Exchange of Tax Information: Indonesia Experience, Developing

Country Implications

Thesa Adi Purwanto

Tax Administration Laboratory, Vocational Education Program, Universitas Indonesia, Depok, Indonesia

Keywords: Information Exchange; Developing Countries; Tax Transparency, AEoI.

Abstract: This study aims to discuss Indonesia’s experience in the Automatic Exchange of Tax Information (AeoI)

implementations. This study employs a qualitative approach, using the content analysis technique.

Secondary data were collected from journals and other sources of literature. The results depict that

Indonesia has exchanged information to 57 jurisdiction partners in 2018. Automatic Exchange of

Information is now a reality, and a powerful tool to improve tax compliance is up and running. This

situation represents a significant step forward in international cooperation on tax transparency, ushering in a

new era where the automatic exchange of financial information for tax purposes is the norm. In theory, this

study contributes to the diversity of views regarding the use of Inclusive Framework that applied in the

Automatic Exchange of Information, especially from the side of developing countries. With Indonesia’s

experience overtaken, the adoption of the Automatic Exchange of Information standard on a global scale

would equip all developing countries with the ability to address the illicit flow of money to locations which

result in tax avoidance. The principal purpose of exchanging information is to provide developing countries

with information which allows them to protect their tax base and limit their exposure to revenue leakage.

1 INTRODUCTION

International tax cooperation is considered a

fundamental prerequisite for domestic mobilisation

of resources in developed and developing countries

alike, as governments worldwide are faced with the

consequences of economic globalisation. In addition,

international tax governance is necessary to ensure

consistent adoption, interpretation and

implementation of international standards required

to tackle the global effect of illicit financial flows

(IFFs) and build tax certainty to foster economic

growth. It is an issue that can only be addressed

through a global response from Governments, with

no single country able to address it on a stand-alone

basis, as unilateral approaches may have damaging

effects on trade and the economy.

However, who are the key players in this

international tax governance? What is required to

establish global tax governance through

multilateralism?

The OECD has been developing international

standards for over 50 years. The international tax

architecture has seen these standards as the linchpin

for tax rules for almost a decade. Since 2009, when

G20 leaders came together in London with a new

resolve to fight tax evasion and declared: “The era of

bank secrecy is over”, the OECD has partnered with

the G20 to tackle international tax evasion and

avoidance.

On 19 July 2013, the OECD released its Action

Plan on BEPS, identifying 15 specific actions that

will give governments the domestic and

international instruments to prevent multinational

corporations from paying little or no taxes. This plan

was endorsed by the G20 at a Leaders Summit in

Saint Petersburg in September 2013. Up to the G20-

OECD’s BEPS Action Plan, international projects

on tax-related matters tended to be initiated by the

OECD, which produced tax-related reports and

discussion drafts for jurisdictions to consider in

applying their own domestic tax laws (Reck, &

Donoghue, 2013) as only governments, not the

OECD, are able to set laws or sign tax treaties.

One may ponder the reasons as to why the

United Nations Economic and Social Council

(ECOSOC), which engages in intergovernmental

deliberations on international tax cooperation and

holds an annual meeting with national tax authorities

to consider international cooperation in tax matters,

534

Adi Purwanto, T.

Exchange of Tax Information: Indonesia Experience, Developing Country Implications.

DOI: 10.5220/0010704200002967

In Proceedings of the 4th International Conference of Vocational Higher Education (ICVHE 2019) - Empowering Human Capital Towards Sustainable 4.0 Industry, pages 534-543

ISBN: 978-989-758-530-2; ISSN: 2184-9870

has not been able to spearhead the governance of

international taxation. The same question applies to

its Committee of Experts on International

Cooperation in Tax Matters, a subsidiary body of

ECOSOC tasked with work on international tax

cooperation (UN FfD, 2018a).

Although not initially part of the design of

international tax standards required to deal with the

global issues of BEPS, the critical role developing

countries need to play in spearheading the

governance of international taxation has since been

recognised and is starting to impact the international

tax landscape. As a result, regional tax organisations

are working with the OECD and international

organisations such as the International Monetary

Fund (IMF), the World Bank Group, and the United

Nations in setting international tax standards and

thus shaping global tax governance through

multilateralism.

