What is a Special Purpose Company?
Special purpose company this is also known as special purpose entities or special purpose vehicle. Other than that, special purpose company relevant to the term letter box company, money box company, paper company, and shell company. Then what is it special purpose company?
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Definition
REFERRING to the IBFD International Tax Glossary (2015), special purpose vehicle is an entity formed to participate in structured financial arrangements or investment transactions typically as part of a tax evasion or reduction plan.
Meanwhile, quoting from the OECD Glossary Statistical Terms, special purpose entities is an entity that is generally organized or established in an economy other than the economy in which the parent company is located.
Special purpose entities it is involved primarily in international transactions but has little or no involvement in local operations. As for special purpose entities this can take the form conduit company, letter box company, money box company, paper company, or shell company.
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The OECD Glossary Tax Terms defines conduit company as a company established in connection with a tax avoidance scheme, where income is paid by the company to conduit company and then redistributed by the company to its shareholders as dividends, interest, royalties, and others.
More broadly, based on the IBFD International Tax Glossary (2015), conduit company can be defined as a company that obtains benefits from a tax treaty with respect to income arising in other countries. Economic benefits from this income are received by a group of people in a country, who will not be able to obtain the right to use the Tax Treaty if the income is received directly.
This can be achieved for example by using conduit company who lend the income to its true beneficial owners, reinvest it for their final profit, or distribute it through dividends.
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For your information, back-to-back loan is an example of utilization conduit company. Conduit company these are generally not taxed or minimally taxed under domestic law or income is paid in a creditable form.
Therefore, conduit company play a major role in treaty shopping. In response to this, P3B now contains more restrictions on the provision of benefits specifically aimed at preventing its misuse through conduit company.
Meanwhile, letter box company / money box company / paper company / shell company is a popular term that refers to companies that are legally incorporated and registered under the laws of a specific jurisdiction but have no further business substance.
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Such companies are usually based in low-tax or non-tax countries and are used to accumulate profits diverted from high-tax countries (IBFD, 2015).
Definition in Domestic Rules
PROVISIONS regarding special purpose company or special purpose vehicle or conduit company among them are listed in Article 18 paragraph (3b) and paragraph (3c) of the Income Tax Law (PPh), PMK No.140 / PMK / 2010, PMK No. 258 / PMK.03 / 2008 and PMK No.127 / PMK.010 / 2016.
Referring to Article 1 number 2 PMK No. 258 / PMK.03 / 2008 intermediate companies (special purpose company or conduit company) are:
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“Companies that are formed for the purpose of selling or transferring company shares, which are established or domiciled in a country that provides tax protection (tax heaven country) which has a special relationship with an entity that is established or domiciled in Indonesia, or a permanent establishment in Indonesia. “
This definition relates to the interest of withholding income tax (PPh) Article 26 on income from the transfer or sale of shares as referred to in Article 18 paragraph (3c) of the Income Tax Law.
Meanwhile, Article 2 paragraph (4) PMK No.127 / PMK.010 / 2016 concerning Tax Amnesty based on Law No.11 / 2016 concerning Tax Amnesty for Taxpayers who Own Indirect Assets through Special Purpose Vehicle, define special purpose vehicle as:
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“Intermediate companies that are established solely to carry out certain special functions for the benefit of their founders, such as for purchasing and / or financing investments, and not carrying out active business activities.”
Conclusion
BASED ON the descriptions that have been described special purpose company In short, it can be interpreted as a company created for a specific purpose, one of which is used as a channel (conduit) to avoid paying taxes.
Tax avoidance is carried out by establishing a company between or conduit company, letter box company / money box company / paper company / shell company in one of the P3B partner countries or tax havens. These intermediate companies are established for specific purposes and usually do not have active business activities. (Bsi)
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