World Tax Advisor. Indonesia: Authorities Cracking Down on Document Production During Tax Audit

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International Tax World Tax Advisor 13 June 2008 In this issue: Indonesia: Authorities Cracking Down on Document Production During Tax Audit... 1 Korea: Planned Revisions to Commercial Code Announced.

1 International Tax World Tax Advisor 13 June 2008 In this issue: Indonesia: Authorities Cracking Down on Document Production During Tax Audit... 1 Korea: Planned Revisions to Commercial Code Announced... 2 Luxembourg: Tax Treaty with India Signed... 2 Thailand: Rules on Loss Carryforwards of BOI Promoted Businesses Clarified... 3 Uzbekistan: New Tax Code Unifies Tax Rules... 3 Are You Getting Your Global Tax Alerts?... 4 Indonesia: Authorities Cracking Down on Document Production During Tax Audit The Indonesian Directorate General of Taxation (DGT) is aggressively monitoring the tax audit process. Article 26A of Law No. 6 of 1983 on the General Rules and Procedures for Taxation, as amended by Law No. 28 of 2007 and effective 1 January 2008, provides that any books, records or information that are not disclosed during the tax audit process will not be considered in the tax objection process. Under article 29 of the same law, relating to the tax audit process, taxpayers must submit all documents required for a tax audit within one month from the date the taxpayer receives a request from the tax authorities. The Indonesian tax authorities recently have been adhering more strictly to these rules. Taxpayers that are late in submitting requested documents will immediately receive a warning letter issued by the DGT itself, and the DGT might no longer accommodate requests for extensions to submit the documents. To avoid problems, taxpayers should ensure that requested documents are submitted within the statutory time frame (i.e. one month). When a document request is unclear (e.g. requests for additional supporting documentation), taxpayers should proactively communicate with the tax auditor to determine what documents are specifically required. Firdaus Asikin (Jakarta) Deloitte Indonesia +62 (21) fasikin@deloitte.com Connie Chu (Jakarta) Senior Technical Advisor Deloitte Indonesia +62 (21) x6300 cchu@deloitte.com World Tax Advisor 1 of 5 Copyright 2008, Deloitte Touche Tohmatsu.

2 Korea: Planned Revisions to Commercial Code Announced On 7 May 2008, Korea s Ministry of Justice announced plans to revise the Commercial Code. Major amendments are as follows: The current minimum capital requirements of KRW 50 million for a joint stock company (i.e. Chusik Hoesa) and KRW 10 million for a limited liability company (i.e. Yuhan Hoesa) would be abolished and a joint stock company would be allowed to issue shares with no par value. A joint stock company would be able to issue different types of shares (e.g. with no or restricted voting rights, dividends rights, distribution rights of residual assets, or rights of transfer, conversion or redemption). While a joint stock company may currently issue shares with no voting rights for one-quarter or less of the total issued shares, the proposed cap would be raised to one-half of the total issued shares. Subject to shareholders approval, legal reserves exceeding 150% of paid-in-capital would be available (e.g. for cash dividends) without restriction. Currently, both the retained earning reserve and capital reserve may be used only to offset accumulated losses or for capital injection purposes. A limited liability company could have more than 50 shareholders. Subject to limitations in an entity s articles of incorporation, shareholders of a limited liability company would be able to transfer their equity without the need for a resolution of an extraordinary shareholders meeting. Small companies with paid-in capital of less than KRW 1 billion would no longer be required to have their original articles of incorporation notarized. The document would, instead, come into force when signed by the incorporators. Seung Chan Park (Seoul) Deloitte Korea +82 (2) separk@deloitte.com Young Pil Kim (Seoul) Manager Deloitte Korea +82 (2) youngpkim@deloitte.com Luxembourg: Tax Treaty with India Signed After 10 years of negotiations, Luxembourg and India signed their first income tax treaty on 2 June The treaty provides for a maximum withholding tax rate of 10% on dividend distributions between residents of both countries, although India currently does not levy any withholding tax on dividends. Interest and royalty payments made to Luxembourg residents will be subject to a 10% withholding tax in India. Following its usual negotiating practice, Luxembourg has chosen to use the credit method to eliminate double taxation; this method allows a credit for tax previously paid in the other contracting state, but the credit may not exceed the income tax computed on such income. Capital gains derived from real estate-rich companies will remain taxable in the country where the immovable property is located. Moreover, the transfer of shares in other cases will be taxable only in the jurisdiction where the company is resident. World Tax Advisor 2 of 5 Copyright 2008, Deloitte Touche Tohmatsu.