However, regarding the “Menu” analogy, these

last key players entered into the play and during the

pre- G20-OECD’s BEPS project era. The

international tax landscape could be similar to a

dinner table where the menu was set and prepared by

OECD countries, ensuing dishes being available to

all countries, including developing countries.

Irrespective to their tastes and preferences, they did

have an option not to eat the dishes and prepare their

own. This situation means a unilateral approach.

Since the BEPS project, there have been calls for

greater inclusiveness in the existing frameworks. For

instance, the 2015 BEPS Explanatory Statement

highlighted that “It is now time to focus on the

upcoming challenges, which include supporting the

implementation of the recommended changes

consistently and coherently, monitoring the impact

on double non-taxation and double taxation, and

designing a more inclusive framework to support

implementation and carry out monitoring.” The G20

Finance Ministers Communique in September 2015

stated, “We call on the OECD to prepare a

framework by early 2016 with the involvement of

interested non-G20 countries and jurisdictions,

particularly developing economies, on an equal

footing” (OECD, 2015a).

As a result, the Inclusive Framework for BEPS

Implementation (IF) was created to level the playing

field for all committed and relevant jurisdictions.

This implementation ensures that they are involved

on an equal footing in the setting of the future

standards relating to BEPS issues, the

implementation and monitoring of the BEPS

outcomes. It also includes tailoring implementation

solutions for BEPS outcomes that are appropriate for

all capacity levels. Currently, 129 jurisdictions have

joined the IF (as of March 2019).

The question remains, however, whether these

efforts herald the beginning of multilateralism in

international taxation with decisions taken in an

environment where the high power and interests of a

few powerful countries are checked and where small

countries are granted the voice and voting

opportunities that they would not otherwise have. A

more fundamental question, with the level playing

field provided by the IF in mind, is whether

developing countries in the IF currently cannot only

understand but to efficiently influence the menu to

fit their preferences and economic realities. In

addition, what would the impacts on their economy

be if they remain silent at the table?

A consensus-based approach is needed in this

changing international tax landscape as manifested

by an increase in new legislation by countries

around the world, the requirement for increased

transparency, global cooperation and information

sharing among tax authorities, and the rapid

expansion of the digitalised economy. To date,

although the OECD, the European Union (EU) and

some countries bilaterally have started dealing with

the issue of the taxation of the digitalised economy,

it offers a relatively clean slate to developing

countries and to proactively steer the direction of the

global standard agenda rather than providing inputs

into a pre-determined agenda. Thus, it represents an

opportunity to achieve global tax governance

through multilateralism better and, as such, to bring

many countries on an equal footing in setting the

global tax standards of the digitalised economy.

This paper will explore whether there has been a

shift towards global tax governance through

multilateralism by reviewing the role of the OECD

in the BEPS project, the advantages and limitations

of the Inclusive Framework for BEPS

Implementation (IF) and finally the exchange of

information (EOI) process through the Global

Forum on Transparency and Exchange of

Information for tax purposes. This paper will

describe the progress developing countries has made

towards multilateralism in tax governance in taking

its rightful place at the global tax governance table

despite numerous challenges it faces. It describes the

position of developing countries, especially

Indonesia, in the Inclusive Framework and its

participation in the standards of transparency and

exchange of information for tax purposes.

Exchange of Tax Information: Indonesia Experience, Developing Country Implications

535

2 METHODOLOGY

This research epistemology uses the interpretative

paradigm to observe and solve a problem that

emphasises the socially constructed nature of reality.

Guba explained that in the context of research

design, the selection of the research paradigm would

guide the entire research process (Guba, 1990). The

research paradigms are to determine the problem

addressed and an explanation of what can be

accepted (Kuhn, 1970). Lincoln and Guba identify

four main paradigms: positivism, post-positivism,

constructivism, and critical theory. Sarantakos

believes that there are three dominant paradigms in

the social sciences, the positivist, the interpretive

and the critical (Sarantakos, 1998). Like Sarantakos,

Neuman also distinguishes the model of research in

three, namely positivism, interpretation, and critique

(Neuman, 2013).

