The Profits Directly or Indirectly Attributed to a Permanent Establishment

Gunadi Gunadi

doi:10.55336/jpb.v2i1.19

Abstract

This paper discussed a real case arising from the audit of a namely permanent establishment (PE) CHE operated by a CHE Ltd an enterprise residing in The People Republic of China (China).Having regular business of construction in Indonesia, this PE mantains a place of managementin Jakarta from where her businesses are managed. In 2018 this PE has finished a one-year construction project which was obtained under subcontract with an Indonesian company,namely, PT RDP at the costs of Rp 4,5 Trilyun (T). PT RDP concluded the main contract fromanother Indonesian State Owned Enterprise at the cost of Rp 5T. As this PE has alreadymaintaining a local place of management in this country, CHE PE may be called a aset-type PE‘(Gunadi, 1992, Taxation of Inbound Investment in Indonesia, APTIRC)). Most of the construtionmaterials, i.e., at least 60% of the total project costs, were imported by PT RDP from CHE Ltd (the PE‘s Head Office). This was done by Indonesian resident ompany under the import fees of 5%, as this company may claim the import facilities in respect of taxations.

Highlights

Similar to many other countries, in respect of income taxes Indonesia applies both global/unitary taxation under Art 4(1) of the Income Tax Act (ITA), and a scheduler taxation under Art 4(2) ITA
While under global income tax, income from all sources are aggregated at the individual level are taxed at a single progressive rate, under scheduler income tax, income items are devided into defferent categories and each of them is taxed under a certain schedule
Art 3(2) of the Government Regulation (GR) 51/2008 provides that where the construction enterprise is a local PE of a nonresident, in addtion to te gross basis corporate tax of 4%, a branch-profit tax of 20% or lower rate according to the applicable Tax Treaty must be paid

Summary

INTRODUCTION

According to the revised state budget by Presreg (President Regulation) 72/2020 the spending will Rp 2.732,92 Trilyun (T), whereas the targeted income will only Rp 1.699,9T resulting in a deficit that will be financed by debt of Rp 1.039,2T. Out of the revenue Rp 1.699,9T about 82,62% comes from taxation. Within this termtaxation‘ includies revenue collected by the Directorate General of Custom and Excises (e.g., customs and excises, VAT and income tax on imports) and other taxes. While a double taxation between Government levels is avoided, so as to enhance the Local Government self financing capability, Law Number 28/2009 Re Local Government Tax and Retribution Act (LGTRA) allocates the tax jurisdiction to the local authorities. In order to gear some spendings of their revenues, three of the local taxes are earmarked

Import and Export

Findings

PBBP3 and Other