TRANSFER PRICING AND TAXATION INTERNATIONAL
Indonesia as a sovereign state has the right to make provisions on
taxation. Function of the tax was withdrawn by the government primarily
to finance government activities in order to provide public goods and
services needed by all people of Indonesia. In addition, the tax also
serves to regulate the behavior of citizens of the State to do or not do
something. Indonesia is also part of the international world is
definitely in the running wheels of government to international
relations. International relations can be cooperation in defense
security, cooperation in the social, economic, cultural and other, but
the discussion is limited to the export and import (International Trade
Transactions) related to international tax.
Any cooperation by all countries must be agreed in advance by the
parties to reach a mutual commitment contained in a treaty, not the
exception agreement in the field of taxation. Trade transactions between
the two countries or countries potentially aspects of taxation, it is
certainly to be regulated by the state or the international community in
general to boost the economy and trade to countries such cooperation.
This is important so as not to impede the flow of investment funds due
to burdensome taxation Taxpayers bekedudukan in both countries that
perform the transaction.
For that we need the international tax policy in terms of set the tax
applicable in a country, assuming that each country could certainly
have been set up in the tax provisions into its sovereign territory. But
every country is free to regulate the taxation of the entity or a
foreign national, international taxation is a form of international law,
in which each state must submit to the international agreement known as
the Vienna Convention.
Purpose of the International Tax Policy Each policy would have a
specific purpose to be achieved, as well as international tax policy
also has the objective to be achieved, namely to promote trade between
countries, pushing the pace of investment in each country, the
government tried to minimize the taxes that inhibit trade and
investment. One attempt to minimize the burden is by doing penghindaraan
international double taxation.
The principles that must be understood in international taxation
Doernberg (1989) mention three elements that must be met netraliats in
international taxation policy:
- Capital Export Neutrality (Domestic Market Neutrality): Wherever we invest, the burden of taxes paid should be the same. So it makes no difference if we invest in domestic or foreign. So do not get when investing abroad, a greater tax burden because of the two countries bear the tax. This will underpin Income Tax Act Art 24 governing foreign tax credits.
- Capital Import Neutrality (International Market Neutrality): investment from wherever derived, subject to the same tax. So that investors from both domestic or overseas will be subject to the same tax rate when investing in a country. It is the right of taxation of the same underlying denagn taxpayer of the Interior (WPDN) of the permanent establishment (PE) or Fixed Uasah Agency (BUT), which can be a branch of the company or service activities through the time-test of the regulations.
- National Neutrality: Every country has the same tax on income. So if any foreign taxes that can not be deducted as an expense credited earnings deduction.
BASIC CONCEPTS OF INTERNATIONAL TAXATION
- The concept of juridical double taxation and economic double taxation
In a narrow sense, double taxation occurs in all cases considered
taxation a few times on a subject and / or objects in a single tax the
same tax administration. Double taxation can be caused by taxation by a
single ruler (singular power) or by various (layer) single, for example,
can occur in the taxation of the buildings on the resale value (land
and building tax) and income (income tax on rent or profit transfer).
Double taxation is often called economic double taxation (economic
double taxation). Double taxation in a broad sense, according to the
state (jurisdiction) the tax collector, can be grouped into double
taxation (1) internal (domestic) and (2) International.
Knechtle, in the book “Basic Problems in International Fiscal Law”,
to name a few types of PBI (1) factual and potential, (2) juridical and
economical, and (3) direct and indirect. Taxation if the claim is
actually implemented by some State jurisdictions there will be a holder
of PBI factual. If the two (or more) State tax claim holders, only one
country who carry the claim that there will be taxation of potential
PBI.
- The concept of the Avoidance of Double Taxation
Taxation on an income simultaneously by applying state of residence
and source countries that apply the principle cause of international
double taxation (international double taxation). By investors and
entrepreneurs, double taxation shall be deemed to lack the mobility to
facilitate the flow of investment, business and international trade.
therefore, need to be removed or granted waivers. In addition to the
provisions stipulated in domestic tax, double tax relief is generally
well organized in P3B. International Taxation (hereinafter in this
module is called PBI) appears when there is a conflict of jurisdiction
of taxation, both attached to the central government (state) and local
governments (provinces, cities and counties), and are attached to each
state (overlapping of tax jurisdiction in the international sphere). PBI
with respect to income tax, in case of conflict of taxation rights
between the countries have economic ties, applying the principle of
division of the right of taxation is not the same. Definition and
purpose of avoidance of double taxation (P3B) In connection with the
notion of double taxation (double taxation), Knechtle in his book
entitled “Basic Problems in International Fiscal Law” (1979) provide a
detailed discussion. . Knechtle distinguish the notion of double
taxation, namely:
- By Area, Double taxation is a form of taxation and other levies more than once, which can double or more over a fiscal fact.
- In Narrow, Double taxation occurs in all cases considered taxation a few times on a subject and / or objects in a single tax the same tax administration, which ruled out the imposition of taxes by local governments.
Furthermore, in accordance with State taxation (jurisdiction) the tax collector, double taxation can be grouped into:
- Internal (domestic)
- The International
RELATIONSHIP WITH THE CONCEPT OF TAX INCOME FROM ABROAD
Each country claims to impose taxes on income generated within its
borders. However, the national philosophy on the taxation of resources
from abroad is different and this is important from the perspective of a
tax planner.