In this research, the approach used is the

qualitative approach. Cresswell defines a qualitative

study as: “a process of understanding a social or

human problem based on the construction of a

complex and holistic image, formed with words,

reporting detailed views of informants and carried

out in a natural setting” (Cresswell, 2013). About the

qualitative approach, Neuman says, “Data for

qualitative researchers sometimes takes the form of

numbers, more often written or spoken words,

actions, sounds, symbols, physical objects or visual

images. (e.g., maps, photographs, videos.)

“(Neuman, 2013).

The type of research used is descriptive. The

descriptive study can be interpreted with problem-

solving procedures that are studied by describing the

state of the subject or object of the study at present

based on facts that appear or as they are (Soejono &

Abdurrahman, 2005). Data collection techniques aim

to collect data or information that can explain the

problem of objective research. This study is

conducted by collecting and studying data and

information obtained from journals and other

sources of literature. Content analysis and discourse

analysis, which rely much more on the models,

structures, and language used in the written word,

can be used when qualitative data has been

collected. Content analysis is a procedure for

categorising behavioural data for classification,

synthesis and tabulation purposes. The content can

be analysed at two levels. The primary or manifest

level is a descriptive account of data. This account

includes pre-state information but no explanations or

theories. Higher or latent level of analysis is a more

interpretative analysis concerning the answer as well

as what may have been inferred or implied.

3 RESULTS AND DISCUSSION

Currently, there is no single entity with the global

legitimacy, resources and expertise to serve as a

single body for global tax governance, perhaps

rightly so given the sovereign nature of taxation (UN

FfD, 2018b). The OECD, with the support of the

G20, has to fill the absence with a coordinating body

for international tax cooperation. The BEPS Action

Plan was approved by the OECD’s Committee on

Fiscal Affairs (CFA) in June 2013 and endorsed by

the G20 Leaders in September 2013. The 15 actions

it identified were formulated to combat international

tax avoidance by multinational enterprises (MNEs).

Such tax avoidance takes place by artificially

shifting profits to low tax jurisdictions and eroding

the tax bases of the standard rate tax jurisdiction

where the operations take place. The main objective

of the BEPS Action Plan was to ensure that profits

are taxed in the jurisdiction where the economic

activities generating such profits are performed and

where value is created, thus ultimately securing

government revenues in the appropriate jurisdiction

(Picciotto, 2017). As a result, although the OECD

and the G20 initially developed the BEPS project, it

subsequently strived to become more encompassing.

All countries from the OECD and G20 countries

represent 90% of the world’s economy. They have

been working together on an equal footing in the

CFA. Beyond those 44 countries leading the BEPS

Project, a broader range of stakeholders - business,

academics, civil society, were brought in an in-depth

consultative process.

In response to the recognition that BEPS is a

global problem which affects domestic resource

mobilisation in developing countries, the OECD

organised two of four regional consultation events

on BEPS in Seoul, Korea, on 20-21 February 2014

and in Latin America and the Caribbean

(Colombia/Bogota) on 27-28 February 2014. The

regional consultation event for Francophone

countries took place in France/Paris, on 25 March

2014. The outcomes of the regional consultations

were discussed at the meetings of the Global Forum

on Transfer Pricing and Task Force on Tax and

Development, on 26-28 March 2014, and informed

the development of the BEPS outputs. They also fed

into the Report to the G20 Development Working

Group on the impact of BEPS issues in developing

countries, and how the G20 can assist lo11w-income

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countries (LICs) to address the BEPS issues and

challenges they face.

Developing countries emphasised the critical

need to take into account the specific risks and

challenges faced by its if the OECD/G20 BEPS

project were to deliver a global solution to this

global problem. It also argued that developing

countries must be given the opportunities to make

inputs into the BEPS project to ensure that the views

and experiences of developing countries shape the

development of potential BEPS solutions.

According to the OECD, non-OECD countries

representing varying levels of development were

similarly invited to participate directly as associates

and invitees in the Committee on Fiscal Affairs’

decision-making and technical working groups, thus

offering them the opportunity to have a direct impact

in international tax policymaking and development

of international tax rules. It is important to note that

associates would have the possibility to participate

in the BEPS project on an equal footing with OECD

members while invitees would have only a

consultative role which does not necessarily equate

to participative decision-making (Fung, 2017). Non-

OECD countries with an associate status included:

Argentina, Brazil, China, India, Indonesia, Russia,

Saudi Arabia, South Africa, Colombia and Latvia.

