Tuesday, July 18, 2017

Directorate General of Taxes Urged to Draw Up Regulations Which Address Beneficial Ownership

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Prayogo Serevin Wisnumurti, Nanda Narendra Putra


Poltak Maruli John Liberty Hutagaol. Photo by: NNP


The government has been asked to draw up a regulation that will require corporations to provide information which relates to their beneficial owners. This requirement is linked to the implementation of the new request-based exchange-of-information regime which is being introduced in order to improve the country’s tax policy.
Mr. Poltakmaruli John Liberty Hutagaol, International Taxes Director for the Directorate General of Taxes (Direktorat Jenderal Pajak – DJP) at the Ministry of Finance, has explained that the composition of regulations on beneficiary ownership has been mandated by the OECD’s Global Forum on Transparency and Exchange of Information (Global Forum). These regulations represent an additional requirement which will ultimately be assessed by the Global Forum in order to ascertain how transparent Indonesia’s taxation regime is. 
“This all relates to the readiness of Indonesia to face the second-round assessment regarding exchanges of information on request,” Mr. Hutagaol explained to Hukumonline from his office on Friday 14th July.
Previously, during the first phase of the assessment, which took place in 2014, the beneficial ownership initiative had not yet emerged. At this stage, the Global Forum was still focused upon dealing with the ease of access to information by tax authorities. However, the Global Forum has now revised the assessment’s terms of reference and additional terms have now been included in the form of a number of beneficial-ownership conditions that must be met by participating countries, including Indonesia, during the second phase of the assessment.
In addition, the Global Forum will also undertake an assessment of any regulations which address the issue of beneficial ownership, meaning that regulation has now expanded the field of taxation to include the concept of beneficial ownership. As a result of this widening of scope, any efforts which are made to fulfil such regulations are no longer the sole responsibility of the DJP and the Ministry of Finance but the entire ministry and 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 the assessors that Indonesia is committed to taxation transparency as a country and is not a tax haven,” explained Mr. Hutagaol.
Mr. Yunus Husein, Chairman of Draft Presidential Regulation Drafting Team also spoke to Hukumonline about this issue and explained that the drafting process for this new regulatory framework was discussed last May.
Mr. Husein added that several ministries and related institutions were also invited to express their views as regards 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 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, 14th July, 2017.
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 in order 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 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.
"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.

Similar Initiatives in Other Sectors 

Efforts to uncover beneficial ownership have also been initiated across the energy and mineral resources sector. Indeed, a scheme which addresses this goal was stipulated in the Extractive Industries Transparency Initiative (EITI) standard in 2016. This year’s EITI annual report, which was released in late May 2017, revealed a breakthrough which addressed Indonesia's commitment to implementing a beneficial-ownership regime.
The government has also outlined a roadmap for beneficial-ownership transparency, which gets underway this year. The full disclosure of the names, domiciles and citizenships of persons or groups controlling companies specializing in the energy and mineral resources industry will ultimately commence by 2020.
Broadly speaking, the implementation of this roadmap is divided into three stages. Phase one involves the definition, disclosure and determination of the most effective way of managing and collecting data relating to beneficial ownership during 2017. Phase two gets underway in 2018 and will determine the ministry or institution responsible for the reporting of beneficial ownership, as well as development of the relevant institutional and legal framework. During this phase, a regulatory-related review will also be initiated. The final phase of the roadmap involves full implementation and should be in place at some time during 2019.
"The purpose of EITI is to improve the compliance and reputation of the country. This means that when mining businesses demonstrate transparency, then governance will also improve,” Mr. Agung Budiono, a researcher from Publish What You Pay (PWYP) Indonesia, explained to hukumonline at the end of May.
Each relevant ministry and institution is required to prepare a study in order to determine whether it requires a legal basis for the implementation of the beneficial ownership regulations. For example, 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 only needs approval to be granted by the President and coordination with the Indonesian Financial Transaction Reports and Analysis Centre (Pusat Pelaporan dan Analisis Transaksi Keuangan – PPATK), and this is just one example of the legal basis for the implementation of the beneficial ownership regulations.
In addition, the Corruption Eradication Commission (Komisi Pemberantasan Korupsi – KPK) has also pledged to undertake a second review involving a risk assessment of the implementation of the beneficial-ownership principles. This assessment will determine various important data, such as the relevant degree of transparency, as well as who is able to access beneficial-ownership information. This review is expected to be completed by August 2017.
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