ABDUL AZIS SYAM
20208003
4EB11
CHAPTER XI
TRANSFER
PRICING AND TAXATION INTERNATIONAL
11.1. BASIC CONCEPTS OF INTERNATIONAL TAX BACKGROUND
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.
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.
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.
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.
The Principles That must be Understood in international taxation
Doernberg (1989) mention three elements must be met netralism That in international taxation policy:
Doernberg (1989) mention three elements must be met netralism That in international taxation policy:
1. 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.
2. Capital
Import Neutrality (International Market Neutrality): Wherever derived from the
investment, 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 with Taxpayer of the Interior
(WPDN) of the permanent establishment (PE) or Fixed Uasah Agency (BUT), the
which can be a branch of the company or service activities through the
time-test of the regulations.
3. National
Neutrality: Every country has the same tax on income. So if any foreign taxes
can not be deducted That as an expense deduction credited earnings.
11.2. TAXATION OF INCOME FOREIGN SOURCES AND DOUBLE TAXATION
Connection with the tax concept of 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.
Foreign tax
credit
Based on the principle of worldwide taxation, foreign earned income of a
domestic company is taxable in full the fine imposed in the host country or
countries of origin. For reluctance Among avoid businesses to expand abroad and
to maintain the concept of neutralization abroad, the domicile of the parent
company (country seat) may elect to treat paid foreign tax credit against tax
liability as a domestic parent company or deduction as a deduction on taxable
income.
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 plus all
applicable taxes overseas. This means That the domestic parent companies
receiving dividends the 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.
11.3. 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:
a. Tax considerations should never control business strategy
The observation of these tax planning issues at the start with two basic things:
a. Tax considerations should never control business strategy
b. Changes in tax laws are constantly limit the benefits of tax planning in
the long term.
11.4. VARIABLES IN 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 like tax rate competition inflationi rates, currency values, limitations on the transfer of funds, political
risk and the interests of joint venture partners are very complicated transfer
pricing decisions.
11.5. FUNDAMENTAL PROBLEMS IN THE TRANSFER PRICING METHOD
Tax factor
Reasonable transaction price is the price to be received by parties not
related to special items the same or similar in the exact same or similar
situation. Reasonable method of determining the transaction price is acceptable
That is:
(1) the method
of determining the comparable uncontrolled price.
(2) method of
determining the resale price.
(3) plus the
cost price determination methods and
(4) other
methods of assessment rates
Factor Tariff
Tariffs for imported goods also affect transfer pricing policies of
multinational corporations. In Addition to the balance identification,
multinational companies should 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, a lower transfer price can be used to protect the ongoing
operation of the influence of foreign competition is increasingly tied to the
local market or other markets. Such considerations must be balanced
competitiveness against the many losses That 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 the main determinant of company performance.