Overall, by October 2015 when the BEPS project

was completed and supplemental reports delivered

to the G20 Finance Ministers, the OECD argued that

more than 80 developing countries had engaged in

BEPS Project through either direct participation in

the CFA and its subsidiary bodies, the regional

networks of tax policy and tax administration

officials, or capacity-building efforts (OECD,

2015b, 2017b). One could argue that this is

undoubtedly a step in the right direction, although

not enough when confronted with the fact that

developing countries are often most adversely

affected by illicit financial flows. They have lost

more than USD$200 billion in revenue through

BEPS, larger than revenue losses in OECD countries

relative to GDP at around 1.3% of GDP (compared

to 0.6% of GDP in the OECD, i.e. approximately

$500 billion in revenue loss) and alarming given

their low levels of tax revenue to GDP (15% on low-

income countries compared to 35% in the OECD)

(Financial Transparency Coalition, 2016).

The primary role of the OECD’s Committee on

Fiscal Affairs has been recognised and supported by

the G20. This role played in international standards

for tax setting and its efforts to encourage the

participation of developing countries. Developing

countries are still faced with, among others,

inadequate resources and level of expertise in

international tax policy as well as clashes with other

political priorities like inequality, climate change,

unemployment and security that constrain their

ability to influence decision-making on global tax

issues. This situation consequently hampers the

consensus-based policy reform measures aimed at

restoring fairness, transparency and coherence to the

global tax environment. In addition, it is argued that

the ambitious timeframe of the BEPS project and the

resulting speed at which discussion drafts were

released and finalised would not have allowed

consensus in the first place. This condition is

compounded by a lack of capacity in developing

countries to keep pace with the global standards’

complexities and fast turnarounds.

The limited scope of the OECD/G20 BEPS

project was also criticised by some developing and

emerging countries, especially its skewness towards

international tax rules tackling BEPS issues only

relevant to developed countries and detrimental to

developing countries. These arguments exacerbated

the legitimate concerns raised by various

stakeholders regarding the OECD/G20 BEPS project

(Fung, 2017). Overall, as Essers argued, despite the

OECD’s efforts to make the BEPS process as

participatory as possible through consultations, it

lacks democratic legitimacy given that countries are

not only unequally involved in the decision-making

process, but consultation by itself does not equate to

participative decision-making (Essers, 2017).

Overall, in the absence of a single entity with the

global legitimacy, resources and expertise to serve

as a single body for global tax governance, a

pluralistic landscape has therefore emerged, where

organisations active in this area must work together

with a “view to meeting common tax and

development goals in the most efficient, responsive

and participatory ways” (UN FfD, 2018b).

Following the endorsement on 15-16 November

2015 in Antalya/Turkey by the G20 Leaders’

Summit of the BEPS package consisting of reports

on 15 actions equipping governments with the

domestic and international instruments needed to

tackle BEPS, the G20 leaders acknowledged that

effective and consistent implementation of the BEPS

package requires an inclusive implementation

process. As a result, they called “on the OECD to

develop an inclusive framework by early 2016 with

the involvement of interested non-G20 countries and

jurisdictions which commit to implementing the

BEPS project, including developing economies, on

an equal footing” (Turkey G20, 2015). This

framework was reiterated the following year by the

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G20 Finance Ministers at their meeting on 26-27

February 2016 in Shanghai, China (Ministry of

Finance China, 2016). Two drafting groups were

subsequently established. They were tasked with the

implementation of the comprehensive BEPS

package. The first group tasked with the peer review

and monitoring framework on the practical

implementation of the agreed minimum standards,

i.e. the Inclusive Framework for BEPS

Implementation (IF) and a second group tasked with

the development of a multilateral instrument that

will allow countries to swiftly amend their existing

bilateral tax treaties in order to implement the tax

treaty-related BEPS recommendation (Fung, 2017).