3 The agreement specifically excludes 1929 holdings companies from treaty benefits and it also includes a limitation of benefits provision. The limitation of benefits provision excludes from the scope of the treaty legal entities that do not have bona fide business activities. The treaty still must be approved by the parliaments of both countries. Georges Deitz (Luxembourg City) Deloitte Luxembourg +352 (45) gdeitz@deloitte.lu Vincent Reynvoet (Luxembourg City) Manager Deloitte Luxembourg +352 (45) vreynvoet@deloitte.lu Thailand: Rules on Loss Carryforwards of BOI Promoted Businesses Clarified The Thai tax authorities have issued a ruling clarifying the use of loss carryforwards arising in the course of Board of Investment (BOI) promoted businesses. According to the ruling, Company F benefits from tax privileges granted under a BOI promotion certificate for the manufacturing of plastic. Company F is exempt from corporate income tax with respect to the BOI business for eight years and is entitled to a 50% reduction of corporate income tax for five years thereafter. For the accounting periods from , Company F realized profits that were subject to corporate income tax at the rates of 30% and 15%. Company F understood that, after expiration of the tax exemption period, it could offset any loss carryforwards incurred during the tax holiday period against profits generated from its non-boi business, which was subject to the 30% corporate income tax rate. Thereafter, Company F could offset any remaining tax losses against profits from the BOI business, which was subject to the 15% rate (i.e. a 50% corporate income tax reduction). The Thai Revenue Department ruled that Company F s losses first had to be set off against profits from its BOI business, which benefited from the 50% corporate income tax rate reduction. Remaining tax losses could be offset against profits earned in Company F s non-boi business, which was subject to the 30% corporate income tax. Auyporn Tanlamai (Bangkok) Deloitte Thailand +66 (0) x5013 atanlamai@deloitte.com John Cifor (Bangkok) Deloitte Thailand +66 (0) x5014 jcifor@deloitte.com Uzbekistan: New Tax Code Unifies Tax Rules Uzbekistan introduced a new tax code on 1 January 2008 that consolidates the tax rules and provides a comprehensive list of all taxes and charges in a single piece of legislation. The new code provides definitions of terms, outlines tax audit procedures and incorporates various rules that protect taxpayer rights. It also includes numerous changes to the taxation of nonresident entities and individuals. World Tax Advisor 3 of 5 Copyright 2008, Deloitte Touche Tohmatsu.

4 The assessment and payment of tax procedures previously regulated by separate legislative acts have been included as a separate section in the new tax code. The provisions in the code prevail over all other legislative pronouncements and any new taxes and/or charges may only be introduced through legislation. A systematic approach to the interpretation of each type of tax and charge is an important aspect of the new tax code. Definitions are provided for terms covering taxpayer, tax component, object of taxation, taxable base, fiscal period, procedure for assessment and payment of tax liability. Procedures have been developed for offsetting and refunding excess taxes and other charges as well as measures and procedures to collect tax due. The tax code includes details of tax control procedures carried out by the tax authorities, procedures for examination of tax records and dispute settlements. Types of tax violations and related penalties have been established. The tax code specifically prohibits the tax authorities from unreasonably refusing to accept tax returns or from utilizing excessive measures to seize taxpayer s funds in violation of the procedures established by the code. Finally, changes to the taxation of nonresident entities and individuals include the following: Representative offices of foreign firms are treated as legal entities for tax purposes; The types of income derived by foreign entities that are subject to withholding have been clarified and the concept of the place where services are provided has been introduced. Income derived by foreign entities from services provided in Uzbekistan is subject to withholding tax; All foreign entities and individuals are considered taxpayers with respect to land and/or property owned or used in Uzbekistan; and Foreign individuals employed in Uzbekistan are required to make pension fund payments in an amount equal to 2.5% of an individual s salary or wages. Nasiba Nasretdinova (Tashkent) Managing Director Deloitte Uzbekistan +998 (71) nnasretdinova@deloitte.uz Tatyana Scherbina (Tashkent) Consultant Deloitte Uzbekistan +998 (71) tscherbina@deloitte.uz Are You Getting Your Global Tax Alerts? Throughout the week, Deloitte provides commentary and analysis on developments affecting crossborder transactions on a free subscription basis delivered straight to your . Read the recent alerts below or visit the archive. Subscribe: Archives: No new alerts were issued this week. Be sure to refer to the archives to ensure that you are up to date on the most recent releases. World Tax Advisor 4 of 5 Copyright 2008, Deloitte Touche Tohmatsu.

5 Talk to Us If you have questions or comments about the content of World Tax Advisor, contact one of the tax professionals at a Deloitte Touche Tohmatsu office in your area or: Susan Lyons, Director Washington International Tax Services Deloitte Tax LLP +1 (202) slyons@deloitte.com - or - Connie Angle Washington International Tax Services Deloitte Tax LLP +1 (734) cangle@deloitte.com World Tax Advisor is a bulletin of international tax developments prepared by professionals in the member firms of Deloitte Touche Tohmatsu. These materials and the information contained herein are provided by Deloitte Touche Tohmatsu and are intended to provide general information on a particular subject or subjects and are not an exhaustive treatment of such subject(s). Accordingly, the information in these materials is not intended to constitute accounting, tax, legal, investment, consulting, or other professional advice or services. The information is not intended to be relied upon as the sole basis for any decision which may affect you or your business. Before making any decision or taking any action that might affect your personal finances or business, you should consult a qualified professional adviser. These materials and the information contained therein are provided as is, and Deloitte Touche Tohmatsu makes no express or implied representations or warranties regarding these materials or the information contained therein. Without limiting the foregoing, Deloitte Touche Tohmatsu does not warrant that the materials or information contained therein will be error-free or will meet any particular criteria of performance or quality. Deloitte Touche Tohmatsu expressly disclaims all implied warranties, including, without limitation, warranties of merchantability, title, fitness for a particular purpose, noninfringement, compatibility, security, and accuracy. Your use of these materials and information contained therein is at your own risk, and you assume full responsibility and risk of loss resulting from the use thereof. Deloitte Touche Tohmatsu will not be liable for any special, indirect, incidental, consequential, or punitive damages or any other damages whatsoever, whether in an action of contract, statute, tort (including, without limitation, negligence), or otherwise, relating to the use of these materials or the information contained therein. If any of the foregoing is not fully enforceable for any reason, the remainder shall nonetheless continue to apply. Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms. World Tax Advisor 5 of 5 Copyright 2008, Deloitte Touche Tohmatsu.

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World Tax Advisor. New Zealand IRD Audits: Survival of the Fittest. 3 October In this issue: International Tax World Tax Advisor 3 October 2008 In this issue: New Zealand IRD Audits: Survival of the Fittest... 1 Argentina: Court Issues Broad Ruling on Concept of Source... 2 Austria: Gift Notification