Indonesia releases regulation to implement Common Reporting Standard

Transcription

1 April 2017 Tax Alert Indonesia releases regulation to implement Common Reporting Standard Go-live date July 1, 2017 On April 6, 2017 the Indonesian Financial Services Authority (OJK) released a Circular which is Indonesia s implementing regulation of the Common Reporting Standard (CRS) as set out in the Standard for Automatic Exchange of Financial Account Information in Tax Matters (the OECD Standard) The CRS is an internationally agreed standard for Automatic Exchange of Information (AEOI), endorsed by Organisation for Economic Co-operation and Development (OECD) and the Global Forum for Transparency and Exchange the different types of accounts and taxpayers covered, as well as the customer due diligence procedures to be followed by FIs. There is a growing international move towards use of AEOI in tackling offshore tax evasion. Currently 100 jurisdictions have committed to implement the CRS. Accordingly, in mid-2014, Indonesia conveyed its intention to commence AEOI, the Financial Services Authority issued an umbrella regulation through POJK followed by issuance of implementing regulation on the technical details. The implementing regulation is now released. of accounts in-scope and customers covered, the customer due diligence procedures to be followed by FIs to identify Reportable Foreign Customer, as well as the determined dates for reporting and commencing the due diligence. Whilst the Regulation do provide enough information for an FI to start their CRS Indonesian CRS Regulation deviates a bit from the OECD Standard. Further, with no explicit reference being made in the Regulation to the OECD Standard and related Commentary, it is unclear whether the local FIs can refer to the OECD summarised some of the key nuances of the Regulation in this Alert.

2 Determination date July 1, 2017 or the date stipulated in the list of Determination Date which will be published by the Indonesian Tax Authority (ITA). Reporting FI The list of Reporting FIs for Indonesian CRS purposes is a bit different from OECD CRS. The Regulation covers the following: Commercial banks (including foreign bank s branch Securities companies engaged in the business of underwriting, broking or investment management Custodian banks Life insurance companies (including sharia-based life insurance) made to the Investment Entities (typically Funds in the Asset Management space). Whilst Regulation are not clear, it appears that the legal obligation to comply with the CRS now rests with the Investment Manager rather than the Fund itself. Non-reporting FI The non-reporting FI under the Regulation includes governmental entity, international organization, central bank (Bank of Indonesia), pension funds (of governmental entity, international organization and central bank), and narrow participation retirement fund, and non-reporting Indonesian FI. Rural Bank (Bank Perkreditan Rakyat) or Sharia Rural Financing Bank and Micro Finance Institution as non-reporting Indonesian FI. Non-Financial Entities - Active vs Passive Active and Passive). to include eight different types of entities, the companies regularly traded on an established securities market shall be excluded from reporting is still unanswered. an NFE that is not an Active NFE and an entity Jurisdiction that generates gross income from trading activities, and managed by other FIs. The Regulation do not however elaborate on what constitutes managed by and gross income. For a Passive NFE, Controlling Persons are sector. Reportable accounts (i.e. In-scope accounts) to include Depository Accounts, Custodial Accounts, Cash Value Insurance Contracts, Cash Interest. The Indonesian Regulation also include similar accounts within the scope of the CRS the type of insurance policies that are within Regulation presumably, the scope is the same as the OECD Standard.

3 Reportable person originated from participating jurisdiction is regarded as a Reportable Person. Criteria for determining a Foreign Customer are as follows: resident in the Participating Jurisdiction; and the Reporting FIs. and Consent Letters been included in the Regulation. The majority account holders to provide some additional information which includes a written and voluntary not include provision of a reason for not providing of a TIN by the customer. Another key difference is that the Regulation the Customer is unwilling to submit the Consent Letter. relation to such Consent Letters and Objection Letters. Given the differences, FIs operating in multiple Reportable information Information to be reported by the Reportable Person includes the following: General information: name, place and Controlling Person), address of domicile jurisdiction of tax residency, TIN (if any). Financial information: customer s account number, account balance or value at the end of calendar year, amounts paid into the account during the calendar year. Due diligence provisions Due diligence provisions objective is to identify if the Reporting FI s customer is a Foreign Customer, whose account shall be reported to the OJK. With respect to due diligence for CRS purpose, the provision is to divide customers into 4 (four) categories: (1) pre-existing individual, (2) pre- (4) new on-boarding entity. Majority of the due diligence provisions are identical to the OECD Standard subject to certain provisions under the Regulation is provided below: Pre-existing individual account holders are categorized into lower value accounts and high value accounts, with account balance at respectively.

