING
REGULATIONS TO TAX THE
GAINS
• TAX BASE
Capital Gains
Legal Basis in Indonesia
The Implementing Regulation
through Ministry of Finance
Regulation
The Computation of Capital
Gain
Deemed Profits
Basis
What percentage?
Treatment of Loses
Deemed Profits
Basis
Historical Cost?
BRANCH PROFIT TAX
GENERAL POLICY UNDER LAW NO.
8/1971:
THE REDUCED RATE OF BPT IN
THE TREATY DOES NOT APPLY TO
PSC IN OIL AND GAS
SOME OF THE DTA-s DO
NOT PROTECT THE PSC
FROM REDUCED RATE
BRANCH PROFIT TAX
(OIL & GAS)
• FIRST GROUP: DTA-s THAT PROTECTS PSC FROM
REDUCED RATE
• SECOND GROUP: DTA-s THAT PROTECTS THE REDUCED
RATE ON TO CONTRACS THAT WERE SIGNED BEFORE 31
DECEMBER 1983
• THIRD GROUP: DTA-s THAT ADOPTS “MOST FAVOURE
NATION CLAUSE
•
Branch Profit
Australia,
Tax 1stAustria,
Group
Bulgaria,
Czech
DTA-s
Republic, Hungary,
Luxemburg,
Philipines, Poland,
Rep of South
Africa, Sudah,
Syria, Taiwan,
Tunisia, United
Arab Emirates,
Ukraine, USA,
Uzbekistan,
Venezuela,
Vietnam
Branch Profit
Tax 2nd Group
DTA-s
• Belgium, Canada,
Denmark,
Finlandia, India,
Italy, Rep of Korea,
Netherland,
Norway, Pakistan,
Romania, Spain,
Sweden,
Switzerland, UK,
Germany, France
Branch Profit
Tax 3rd Gup
DTA-s
• Japan
• Malaysia
• Singapore
INCOME TAX TREATMENT OF EXPATRIATES
THE SALARY OF THE
EXPATRIATES SHALL BE
TAXABLE ONLY IN THE
USA PROVIDED:
OILCO
LTD.
1.
USA
INDONESIA
EXPATRIATES
WORKING
AREA
THEY ARE PRESENT IN
INDONESIA LESS THAN 120
DAYS/12 MO; AND
2.
THEIR SALARY IS PAID BY
AN EMPLOYER WHO IS
NOT RESIDENT OF
INDONESIA; AND
3.
IT IS NOT BORNE BY THE
PE OF ILCO LTD.

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