19.

PSC TAXATION

Sutadi PU - Understanding PSC - LDI-Slide

19

COST STRUCTURE AND REVENUE SPLIT

PSC
Gross Revenue

INCOME TAX AND FINAL TAX ON

PROFIT

20%

FTP

1. Contractor Gross Income

Rec.Operating Cost

Equity to be Split

71.15%

28.85%

BP-MIGAS
Share

CONTRACTO
R Share
25%x28.85%

DMO
DMO Fee
Govt Tax

Indonesia
Share

Recovery of Operating Cost

FTP & Equity Share
DMO
Fee DMO
Over/Under Under Lifting

2. Cost/Tax Deductions
- PSC Operating Cost
- Non PSC Cost
3. Taxable Income (1) (2)
Tax Payments:
- Income Tax
- Dividend/Branch Profit Tax

48%

Net
Contr.
Share

(+)
(+)
(-)
(+)
(+/-)

Rec.Oper
Cost

OTHERS TAXES AND LEVIES

Sutadi PU - Understanding PSC - LDI-Slide

Total Contr.Share
19

F:/Boss/Kabppka/Gtw02/Jk

INCOME TAX AND FINAL TAX ON

PROFIT
Income Tax
Tax on PBDR or Branch
Profit
Total

Thru 1984
45.0%
20.0%
56.0%

1985-1994
35.0%
20.0%
48.0%

Ordonantie 1925
KMK 267/012/1978

UU PPH No.7/1984
KMK 458/012/1984

Reference

After 19952011
30.0%
20.0%
44.0%

After 2011
25.0%
20.0%
40.0%
UU PPH No. /20111

UU PPH No.10/1994

When a partner in a PSC is subject to a tax treaty with a foreign country tax regime, the rate of
Tax on Interest, Dividend and Royalty or Branch Profit Tax may be so affected that the total tax
rate changes to a lower rate.
Example of 10% Rate of Tax on Interest, Dividend and Royalty or Branch Profit tax due to tax
treaty:

Income Tax
Tax on PBDR or Branch
Profit
Total

45.0%
10.0%
50.5%

35.0%
10.0%
41.5%

Ordonantie 1925
KMK 267/012/1978

UU PPH No.7/1984
KMK 458/012/1984

30.0%
10.0%
37.0%

UU PPH No.10/1994

25.0%
10.0%
32.5%

UU PPH No. /2011

Reference

- The application of tax treaty result in lower net after tax shares for government
- Some, including new contracts revise production splits to have the same net after tax shares

Sutadi PU - Understanding PSC - LDI-Slide

19
F:/Boss/Kabppka/Gtw02/Jk

Law No. 22/2001 (Applicable to PSC signed following 23/11/2001)

Business entities shall pay Income Tax and Final Tax on Profit and
levies.

PSCs signed after Oil and Gas Law contains the following clauses:
Contractor shall pay to the Government the Republic of Indonesia
the income tax and the final tax on profit after tax deductible
imposed on it pursuant to the Indonesia Income Tax Law and its
implementing regulations.
BPMIGAS shall, except with respect to Contractors obligation to
pay Income Tax and the Final Tax on Profit after tax deductions as
set forth in this Section V, assume and discharge all other
Indonesia taxes of Contractor including value added tax, transfer
tax, import and export duties on materials, equipment and
supplies brought in to Indonesia by Contractor, its contractors or
subcontractors,..

One argument : The terms and conditions of PSC (i.e 85/15, 70/30
and others are based on the assumptions that Contractors are
not obligated to pay taxes and levies other than income taxes
Sutadi PU - Understanding PSC - LDI-Slide
and final tax on profit, as spelled
19 out in the contract

PSC ACCOUNTING VS GENERAL TAXATION (1)

PSC Accounting Procedure

Operating cost computed based

on PSC Accounting Procedures
Pre-signing contract costs are non
PSC Costs
Intangible Drilling Costs are
chargeable when they incur
Crude Oil sold to affiliate is valued
at ICP

Tax paid monthly based on actual

lifting, adjusted at end on March,
the following year
Tariffs : Income Tax 30%, Final Tax
on Profit 20%, effective tariffs
44%
Un-recovered costs are carried
over to succeeding years

General Tax Accounting

Principle
Operating cost
computed as

spelled out in the Income Tax

Law, Article 6
Pre-establishment costs having
>1 year benefit shall be
capitalized and amortized
Costs having more than 1 year
benefit shall be capitalized and
amortized
Crude Oil sold to affiliate is
valued at the actual price, but
tax office has the right to
determine the value

Tax due is paid no later than

end of March the following year

Tariffs
Losses may be compensated for
5 years

Sutadi PU - Understanding PSC

- LDI-Slide
19

PSC ACCOUNTING VS GENERAL TAXATION (2)

