The Indonesian government is looking to renegotiate oil and gas contracts with foreign companies it believes should be paying a higher branch profit tax rate.
A number of British and Malaysian companies are paying branch profit tax rates of 10% and 12.5% respectively which were based on bilateral tax treaties between Indonesia and the companies’ home countries.
However Indonesia’s Development Finance Comptroller insists the branch profit tax rate should be 20% in line with 2003 Law on Oil and Gas which was ratified in 2004, the Jakarta Post reported.
Last week Indonesia’s Corruption Eradication Commission said 14 multinational companies faced tax arrears of up to 1.6 trillion rupiah (US$187.2 million).
The Finance Ministry’s director general for taxation, Fuad Rahmany, said the tax debts were the result of disputes between the Development Finance Comptroller and the foreign companies, which he would not name.
“This is a problem of prior contracts and tax treaties that no longer comply with today’s [regulations]. The finance minister has indeed ordered reviews of tax treaties with those countries,” Fuad said.
“But renegotiation won’t be easy because this involves other nations. We will need diplomacy to try to tell them that their tax treaties are outdated.”
Faud added the Finance Ministry would work with the Foreign Ministry to renegotiate the contracts with talks with the companies concerned expected to start by the end of the year.
It is understood the dispute mainly concerns contracts that were signed before the Oil and Gas Law took effect in 2004