Indonesian Tax Authorities Finally Entered an Automatic Exchange of Information Agreement with Hong Kong
On 16 June 2017, the government of Indonesia reached an agreement with the government of Hong Kong on the automatic exchange of information (AEoI). This is the first AEoI agreement that the government of Indonesia has entered into. The governments of Indonesia and Hong Kong will start to exchange information in 2018. This happened also because the Indonesian government issued a law that eliminates bank and financial institution secrecy in Indonesia.
Implications of the AEoI between Indonesian and Hong Kong
AEoI is a mechanism in which two or more countries exchange information automatically without any request needed. Under an AEoI, banks and other financial service providers in Hong Kong are responsible for collecting particular information about their customers who are Indonesian tax residents, and reporting the information to the Hong Kong tax authorities. Subsequently, the Hong Kong tax authorities will share this information with the Indonesian tax authorities.
Based on the above, the Indonesian tax authorities will have more means to gather information as a basis to collect taxes from Indonesian taxpayers, especially taxes on assets located in banks or financial institutions located in Hong Kong that have not been reported correctly to the Indonesian tax authorities.
According to the statement of the representative of the Directorate General of Tax, after the signing of the AEoI with Hong Kong, the AEoI agreement with Hong Kong will also become leverage for the Indonesian government to enter into other AEoI agreements with other countries.
In addition, we understand that after the conclusion of the AEoI agreement with Hong Kong, the Indonesian government will try to conclude an AEoI agreement with Singapore. The negotiation on AEoI with Singapore has already been conducted. However, the negotiation was stopped. The Singapore government requested that Indonesia enter into an AEoI with the Hong Kong government before Singapore continues to negotiate the AEoI agreement with Indonesia. There is no specific deadline yet for when the negotiation on AEoI with Singapore will be concluded.
This AEoI agreement proves that the Indonesian tax authorities are in the process of realizing their global commitment to fight tax evasion by multinational companies.
Actions to ConsiderActions to Consider
The era of global transparency is coming. It is more likely than not that more AEoI agreements will be signed by the Indonesian government with the governments of other countries. We encourage Indonesian taxpayers to comply more with the tax regulations.
In general, because it will be easier for the tax authority to gather information on taxpayers from other tax authorities, it is suggested that taxpayers ensure that they have properly reported their offshore assets and activities to the Indonesian tax authorities, to avoid sanctions from the tax authority.