An analysis of the treaty and Indonesian court decisions on corporate tax disputes

The double tax agreement between Indonesia and the Netherlands is being used, on a wide scale, for tax avoidance practices. More than 75 percent of the foreign direct investment from the Netherlands into Indonesia is structured via letterbox companies, signalling wide scale treaty abuse. The Indonesian tax authority has been unable to, unilaterally, put a halt to practices of treaty abuse.

The Indonesian tax authority has brought a number of tax cases before the Tax and Supreme Court, pleading companies’ illegitimate use of tax treaty benefits. The Indonesian courts however, ruled in favor of the companies in most cases. This report analyses 27 of these cases, filed in the period 2010-2015 by the Indonesian tax authorities.

This report unravels the weaknesses in the double tax agreement and explains why the Indonesian tax authority has been unable to deny the letterbox companies tax treaty benefits.

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