4 Lower value individual pre-existing accounts: Reporting FIs may rely on residence address test for pre-existing lower value individual accounts based on available documentary or resident of a Participating Jurisdiction is The reference to citizenship is contrary to the tax residency focus of the OECD Standard. Where residence address test cannot be applied, the Reporting FI can identify Foreign Customers through electronic records search on available information (i.e. indicia search ) in the Reporting FI database. Whilst the indicia mentioned in the Regulation is similar to the OECD Standard, the key notable difference is the Citizenship of the Customer in a Participating Jurisdiction. Timeline for completion of due-diligence is Date is July 1, 2017, unless it is an undocumented account. High value individual pre-existing accounts: For high value individual accounts, the procedure relies on CRS indicia search through electronic data search (database) and may be followed with paper record search. The Regulation are silent on whether a paper record search will be required for all indicia or only missing indicia. further differ from the OECD Standard which Timeline for completion of due-diligence is Date is July 1, 2017, unless it is an undocumented account. Pre-existing entity accounts De-minimis: Pre-existing entity accounts with aggregate account balance or value that does due diligence and reporting obligations. Based on information available with the Reporting FI can classify customers into: Foreign Customer Passive NFE with Controlling Person who are Foreign Customer Reporting FIs may rely on the country of domicile or the address for pre-existing entity customers based on available documentary evidence. Where a Foreign Customer is publicly available information. As regards Controlling Person of a Passive NFE who is a Foreign Customer, a Reporting FI can either (where the balance or account value exceeds Timeline for completion of due-diligence is Date is July 1, New client on-boarding For new customer on-boarding (individual from the customers with regard to country or jurisdiction of domicile. In addition for new entity on-boarding, the if the entity is Passive Non-Financial Entity ( Passive NFE ) and further to obtain self- Passive NFE is a resident in participating jurisdiction.

5 New individual client on-boarding For new individual customer on-boarding, the Regulation suggest a two-step process: information related to customer s domicile country or jurisdiction based on the above, then obtain a self- New entity client on-boarding For new entity customer, the Regulation suggest a two-step process: Reporting FI determines tax residency As regards determining whether a new entity customer is a Passive NFE, the Reporting rely on available information. Where it is a Passive NFE, the Reporting FI should obtain a to determine if the Controlling Person is a Foreign Customer. Nil reporting: Reporting Indonesian FIs are reportable account for a particular year. Customers are considered as reportable person. Requirement to appoint an Authorised A Reporting FI need to appoint and register an the reportable information to the OJK via the foreign customer s reporting information system. Enforcement diligence obligations under the regulation, failure to obtain a consent letter, and failure to convey foreign customers will be subject to administrative sanction in the form of warning letter issued by OJK. Is Citizenship important now? Customer. The reference to citizenship is contrary to the tax residency focus of the OECD Standard. Reporting The reporting timeline are as follows; August 1 of the year following calendar year (ending in December) under Multilateral Competent Authority Agreement ( MCAA ) CRS; At the latest 60 days prior to reporting deadline agreed upon bilateral CAA CRS. Customer s secrecy provision In order to fully implement the AEOI, the Government of Indonesia need to amend the Laws governing customer s secrecy under the Banking Law and Capital Market Law, and provide access to Customers from Reporting FIs. Amendment of Law will take months, as a short way, the Government of Indonesia will prepare a Government Regulation in lieu of Law (Perppu) to provide such access to the ITA. This Perppu is expected to be released in May 2017.

6 Questions yet to be answered Even though the Regulation is now released, there are Some of the key ones are: Impact of change in circumstances is not addressed in the Regulation this is a key point The extent of reliance that can be placed on the FAQs given no explicit reference is made in the Regulation. addressed in the Regulation. Most importantly the Interaction of CRS reporting data with other Indonesian Regulation notably the recent tax amnesty programme. in-scope entities and in-scope products is not included in the Regulation. Balancing cost, compliance and customer outsource the reporting activity to reduce IT spending? Conclusion With the Tax Amnesty Program being a huge success for Indonesia, the release of CRS Government s commitment to be regarded as a tax transparent jurisdiction. Whilst there is not enough detail in the Regulation, it will be interesting to see what the guidance if released later would look like. The Regulation and its July 1, 2017 implementation timeline is a call for the affected Reporting FIs to assess the readiness of their CRS implementation programs. RFIs should review and identify areas where they can work with the Government in shaping any future guidance notes implementation costs. Two months to go! Have you considered these? Do you have a robust project team responsible for meeting the July 1 timeline? should be on a compressed implementation plan to enable compliance by July 1, 2017: 2. New customer on-boarding process 4. Plan for Transition 6. Training 7. A customer communication strategy to socialise CRS update. resources to gather and remediate data in order to perform CRS reporting, do you have a committed database to organise, retain data according to the regulation, and produce return ready data?

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