In the world of international taxation, the biggest risk faced by multinational corporate groups is double taxation. This often occurs when tax authorities in two different countries make corrections on the same transaction, for example, transfer pricing corrections.
To overcome this deadlock, the legal instrument available in the Double Taxation Avoidance Agreement (P3B) is the Mutual Agreement Procedure (MAP). In Indonesia, the procedures for implementing MAP have been updated and unified through Regulation of the Minister of Finance Number 172 of 2023 (PMK 172/2023).
What is MAP According to PMK 172/2023?
Based on PMK 172/2023, MAP is an administrative procedure regulated in the P3B to prevent or resolve problems arising in the application of the P3B. The Director General of Taxes (DGT) acts as the Competent Authority in Indonesia who has the authority to conduct negotiations with the Competent Authority of the partner country.
1. Who Can Apply for MAP?
- Domestic Taxpayer (WPDN).
- Indonesian Citizen (WNI) who becomes a domestic taxpayer in a partner country.
- Director General of Taxes (authority initiative).
- Partner Country Tax Authority (through its competent authority).
2. Scope of Issues That Can Be Submitted
Taxpayers can request MAP if tax treatment by the Partner Tax Authority occurs that is not in accordance with P3B provisions, among others:
- Imposition of double taxation due to transfer pricing corrections.
- Corrections related to the existence or profit of a Permanent Establishment (BUT).
- Tax withholding not in accordance with P3B rates.
- Determination of domestic tax subject status.
- Discriminatory tax treatment.
Crucial Interaction: MAP vs Domestic Disputes
PMK 172/2023 allows Taxpayers to submit a MAP request simultaneously with the submission of an Objection, Appeal, or Reduction/cancellation of incorrect tax assessment letter application.
Scenario A: MAP Finished First
If the MAP negotiation results in an agreement before a domestic decision exists, then the MAP result can be applied. However, the Taxpayer must:
- Submit a statement letter of Revocation or Adjustment of legal efforts.
- If currently in the appeal process, must attach written approval from the Tax Court.
Scenario B: Appeal Decision Comes Out First
If the Appeal Decision or Judicial Review (PK) has been issued before MAP is finished, the DGT has two options:
- Using the Decision: Using said Appeal/PK Decision as Indonesia's position in the MAP negotiation.
- Stopping the Negotiation: Stopping the negotiation if the dispute material is the same as that submitted in MAP.
Time Limits and Expiration
- Submission Limit: In accordance with the time limit in the P3B (usually 3 years), or a maximum of 3 years since the occurrence of tax treatment not in accordance with the P3B.
- Negotiation Duration: Maximum 24 months since the receipt of the complete MAP request from the partner country's competent authority or since submission.
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