Page 3 - Working Paper (Measuring BEPS and Its Countermeasures in Indonesia: A Preliminary Research Guide)
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DDTC Working Paper 1717

                   1.  Introduction                                 anti-tax avoidance rules is effective to significantly
                                                                    hush the incentive. 5
                      Concerns  and  worries  toward  base  erosion
                                                                       Nevertheless,  nobody knows how  much
                   and  profit  shifting  (BEPS)  practices  have  been
                                                                    revenue is approximately taken from any individual
                   alarmingly increasing in Indonesia  over  the last
                                                                    country. Available indicators and analyses of BEPS
                   decade,  but  little  is known  about  its magnitude
                                                                    are severely constrained by the limitations of the
                   and comportment. Governments are pushed  to
                                                                    currently available data. The available data is often
                   equip their regulation to be more protected from
                                                                    not comprehensive across countries or companies,
                   any loopholes that  can be exploited from such
                                                                    and often does  not  include actual  taxes paid. In
                   practices.  Accordingly, the government have shown
                                                                    addition  to  this,  the  analyses of  profit  shifting  to
                   ample interest to focus on addressing MNEs ability
                                                                    date have found it difficult to separate the effects
                   to shift their income into low or zero-tax countries
                                                                    of BEPS from real economic factors and the effects
                   without business substance in the decisions. Policy-
                                                                    of  deliberate government tax  policy choices.
                   wise, the government have put a number of rules
                                                                    Improving the tools and data available to measure
                   and requirements for  multinational  corporations
                                                                    BEPS will be critical for measuring and monitoring
                   in reporting their transactions. In addition to that,
                                                                    BEPS in the future, as well as evaluating the impact
                   administrative empowerment  are in on-going
                                                                    of the countermeasures developed under the BEPS
                   process. Even so, empirical proof to measure their
                                                                    Action Plan.
                   effectiveness and monitor the development are still
                   no more than presumptions.
                                                                       Accordingly, having a systematic and long-
                                                                    term planned research in measuring and
                      These undercover activities are unsurprisingly
                                                                    monitoring BEPS is of importance at least from two
                   difficult to measure, not because they are hidden
                                                                    perspectives. First, we should note that  schemes
                   or not observable, but because they are seemingly
                                                                    through which BEPS is practiced are evolving and
                   indifferent from real transaction in financial point
                                                                    getting more complex. This trend is seemingly to
                   of view. Moreover, they are not against any tax law,
                                                                    be remain in the future. It is mainly triggered by
                   making them even more difficult to identify. This
                                                                    unstoppable  pace of global  business  integration,
                   view is supported  with the fact that  companies
                                                                    but  the essential  motivation  is rooted from
                   hold the right to minimize tax within the spirit of
                                                                    economic motives by lowering paid taxes through
                   law.  Subsequently, the objectivity of whether each
                                                                    utilizing  any  possible  financial  instruments  and
                   tax planning schemes represent violation against
                                                                    artificial transactions.
                   the spirit of the law  is unclear. The perimeter
                   to determine  whether  a transaction  or  practice
                                                                       Second, the term ‘measuring BEPS’ is practically
                   is categorized  as  BEPS  lies  in  whether such
                                                                    much closer to the definition of an estimation rather
                   decision contains economic reasoning or business
                                                                    than a measurement toward the actual magnitude.
                   substance. This of course shows the reason why it
                                                                    Therefore, BEPS and counter BEPS measurement
                   is not only difficult to measure the magnitude, but
                                                                    are not a one-shot  research nor a short-term
                   also problematic in distinguishing BEPS activities
                                                                    project. A systematic framework for  the study
                   from all other financial decisions.
                                                                    should be prepared as a long-term agenda within
                                                                    which policy makers  consider  the direction of
                      Several  studies has sought to measure the
                                                                    both BEPS schemes evolvement and international
                   magnitude  of BEPS  practices. Generally,  the
                                                                    tax landscape that provide the incentives. Having
                   studies  have  confirmed  the  existence  of  BEPS  in
                                                                    a proper understanding of the available data and
                   almost every group of countries. OECD estimated
                                                                    its  limitations  would  be  critically  beneficial  for
                   that total revenue loss due to the practices reach
                                                                    the development  of indicators showing  the scale
                   between US$100-240 billion annually, or between
                                                                    and  economic impact  of BEPS, as well  as for the
                   4-10% of total world corporate income tax (CIT)
                                                                    development of economic analyses of the scale and
                   revenue.   It is indicated that such practices have
                                                                    impact of BEPS and BEPS countermeasures.
                   caused bigger loss in developing countries instead
                   of developed ones ,  with  a  notable  finding  that
                                                                       It  is important to note that most analyses,
                                                                    including government  policy analyses  and
                   1. Darussalam and Ganda C. Tobing, “Rencana Aksi Base Erosion Profit   decisions, are often made with partial information.
                   Shifting dan Dampaknya terhadap Peraturan Pajak di Indonesia”, DDTC
                   Working Paper No. 0714 (2014): 3.                For policymakers, using available data to conduct
                   2. See Reuven Avi-Yonah,  Nicola Satori, and Omri Marian,  Global
                   Perspective on Income Taxation  Law  (Oxford University Press, 2011),   2015 (OECD, 2015) as quoted in Philip Baker, “BEPS: Emergence of
                   101.                                             International Tax Law and Future Direction”.  In Base Erosion and Profit
                   3. OECD,  Measuring and  Monitoring BEPS,  Action 11 – 2015 Final   Shifting (BEPS): The Global Taxation Agenda (Haryana: Wolters Kluwer,
                   Report (OECD, 2015), 101.                        2016), 59-60. See also OECD,  OECD Revenue  Statistics in  Asian
                   4. In general,  CIT revenue proportion of total revenue in developed   Countries (OECD, 2015), 18.
                   countries do not exceed 10%, while in developing countries it lies between   5. B. Bawono Kristiaji, “Incentives and Disincentives of Profit Shifting
                   10-40%. See Table 12 and 74 in OECD,  OECD Revenue  Statistics   in Developing Countries”, Master Thesis for Tilburg University (2015).
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