What Is the Value of a Tax Claim?

ARTICLE 20A of the Income Tax Law (ITL) authorises the minister of finance to cooperate in implementing assistance in tax collection with tax treaty partners.

Such assistance in tax collection is provided on the basis of a tax claim submitted by the competent authority in the tax treaty partner. The tax claim includes, among others, the value of the tax claim for which collection assistance is sought. As such, what is the value of a tax claim?

Definition of Assistance in Tax Collection

To understand the value of a tax claim, one must first understand the concept of assistance in tax collection. The detailed provisions on assistance in tax collection are set out in Minister of Finance Regulation (MoF Reg.) 61/2023.

Referring to Article 1 number 28 of MoF Reg. 61/2023, assistance in tax collection is a facility for assistance in tax collection contained in an international agreement. Such a facility may be utilised on a reciprocal basis by the Indonesian government and the government of a tax treaty partner to collect tax liabilities.

This implies that this mechanism enables the tax authority of one country to request assistance from the tax authority of another country to undertake collection measures against a tax bearer with a tax liability in the requesting country.

In addition to being able to request assistance in collection, the Indonesian Government also receives requests for collection assistance from tax treaty partners. Such requests are made on the basis of a tax claim submitted by the competent authority in the tax treaty partner to the Directorate General of Taxes (DGT).

A tax claim constitutes a legal instrument from the tax treaty partner in connection with a request for assistance in tax collection. Referring to Article 83 paragraph (3) of MoF Reg. 61/2023, a tax claim must contain at least the following information:

• the tax claim reference number;
• the tax claim value;
• the identity of the tax bearer of the tax claim;
• an explanation of tax collection measures that have been perforrmed in the tax treaty partner;
• the tax collection measures requested to be performed;
• the list of the assets of the tax bearer of a tax claim that are in Indonesia if the requested assistance in the collection of taxes is in the form of confiscation and/or sales of confiscated assets;
• the expiration date of the right to perform tax collection on the tax claim value in the tax treaty partner; and
• the destination account for the proceeds from the granting of assistance in the collection of taxes for the tax claim.

Based on the foregoing explanation, it is evident that the value of the tax claim is one of the items of information that must be included in a tax claim.

Definition of the Value of a Tax Claim

The value of a tax claim is the value of money for which assistance in the collection of taxes is requested by a tax treaty partner from the director general of taxes. The value of the tax claim includes, among others: the principal amount of tax due; administrative penalties; and collection costs imposed by the tax treaty partner.

Accordingly, the value for which collection assistance is sought is not limited to the principal tax amount. For example, where an individual has a principal tax liability in a tax treaty partner and that tax liability attracts penalties and collection costs, all three components may form part of the value of the tax claim.

It is important to note that assistance in tax collection in respect of such a tax claim is provided, among other conditions, where the tax bearer is located in Indonesia or holds assets in Indonesia that may be used to settle the value of the tax claim. Such assets must also not be used as collateral for the settlement of a tax liability in Indonesia.

In addition, the value of the tax claim submitted by the tax treaty partner must be denominated in Indonesian rupiah. Another condition that must be satisfied is that the right to collect tax on the value of the tax claim must not have expired.

In response to such a request for assistance, the DGT will examine conformity with the information or data of the tax claim and the criteria for granting assistance in tax collection. If the DGT agrees to provide collection assistance, the tax claim serves as the basis for collection.

On the other hand, the value of the tax claim set out in the tax claim is treated as equivalent to a tax liability. As a tax liability, the DGT will undertake a series of tax collection measures in respect of the value of the tax claim.

Accordingly, tax collection on a tax claim commences with the issuance of a reprimand letter. If the tax bearer still fails to settle the value of the tax claim, the process will proceed to the issuance of a distress order, confiscation, auction, a travel ban and gijzeling.

Payment and Remittance of Tax Collection Proceeds in Respect of the Value of a Tax Claim

MoF Reg. 61/2023 also governs the procedure for payment of the value of a tax claim. Referring to Article 116 paragraph (1) of MoF Reg. 61/2023, the tax bearer settles the value of the tax claim by depositing to another government account. Payment must, at a minimum, include the following information:

• the name of the tax bearer of the tax claim;
• the identification number of the tax bearer of the tax claim;
• the reference number of the tax claim; and
• the payment amount.

After making payment, the tax bearer must notify a DGT official of the payment of the value of the tax claim. Subsequently, the director general of taxes collects and remits the tax collection proceeds in respect of the value of the tax claim to the tax treaty partner via another government account.

The tax collection proceeds remitted may be in full or in part, after first taking into account: tax liabilities in Indonesia; tax collection costs; and other costs in connection with the collection and remittance of tax collection proceeds in respect of the value of the tax claim.

This implies that the collection proceeds in respect of the value of the tax claim are not always remitted in their entirety to the tax treaty partner. This is because Indonesia also holds a preferential debt for tax to collect tax liabilities in Indonesia. See DGT Assists Other States in Tax Collection, Who Pays Collection Costs?

In respect of such remittance, the director general of taxes notifies the competent authority in the tax treaty partner. The remittance of tax collection proceeds in respect of the value of the tax claim to the tax treaty partner is carried out before the statute of limitations for the collection of taxes on the value of the tax claim expires. (rig)