Notes on Tax Disputes from Misapplication of Indonesia-Japan Tax Treaty: A Study Based on Indonesian Tax Court Decisions

Abstract

This study aims to examine the legal, economic, and political aspects of Indonesia-Japan tax treaty. Next, it examines tax disputes brought to the Indonesian tax court due to the misapplication of Indonesia-Japan tax treaty. It digests the Indonesia tax court decisions stipulated during Fiscal Year 2015–2021. The Indonesia-Japan tax treaty has existed for more than 30 years to allocate the taxing rights of the two countries. Japanese business has invested in Indonesia through the establishment of subsidiaries. The disputes occurred due to, in the first case, the interpretation regarding whether a business entity or an individual is a party that can be categorized as a tax subject in accordance with the Indonesian and Japanese tax treaties. Second, is the issue of the definition, classification, and characteristics of income that result in differences in tax treatment. Third, we find that the tax rates used for income withheld or collected because of income classification. Finally, the disputes also occurred due to the fulfilment of administrative issues which has been taken most proportion of the disputes. Therefore, both parties in a dispute need to have a similar understanding on how the agreed tax treaty applies to the dynamic of business. tax treaty, tax dispute, international tax law