Based on the principle of worldwide taxation, foreign earned income
of a domestic company is taxable in full fine imposed in the host
country or countries of origin. To avoid the reluctance of businesses to
expand abroad and to maintain the concept of neutralization abroad, the
domicile of the parent company (country seat) may elect to treat
dbayarkan foreign tax credit against tax liability as a domestic parent
company or deduction as a deduction on income taxable.
REASONS FOR FOREIGN TAX CREDIT
Creditors of foreign tax can be calculated as a direct credit on
income tax paid on earnings branch or subsidiary and any tax withheld at
source, such as dividends, interest, and royalties are sent back to
domestic investors. The tax credit can also be estimated if the amount
of foreign income tax paid is not too obvious (when the foreign
subsidiary sent most profits come from overseas to domestic holding
company).
Dividends are reported in the parent company’s tax return should be
calculated gross (gross – up) to cover the amount of tax levy taxes plus
all applicable overseas. This means that the domestic parent companies
receiving dividends which includes taxes owed to foreign governments and
then pay the tax. Indirect Tax Credit that allowed foreign (foreign
income taxes deemed paid) is determined as follows: Payment of dividends
(including the entire tax levy) / Profit after income tax of foreign X
foreign tax can be credited.
Foreign tax credit limitation
Some states impose a tax on its source with a tax credit for foreign
taxes are the source of a maximum of a related domestic tax on the
profits that can be imposed. The maximum tax liability is where the
higher the tax rate in the host country or countries of origin. To
prevent foreign tax credit can eliminate the tax on domestic income,
many states set limits on the amount of general foreign tax can be
credited each year. Foreign credit is calculated as follows: Foreign tax
credit limitation = taxable income / tax worldwide income before taxes X
credit.
Foreign tax credit
limitation applies separately to U.S. tax on foreign source income tax for each of the following types of income:
- Passive income (example: income from investments)
- Revenues of financial services
- levy a high tax revenues
- Revenue of transport
- Dividends from each of the foreign company with a share of ownership by 10% to 50% of its own foreign policies for the U.S. tax on
Tax Treaty
Although the foreign tax credit to protect the sources of foreign tax
of double taxation (in some cases), tax treaties can do more than that.
Tax treaties usually contain how taxes and tax incentives will be
subject to, respected, shared, or else written off against revenues
generated by residents of States of other countries in the tax
jurisdictions. Tax treaties also affect the tax levy on dividends,
interest, royalties paid by companies in the country to foreign
shareholders.
Consideration of Foreign Currencies
Gain or Loss on transactions in currencies other than the functional
currency is generally recorded at the point of view Duan transaction.
Under this approach, any gain or loss requires that security be
qualified as a protector of the transaction value of certain foreign
currency can be integrated with the underlying transaction.
INTERNATIONAL TAX PLANNING IN MULTINATIONAL COMPANIES
In the tax planning of multinational companies have certain
advantages over a purely domestic firm because it has greater
flexibility in determining the geographic location of production and
distribution systems. This flexibility provides the opportunity to
utilize their own national tax ataryuridis differences so as to lower
the overall corporate tax burden.
The observation of these tax planning issues at the start with two basic things:
- tax considerations should never mengandalikan business strategy
- Changes in tax laws are constantly limit the benefits of tax planning in the long term.
VARIABLES IN THE INTERNATIONAL TRANSFER PRICING
Transfer prices set a monetary value on the exchange between firms
that take place between the operating unit and is a substitute for
market prices. In general, the transfer price is recorded as revenue by
one unit and the unit cost by others. Cross-border transactions of
multinational corporations are also open to a number of environmental
influences that created the same time destroying the opportunity to
increase profits through transfer pricing. A number of variables separti
tax rate competition infalsi rates, currency values, limitations on the
transfer of funds, political risk and the interests of joint venture
partners are very complicated transfer pricing decisions.
FUNDAMENTAL PROBLEM IN THE METHOD OF TRANSFER PRICE
tax factor
Reasonable transaction price is the price to be received by a party
unrelated to the particular item the same or similar in the same or
similar circumstances is appropriate. Reasonable method to determine the
transaction price can be received are:
- method of determining the comparable uncontrolled price.
- method of determining the resale price.
- plus the cost price determination methods and
- Other methods of assessment levels
factor Tariff
Tariffs for imported goods also affect transfer pricing policies of
multinational corporations. In addition to the identification of
equilibrium, multinational companies must consider the costs and
benefits, both internal an external. High tax rates paid by the importer
will generate the income tax base is lower.
Competitiveness Factors
Similarly, lower transfer rates can be used to protect the ongoing
operation of the influence of foreign competition is increasingly tied
to the local market or other markets. Consideration must be balanced
against the loss of competitiveness was much the opposite effect.
Transfer rates for competitive reasons may invite anti-trust action by
the government.
Performance Evaluation Factors
Transfer pricing policy is also influenced by their influence on
behavior management and is often a major determinant of corporate
performance.
source :
http://wartawarga.gunadarma.ac.id/2012/04/eva-lestari-21208448-4eb11-tugas-softskill-akuntansi-internasional-bab-11/
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