The Inclusive Framework was thus developed to

allow interested countries and jurisdictions to work

with OECD and G20 members on developing

standards on BEPS related issues, and to review and

monitor the implementation of the whole BEPS

package. The inaugural meeting of the Inclusive

Framework was held on 30 June – 1 July 2016 in

Kyoto, Japan. Countries and jurisdictions interested

in joining the IF are required 1) to commit to the

comprehensive BEPS package and its consistent

implementation; and 2) to pay an annual member’s

fee (20 000 EUR) to cover the costs of the IF

(OECD, 2017a). Members of the IF participate on an

equal footing as BEPS Associates with OECD and

G20 countries in the OECD’s CFA where

agreements are reached following a consensus-based

mechanism. They work to deliver on the objectives

of the IF which are to:

• develop standards in respect of remaining

BEPS issues;

• review the implementation of agreed minimum

standards through an effective monitoring system.

The four minimum standards agreed upon aimed at

reducing negative spillovers on others that might

occur if some countries or jurisdictions took no

action. They encompass the following: Action 5 on

Harmful Tax Practices, Action 6 on Treaty Abuse,

Action 13 on Transfer Pricing Documentation and

Country-by-Country Reporting, and Action 14 on

Dispute Resolution Mechanisms.

• monitor BEPS issues, including tax challenges

raised by the digital economy; and

• facilitate the implementation processes of the

Members by providing further guidance and by

supporting the development of toolkits to support

low-capacity developing countries” (OECD, 2017a).

As of March 2019, 129 countries have joined the

IF including. Three international organisations and

regional tax organisations are also to play an

essential role in the Inclusive Framework, in

particular in supporting the implementation of the

BEPS package in developing countries and

influencing the future BEPS global standards. These

include ATAF, CREDAF, CIAT, the IMF, the

World Bank Group (WBG), and the UN (OECD,

2017a). With the latter objective in mind, four

international organisations (IMF, WBG, UN and

OECD) launched in April 2016, the Platform for

Collaboration on Tax (PCT) to boost global

cooperation in tax matters and strengthen their tax

capacity-building support to developing countries

(Picciotto, 2017). One of the Platform’s main tasks

is to deliver practical toolkits to assist low-capacity

developing countries in implementing efficiently the

measures developed under the G20/OECD BEPS

project and addressing additional international tax

issues. To date, the PCT has developed the toolkit on

tax incentives4, which was released in October 2015

and provided an in-depth analysis of the efficiency

of tax incentives and recommendations regarding

best practices. The toolkit addressing capacity-

building in tax5 was delivered in July 2015 (World

Bank, 2016).

However, a question remains: Is the inclusive

framework a right move towards global tax

governance through multilateralism? Below are

some facts and further questions that may lead us

toward possible answers:

• The OECD’s, namely the “rich man’s club”,

policies primarily serve the interests of its members.

Rightly positioned its Committee on Fiscal Affairs

as being the “leader in setting standards and

guidelines in respect of international taxation

matters” (OECD, 2018a). When its Council alone,

composed of one representative per member country

and a representative of the European Commission

has the decision-making power (Fung, 2017)?

• How can genuine consensus and

standardisation of international tax rules be achieved

with 129 countries boasting divergent views on

international tax issues participating in the Inclusive

Framework (OECD, 2019)? In this context, is there

not a risk that the work of the Inclusive Framework

be reduced to a catalogue of divergent country

views? Or is the bottom-line simply that if countries

are allowed to participate in the development of new

international tax standards, they will be more likely

to implement those standards in their domestic tax

rules thus expanding the OECD’s sphere of

influence far beyond its 35 member countries

(Ernick, 2016)?

• As mentioned above, in practice, all members

of the Inclusive Framework have the opportunity to

participate on an equal footing in all meetings of the

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CFA and its working parties related to BEPS

(Picciotto, 2017). The meetings often take place in

Paris, France, with the CFA meeting taking place at

least twice a year and the working parties’ meetings

two to four times per year (OECD, 2017a). Given

that the limited technical resources of developing

countries, especially Indonesia, are already stretched

thin between domestic tax priorities and

participation in the global standard-setting, the

likelihood that officials in these countries can

regularly attend these meeting is quite slim. When

they can attend, more often than not, limited

capacity means they struggle to influence the

decision-making process as aforementioned. This

consequence, therefore, affects their active

participation at the technical working groups and

also in the CFA decision process. In this context, a

decentralisation of the IF decision-making process at

the regional level through the regional tax

organisations ATAF, CREDAF, and CIAT must be

seriously considered and implemented.

• It is at the implementation stage of the BEPS

package that OECD strives to bring in non-OECD

countries “as equals” in order to secure their

commitment in the implementation of the OECD’s

instruments, standards and guidelines. Is it a case of

too little, too late?

