Global Tax Alert | 19 June 2013

Indonesia's current tax audit trends

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Executive summary

Anticipating that a fiscal year 2013 will close the statute of limitations for tax audits for fiscal years through 2008, Indonesia’s Director General of Taxation (DGT) has issued a circular letter requiring tax audits to be conducted for fiscal years 2003 through 2008 on corporate income tax returns reporting tax losses and VAT returns with VAT overpayment carry forwards. The tax audit will be conducted under a routine tax audit procedure and cover the respective taxes. In addition, the circular letter has identified main targets for a special tax audit.

Detailed discussion

Targeted corporate losses for audit purposes are identified as follows:

  • Companies utilizing tax losses from previous years.
  • Companies having tax losses for three consecutive years.
  • Companies having tax losses and significant related party transactions.
  • Companies having tax losses for fiscal years 2007 and 2008.
  • Companies having tax losses for fiscal years 2003 through 2006 which are identified by the Head of Tax Audit Unit to have the potential noncompliance elements.

VAT returns subject to tax audits are as follows:

  • Companies with VAT overpayments that have been refunded.
  • VAT returns for December 2007 and 2008 showing VAT overpayments carried over to the following month and a balance represents cumulative overpayments.
  • VAT returns for fiscal years 2003 through 2008 showing VAT overpayments carried over to the following month (other than the above listed item), which are identified by the Head of Tax Audit Unit to be potentially noncompliant.

The circular letter has identified the following sectors for nation-wide audit focus:

  • Palm Oil
  • Mining
  • Plantation
  • Real estate
  • Automotive
  • Chemical Industry
  • Processing
  • Electronics
  • Banking and Insurance
  • Wholesale Trading
  • Hospitality and tourism support

The following taxpayers may also be subject to the nation-wide tax audits:

  • Taxpayers with potential tax due from Income Tax Article 21/26 (withholding tax on certain payments or amounts owing to employees)
  • Taxpayers with significant transactions with offshore affiliates, that may not be in compliance with the transfer pricing rules
  • Taxpayers that are vendors and support service providers of mining companies

A tax audit can also be initiated upon recommendation of regional tax offices on business sectors.

Impact

It is recommended that taxpayers review their returns for the respective audit target period, identify potential risk areas and consider steps needed to support their positions taken in the returns and/or assess risks and if applicable, mitigating factors.

For additional information with respect to this Alert, please contact the following:

Purwantono, Sarwoko & Sandjaja Consult, Jakarta
  • Ben Koesmoeljana
    +62 21 5289 5030
    ben.koesmoeljana@id.ey.com
  • Dodi Suryadarma
    +62 21 5289 5236
    dodi.suryadarma@id.ey.com
  • Jonathon McCarthy
    +62 21 5289 5599
    jonathon.mccarthy@id.ey.com
Ernst & Young LLP, Asia Pacific Business Group, New York
  • Chris Finnerty
    +1 212 773 7479
    chris.finnerty@ey.com
  • Jeff Hongo
    +1 212 773 6143
    jeff.hongo@ey.com
  • Kaz Parsch
    +1 212 773 7201
    kazuyo.parsch@ey.com
  • Bee-Khun Yap
    +1 212 773 1816
    bee-khun.yap@ey.com

EYG no. CM3542