JAKARTA, fiskusnews.com: Directorate General of Taxes Head Office P2 held a Focus Group Discussion (FGD) entitled “Synergy Exploring the Potential of the Underground Economy” on Wednesday 22 January 2025 at Theater 2, Floor 3 of the Directorate General of Taxes Head Office which was attended by participants from all Functional Tax Inspector Officials , Head of P2IP and Head of Tax Inspection & Collection Section throughout Indonesia. Officials from KPP & Kanwil in the Jakarta area took part in the event offline, while outside Jakarta took part online via zoom meeting. The event began with an opening speech by the Head of Sub-Directorate for Engineering and Inspection Control, Mr Andri Puspo Harianto.

This FGD invited the resource person, Dr. Joko Ismuhadi S., S.E., M.M., who is an academic main member of the Association of Tax Centers and Tax Academics of All Indonesia (Pertapsi), the Association of Indonesian Legal Experts (Perkahi), an experienced tax audit practitioner with an educational background in a financial diploma program specializing in high school taxation State Accounting (STAN) with his latest education as a doctoral candidate in tax accounting at Padjadjaran University, Bandung and a doctorate in tax law at Borobudur University, Jakarta.

In his presentation, Joko, as he is familiarly called, said that in accordance with what the Minister of Finance, Mrs. Sri Mulyani Indrawati, had conveyed, that Underground Economic Activity (UEA) or what some call Shadow Economy or Parallel Economy is divided into 2 (two) categories, namely the first is the UEA which is a normal legal business activity, but as a result of avoiding the obligation to pay taxes, this business activity becomes illegal. Joko conveyed an example of the case of the discovery of trillions of rupiah in cash belonging to the Duta Palma Group, this was the result of tax evasion using a certain scheme so that the money escaped taxation.

The second is that from the start it is an activity that cannot be accepted by the legal norms of society in Indonesia, for example online gambling activities, aka judol, because this activity is still prohibited in Indonesia, but taxation does not see whether the source is legal or illegal as long as it provides additional economic capacity. tax object.

Joko also said that the formulation of the provisions of Article 4 paragraph (1) of the Income Tax Law contains a loophole that taxpayers can exploit to avoid tax, namely stating that income is any additional economic capability received (cash base) or obtained (accrue base) by taxpayers, whether originating from Indonesia or from abroad. Indonesia (world wide income concept), which can be used for consumption (expenses) or to increase wealth (assets), which should be added with the phrase “or to reduce debts (liabilities)” in any name and in any form (substance over form doctrine) . Liabilities are not included in this formula so that this debt account is exploited by taxpayers to avoid paying taxes.

By utilizing the Clearing Account, Taxpayers reclassify (reverse the journal) the money initially received as sales proceeds which is a tax object into a new form which is not an object. This is the initial stage for taxpayers to avoid tax, namely the Recclassification stage. The next or second stage is that the Taxpayer creates a new foreign exchange transaction scheme with a narrative as a hedging activity and then creates a debt transaction scheme (back to back loan) to give a new character to the money received into a new form that is not a tax object (Recharacterisation) namely as disbursement of debts or liabilities.

Therefore, Joko proposed to Directorate P2 that a general anti-avoidance rule (GAAR) be immediately created considering that the provisions of Article 18 of the Income Tax Law are deemed not sufficient to prevent tax avoidance, namely the special anti-avoidance rule (SAAR) which specifically regulates thin capitalization of debt to equity ratio (DER), deemed dividend (CFC) and transfer prices in group companies.

Considering the weaknesses of specific rules for preventing tax avoidance, a general tax avoidance prevention rule is needed. In this case, “general” means that the elements that make up the rules are not specifically formulated so that their application is more flexible. Therefore, through Article 32 paragraph (4) PP no. 55 of 2022, the government has given additional authority to the Director General of Taxes starting 20 December 2022.

The following is an excerpt of the provisions in Article 32 paragraph (4) PP No. 55 of 2022: “In the event that there is a practice of tax avoidance as intended in paragraph (1) which cannot be prevented using the mechanism regulated in paragraph (2), the Director General of Taxes can re-determine the amount of tax that should be payable based on the principle of recognizing economic substance above its formal form.”

The phrase “substance-over-form principle” only appears in the explanation of Article 18 of the Income Tax Law, and the explanation also does not mention the use of the substance-over-form principle as a rule for preventing tax avoidance.

The following is an excerpt from the explanation of Article 18: “The government has the authority to prevent tax avoidance practices as efforts made by taxpayers to reduce, avoid or postpone payment of taxes that should be owed which is contrary to the aims and objectives of the provisions of laws and regulations in the field of taxation. One way to avoid tax is by carrying out transactions that are not in accordance with the actual situation which is contrary to the principle of substance over form, namely the recognition of economic substance above its formal form.”

Joko also encouraged immediate guidance on the Purpose Business Test for transaction schemes of (bridging) loans to be made in order to close the gap in the provisions of Article 4 paragraph (1) of the Income Tax Law as a tax avoidance loophole.

During a break in the middle of the event, the media crew from the Fiskusnews group asked the speakers, how big is the potential of the UEA? Joko diplomatically said that the UEA is an iceberg phenomenon, “If you take an ice cube and put it on water, how much of the bottom of the ice cube will sink in the water? That’s how big the potential is.” Joko ended the conversation in a friendly manner because the second session of the event would start again soon.

Joko ended the second session by giving two real examples that occurred in the UEA with cases of tax evasion in the Crude Palm Oil Industry and the Cigarette Industry. Joko offers a “tool” for analyzing taxpayer financial reports that can be used by the DJP for early detection in the UEA, called the Tax Accounting Equation (TAE), early detection of underground economic activity.

Reporter: Marshanda Gita

Reference: https://ikpi.or.id/tinjauan-atas-penerapan-princi-substance-over-form-as-aturan-umum-cepatan-penghindaran-pajak/