• Furthermore, it will be interesting to observe

whether the Inclusive Framework can bring to the

fore and thus resolve the question of the limited

ability of some countries to influence the review

process and the implementation of said standards

with the ensuing impacts on their economies. Should

this not occur, it will undermine the effectiveness of

the implementation of these standards in the context

of these countries.

• Those countries that have not taken part in the

decision-making process during the BEPS project

may struggle with the push to join the Inclusive

Framework to take part, via an annual fee, in a

“quick and widespread implementation of the

G20/OECD BEPS package” even if on an equal

footing and to sign the Multilateral Instrument where

they have had no influence in the development

thereof (Ministry of Finance China, 2016). Some

countries, as such as India, have construed this

approach as being “somewhat patronising” (UN

FfD, 2014).

• Linked to that, it appears that some countries

may not have, in substance, a choice in the matter of

joining the Inclusive Framework. Although the

BEPS policy outputs are not legally binding, a

jurisdiction which has not joined the Inclusive

Framework may be identified as a “jurisdiction of

relevance”, whose adherence to the BEPS minimum

standards will still be required by the OECD in order

to ensure a level-playing field (OECD, 2018b). In

addition, most developing countries could not easily

ignore the politics and power of peer pressure

exerted by the G20 and the OECD, even more so

when the possibility of blacklisting and defensive

measures looms large in the horizon (Fung, 2017).

According to Kelsen, this would contradict the

principle of sovereign equality which posits that no

State can be legally bound without or against its will

(Kelsen, 1944).

• Another fundamental concern that is currently

plaguing some developing countries is the perceived

geopolitical, as opposed to the rational, nature of the

listing processes and the coerciveness of the 2017

EU list of non-cooperative tax jurisdictions. In

particular, it decries the obvious absence of some

powerful states in the EU which play a significant

role in facilitating global tax evasion and avoidance

and the US which does not necessarily “play fair on

tax matters” as it does not meet the information-

exchange requirements of the list (Valderrama,

2018). It thus appears to unfairly target smaller

nations with less political and economic clout which

are not able to comply with the EU criteria, likely in

part because of unavailability of resources, while the

richest and most powerful countries can protect their

tax system from offshore abuse (Tax Justice

Network, 2018). For example, Namibia was

included in the EU’s list of non-cooperative tax

jurisdictions in December 2017. This condition

resulted in the freezing of the company Meatco’s

accounts in the United Kingdom, with crippling

consequences on the economy. With support from

ATAF, Namibia has succeeded in being removed for

the EU list.

• Despite the above-mentioned, countries, in full

awareness or not, continue to commit themselves to

implement the BEPS minimum standards by joining

the Inclusive Framework. It is possible that, despite

not having equal representation in the new agenda,

development of the BEPS project now ready to play

a more significant role in its execution. As an

example, the remaining standard-setting under the

BEPS project influence or improve the coherence of

international tax rules. This condition is supported if

their efforts are complemented by coordinated and

targeted capacity-building support provided by the

regional tax organisations’ technical assistance and

capacity building programmes and the Platform for

Collaboration on Tax (PCT).

Overall, to use once again the analogy of the

“Menu”, countries may deliberately decide to join

Exchange of Tax Information: Indonesia Experience, Developing Country Implications

539

the dinner table and sign up to the menu (i.e. the

Inclusive Framework). In doing so, they all agree to

“eat” a portion of the menu (i.e. the Minimum

standards). However, they have the freedom to

choose other dishes on the menu if they so wish.

They also now have an equal say in what will be on

the menu going forward and are part of the peer

review process for the implementation of the BEPS

minimum standards by all IF members (e.g. 2020

revision of the Country by Country Reporting

minimum standard including the 750 Million Euros

threshold). In excellent, however, it boils down to

whether developing countries, in general, and

Indonesia, in particular, can understand and

influence the menu and quickly digest the four

dishes they are required to eat. More importantly,

before even getting to the menu, are they fully

conversant with what joining the dinner table

implies and the impacts thereof on their economies?

