Strengthening Global Tax Cooperation, Sri Mulyani Signs MLI STTR

Minister of Finance Sri Mulyani (Photo; Doc. Ministry of Finance)

JAKARTA Indonesia officially signed a Multilateral Instrument Subject to Tax Rule (MLI STTR). The signing was carried out by the Minister of Finance Sri Mulyani Indrawati together with leaders from 42 other countries/chardicts.

Meanwhile, MLI STTR is one of the instruments for implementing Pillar 2 which is part of a global agreement to minimize unfair tax tariff competition.

Sri Mulyani explained that STTR allows a country to impose an additional tax of up to 9 percent of certain incomes such as royalties, interest, and several types of services paid to partner countries of Double Tax Avoidance Approval (P3B) if the partner country imposes a tax of less than 9 percent.

However, STTR is only applied to intragroup income payments whose value exceeds 1 million euros in one year of tax (materiality threshold). For income other than interest and royalties, the value of payment must exceed the cost of principal plus a margin of 8.5 percent (mark-up threshold).

Sri Mulyani explained that Indonesia's participation in the MLI STTR shows the country's commitment to creating a fairer and more transparent business climate in global economic cooperation.

"STTR has also increased the level of playing field between local and multinational companies, so that local companies can compete more in the market," he explained in his statement, Friday, September 20.

According to Sri Mulyani in state finances, STTR strengthens the provisions of anti-tax evasion in Indonesia's taxation system and creates a wider fiscal space for the Government in tackling other macroeconomic challenges.

In addition, Sri Mulyani emphasized that this commitment reflects the Government's efforts to maintain a balance between investment development and the provision of healthy fiscal spaces, to support Indonesia's sustainable development.

"Domestic resource mobilization is very important for a country and STTR provides a way for countries to protect their tax bases," he said.

Sri Mulyani added that Indonesia's joining in this initiative is in line with the preparation of the Indonesian membership process for the Organization for Economic Cooperation and Development (OECD).

"The MLI STTR provisions will be integrated in P3B simultaneously and systematically without going through bilateral negotiations. The implementation of this instrument is expected to have an impact on 29 P3B of Indonesia and partner countries," he said.

As with other international agreements, the implementation of the MLI STTR is carried out after going through a ratification process in accordance with applicable regulations.