Beneficial-Ownership Regulation Established to Chase down Taxpayers in Tax-Haven Countries

Hukum Dan Undang Undang ~ The OECD’s Global Forum on Transparency and the Exchange of Information (Global Forum) has mandated that Indonesia should establish a regulation which addresses the corporate obligation to provide information relating to corporations’ beneficial owners. This obligation relates to the Exchange of Information on demand which Indonesia is currently implementing within the financial sector.

According to Minister of Finance, Sri Mulyani, the disclosure of beneficial ownership information is an integral part of the principle Base Erosion and Profit Shifting (BEPS) framework. The BEPS pushes for information disclosure all over the world, especially within developed countries, in a bid to chase down taxpayers who transfer their tax liabilities to tax-haven countries.

Sri Mulyani, Minister of Finance of the Republic of Indonesia. Photo by: HOL/SGP

“The current global trend is to encourage transparent business practices and good governance across all jurisdictions,” explained Mrs. Mulyani on Monday, 24 July from the House of Representatives building.

In addition, Indonesia, alongside other countries which have committed to the Automatic Exchange of Information (AEoI) mechanism in a bid to combat tax avoidance and evasion and the use of tax havens, will continue to support and participate in the Global Forum movement on taxation interests.

According to Poltak Maruli John Liberty Hutagaol, Director of International Taxation at the Ministry of Finance, the first phase assessment which was completed in 2014 did not include any beneficial-owner related initiative. During that initial phase, the Global Forum was still primarily focused upon formulating requirements relating to access to financial information by tax authorities.

However, standards are now changing and the Global Forum has revised the relevant terms of reference, adding beneficial-ownership regulations that participating countries, including Indonesia, must fully comply with during the second phase of the assessment. According to Mr. Hutagaol, the Global Forum will assess all of the regulations that apply to beneficial ownership, and these consist not only of regulations which address taxation, but also other areas which are relevant to the issue of beneficial ownership. Hence, fulfilment of the relevant regulations will not only concern the Directorate General of Taxation (Direktorat Jendral Pajak – DJP) and the Ministry of Finance, but ultimately all ministries and their related institutions.

“So, in order to successfully tackle this second round of assessment, the government has to be united. We have to help each other to show assessors that Indonesia is committed to taxation transparency as a country and is not a tax haven,” explained Mr. Hutagaol.

Yunus Husein, Chairman of the Draft Presidential Regulation Drafting Team also spoke to Hukumonline about this issue and explained that the drafting process for this new regulatory framework was completed last May.

Mr. Husein added that several ministries and related institutions had also been invited to express their views about the harmonization process with other regulations. This process resulted in the Draft Presidential Regulation on The Application of the Know-Your-Beneficial-Owner Principle by Corporations for the Prevention and Eradication of the Criminal Acts of Money Laundering and Terrorism Financing, which now only requires approval to be granted by the President.

"I do not know whether it has already been signed or not, however the discussion and harmonization processes have now been completed. Representatives from the DJP have also been involved due to their connection with the issue of taxation,” Mr. Yunus told Hukumonline on Friday, 14 July.

According to Mr. Hutagaol, the discourse on beneficial ownership emerged thanks to cooperation between the Global Forum and the Financial Action Task Force (FATF). The Global Forum has set itself the goal of encouraging information disclosure for taxation purposes in order to ensure that taxpayers around the world abide by the applicable tax rules which relate to the identities of registered taxpayers. Meanwhile, the FATF is aiming to encourage countries to fight money laundering and terrorism financing. These two institutions ultimately decided to collaborate to encourage disclosures of information relating to beneficial ownership, as well as to break down barriers between themselves.

Mr. Hutagaol is hopeful that the government will soon be able to finalize the new legal instruments which relate to beneficial ownership, as in October of this year (2017), the Global Forum will undertake its assessment. If the results of this assessment are bad, then Indonesia may well find itself ostracized by the international community due to its inability to force transparency from tax evaders or undertake aggressive tax planning.

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"If things do not improve, then we will be ranked as a non-cooperative jurisdiction by international institutions such as the Global Forum, FATF and the European Union. The highest rating is compliant and as a country we should be aiming to at least achieve a ranking of one level under compliant, namely largely compliant. Hopefully we will be classified as having a compliant rating,” Mr. Hutagaol predicted.

In addition to being ostracized by the international community, Indonesia will also miss out on the opportunity to request reciprocal Exchanges of Information based on demands made by other countries or partner jurisdictions if its ranking is poor. Source: Hukumonline (***)