Furthermore, if they choose not to be at the

dinner table, is there an alternative option open to

them? Or could we pessimistically argue that

because of their present inability to effectively play

a leadership role in the extended multilateral tax

governance structure, some developing countries

would be subjected to international tax rules and

subsequently relegated to receiving technical

assistance and capacity building to implement said

rules?

Some alternatives to improve the governance of

international tax have been proposed with various

reactions internationally. Oxfam, for example, has

called for the establishment of a global tax body to

improve the governance of international taxation in

line with the former Director of the IMF’s Fiscal

Affairs Department, Vito Tanzi’s World Tax

Authority (WTA) (Oxfam, 2014). However,

international institutions like the IMF and the World

Bank have opposed that idea, advancing the

argument that, as taxation is inherent in sovereignty,

many countries would not surrender their power to a

global tax body. In addition, they have questioned

whether adding another institution would provide a

real solution to the problem (Fung, 2017). Countries

such as Australia, the United States, the UK and

other wealthy nations have followed suit in blocking

the idea of creating a global tax body or boosting the

role of the United Nations (either through the

Committee of Experts on International Cooperation

in Tax Matters7 or the Conference on Trade and

Development, UNCTAD) in an attempt to increase

the influence of developing countries in international

tax rule-making. The rationale for such opposition,

they argued, lies in the fact that such a move would

duplicate the work already undertaken by the

OECD, IMF, World Bank, ATAF, and CIAT. This

situation has been the source of significant disputes

at the Addis third International Conference on

Financing for Development (FfD) (Financial

Transparency Coalition, 2016; The Guardian, 2015a;

Tax Justice Network, 2015; The Guardian, 2015b).

The era of globalisation, multinational

corporations and international finance as well as the

2008 financial and economic crisis has exposed the

limitations of the global tax framework. With the

lack of adequate information, tax authorities around

the world could not adequately protect nor expand

their tax base. After that, the fight against tax havens

and curbing tax avoidance started. The G20 Summit

in 2009 decided to set up the Global Forum on

Transparency and Exchange of Information for Tax

Purposes (hereafter the Global Forum) to strengthen

the capacity for cooperation in international tax

matters. The Global Forum, self-funded was to be

hosted by the OECD which has been the leader in

the international clampdown against illicit tax

havens since the 1990s and produced the 1958

Model Tax Convention (Owens & Bennett, 2008;

OECD Observer, 2013).

The Global Forum established standards of

transparency and exchange of information for tax

purposes which were adopted and implemented by

developed and developing countries, offshore

financial centres and International organisations.

Two standards have been implemented, and the

Global Forum strives to assist countries with low

capacity to efficiently benefit from them: the

exchange of information on request (EOIR) and

automatic exchange of financial account information

(AEoI). The G20 finance ministers endorsed the

AEoI in April 2013, followed by the G8 in June

2013 (OECD Observer, 2013). By 2019, 154

members have joined the Global Forum on equal

footing, and it monitors that they fully implement

the standard through an in-depth peer-review

process.

Indonesia has prepared AEoI’s participation

since signing the commitment at the 2015 Global

Forum. Four mandatory requirements that need to be

met by Indonesia are:

1. the enactment of domestic legislation,

2. the entry into force of international

agreements,

3. the availability of a data transmission system,

4. the guarantee of confidentiality and data

security as evidenced by the process of assessment

on confidentiality and data safeguards from the

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Global Forum on Transparency and Exchange of

Information for Tax Purposes.

Indonesia has exchanged information to 57

jurisdiction partners in 2018. However, of the 102

participating AEoI countries In 2018, only 88

countries would exchange data with Indonesia. Of

that amount, only 73 countries will exchange data

reciprocally with Indonesia. The 88 jurisdictions

fulfil the category of AEoI participant jurisdiction

for Indonesia, namely foreign jurisdictions that are

bound by the Indonesian government in international

treaties that have the obligation to submit financial

information automatically. Indonesia will exchange

information reciprocally with 73 jurisdictions in

September 2018, which means Indonesia must send

information to 73 jurisdictions and the jurisdiction

must also send information to Indonesia. These

jurisdictions are categorised as destination

jurisdictions. The remaining 15 other jurisdictions

consist of 11 jurisdictions who choose to send

information to Indonesia non-reciprocally in

September 2018, without expecting information

from Indonesia, and four jurisdictions that will

reciprocally exchange information with Indonesia

from September 2019.

With Indonesia’s experience overtaken, the

adoption of the Automatic Exchange of Information

standard on a global scale would equip all

developing countries with the ability to address the

illicit flow of money to locations which result in tax

avoidance. The principal purpose of exchanging

information is to provide developing countries with

information which allows them to protect their tax

base and limit their exposure to revenue leakage. As

many countries implement changes in domestic

legislation to comply with the standard, the peer

reviews show that the volume of information being

exchanged for tax purposes is now overgrowing, and

the time taken to provide information is also

reducing. However, challenges remain, especially

for developing countries in general and Indonesia in

particular. For example, given that the efficiency of

a model for automatic exchange of information lies

in its standardisation for worldwide relevance and

use but also cost reduction for business and

governments, is the voice of developing countries

being heard in this process. Their unique

environments and economic conditions being

factored into this global fight against tax evasion.

4 CONCLUSIONS

Developing countries have strived to achieve its

vision of building efficient and effective tax policy

and administration capacity, thus assisting them in

mobilising domestic resources. Its efforts to

establish standards across the range of tax-related

activities to reinforce the work of tax administration

and services, the development of technical toolkits,

including a guideline on transfer pricing risk

assessment in the extractives industry in developing

countries and the provision of developing countries

model legislation, all have contributed to fulfilling

this vision.

In the area of international tax, developing

countries reported growing concerns that they

cannot fully influence standard-setting. They

subsequently mandated the UN Tax Committee not

only to ensure new international tax standards are

useful in developing countries but also to play a vital

role in forging new tax policy and in strengthening

tax administration. They consider that the UN Tax

Committee’s extensive experience in both working

“on the ground” with its member countries and in

participating and influencing the global standard-

setting processes of bodies such as the BEPS

Inclusive Framework.

As a result, UN Tax Committee with some

developing countries, have played a vital role in

articulating some critical priorities on the

international tax arena and are increasingly

recognised as influential players in standard setting

in a global and developing countries context.

Developing countries are therefore in a unique

position to seize the opportunities presented by the

tax challenges of digitalisation to take a proactive

role in the international tax cooperation where it

would contribute to steering the direction of the

global standard agenda rather than providing inputs

in a pre-determined agenda; thereby seizing the

opportunity for more inclusiveness in international

tax governance.

Digitalisation is a challenge which could also

turn into an opportunity if developing countries and

tax systems rise to the task. Developing countries

must recognise the pace of this process and seize the

opportunity to develop unique developing countries

approaches using technology in new and imaginative

ways.

The spread of the digitalised economy will

exacerbate the base erosion and profit shifting risks

and illicit financial flows out of developing countries

and thus increasingly pose challenges for

international taxation. Consequently, identifying

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541

appropriate tax rules to deal with digitalised business

has become a top priority (Flynn, 2017). As

recognised in the BEPS Action 1 Report, the

digitalised economy is increasingly becoming the

economy itself. Isolating it from the rest of the

economy for tax purposes would not be feasible. In

tackling these issues, considerations must be given,

among others, to the following: changing

fundamental tax rules on profit allocation and nexus

based on the concepts of user contribution and

marketing intangibles to address the tax challenges

of the digital economy; (ii) identifying the main

challenges of the digital economy; (iii) developing a

holistic approach that encompasses both direct and

indirect taxation; and (iv) addressing challenges

associated with digital presence and value

attribution.

Although work has started bilaterally (e.g. UK

and USA) and at the level of the OECD and the EU,

the challenges of the taxation of the digitalised

economy remain and therefore offers a relatively

clean slate to developing countries to proactively

steer the direction of the global standard agenda.

Developing countries indeed must continue to be

guided by the spirit of pro-activeness. The

developing countries voice must continue to be

heard and listened to on tax issues. The continent

can only avoid the “catch up Syndrome” by

investing in new research, innovations and modern

tax practices and collectively develop innovative

solutions that grow out of the realities of its

economies.

When developing countries succeed in this

endeavour, a giant step would have been made

towards a multilateral tax governance structure

characterised by a broader distribution of leadership

roles and responsibilities and where initiatives are

carried out, and standards are set by all or at least a

representative majority. This structure would be seen

by developing countries as a driving force for

increasing participation and inclusiveness and

implementation of international tax reforms.

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