PSC Accounting Procedure

Community Development is non

capital costs and tax deductible
Interest on loan may only be
applicable to capital investment
and requires approval
Consumable items are
chargeable when landed in
Indonesia
Depreciation starts beginning in
the year when an asset is placed
into service
Assets belong to the State
Acquisition costs of economic
interest are charged to Operating
Costs according to PSC
Accounting Procedures
Books and Accounts are reported
in English language and in US
Dollar currency

General Tax Accounting

Corporate Principle
social responsibility is

not tax deductible

All interest on loan is tax
deductible

Consumable items are

deductible when they are issued
for usage
Depreciation starts in the month
of payment or completion of
assets

Assets belong to business entity

Revaluation of assets is possible

Acquisition costs of economic

interest shall be amortized
based on unit of production

Financial Reports in Bahasa

and in Indonesian
Sutadi PU - Understanding PSC - Indonesia
LDI-Slide
19
Rupiah.

Law No. 22/2001 (Applicable to PSC signed

following 23/11/2001)
Business entities shall pay Income Tax and
Final Tax on Profit and levies.
PSCs signed after Oil and Gas Law contains the
following clauses:
Contractor shall pay to the Government the
Republic of Indonesia the income tax and the
final tax on profit after tax deductible imposed
on it pursuant to the Indonesia Income Tax
Law and its implementing regulations.

Sutadi PU - Understanding PSC - LDI-Slide

19

BPMIGAS shall, except with respect to

Contractors obligation to pay Income Tax and
the Final Tax on Profit after tax deductions as
set forth in this Section V, assume and
discharge all other Indonesia taxes of
Contractor including value added tax, transfer
tax, import and export duties on materials,
equipment and supplies brought in to
Indonesia by Contractor, its contractors or
subcontractors,..

One argument : The terms and conditions of PSC (i.e

85/15, 70/30 and others are based on the assumptions
that Contractors are not obligated to pay taxes and
levies other than income taxes and final tax on profit,
as spelled out in the contract
PU - Understanding PSC - LDI-Slide
Another argumentSutadi
:Compliance
with the Law and
19
prevailing regulations

Ministerial Circular (SE-75/PJ/1990, 12 October 1990)

affirms KepMen 267
Cost of obtaining, collecting and maintaining income
shall be deemed as costs computed under the PSC
Accounting Procedures (Exhibit C)
KepMen 267

(1) Contractor Gross Income, consists of:

Recovery of Operating Cost
Equity and FTP Share
(-) DMO and (+) Fee DMO
(+/-) Over/Under Lifting
(2) Costs of obtaining, collecting and maintaining income = PSC
Operating Cost
Current Year Non Capital Costs
Current Year depreciation of Capital Cost
Prior Year Un-recovered Others Costs
(3) Taxation Income = (1) minus (2)
Sutadi PU - Understanding PSC - LDI-Slide
19

PSC ACCOUNTING VS GENERAL TAXATION

PSC Accounting Procedure
Operating cost computed
based on PSC Accounting
Procedures
Pre-signing contract
costs are non PSC Costs
Intangible Drilling Costs
are chargeable when
they incur
Crude Oil sold to affiliate
is valued at ICP

General Tax Accounting

Operating cost computed
as spelled out in the
Income Tax Law, Article 6
Pre-establishment costs
having >1 year benefit
shall be capitalized and
amortized
Costs having more than 1
year benefit shall be
capitalized and amortized
Crude Oil sold to affiliate
is valued at the actual
price, but tax office has
the right to determine the
value

Sutadi PU - Understanding PSC - LDI-Slide

19

PSC ACCOUNTING VS GENERAL TAXATION

PSC Accounting Procedure
Tax paid monthly based
on actual lifting,
adjusted at end on
March, the following year
Tariffs : Income Tax 30%,
Final Tax on Profit 20%,
effective tariffs 44%
Un-recovered costs are
carried over to
succeeding years
Community
Development is non
capital costs and tax
deductible

General Tax Accounting

Tax due is paid no later
than end of March the
following year

Tariffs

Losses may be
compensated for 5 years

Community
Development is not tax
deductible

Sutadi PU - Understanding PSC - LDI-Slide

19

PSC ACCOUNTING VS GENERAL TAXATION

PSC Accounting Procedure
Interest on loan may
only be applicable to
capital investment and
requires approval
Consumable items are
chargeable when landed
in Indonesia
Depreciation starts
beginning in the year
when an asset is placed
into service

General Tax Accounting

All interest on loan is tax
deductible
Consumable items are
deductible when they
are issued for usage
Depreciation starts in the
month of payment or
completion of assets

Sutadi PU - Understanding PSC - LDI-Slide

19

PSC ACCOUNTING VS GENERAL TAXATION

PSC Accounting Procedure
Assets belong to the
State

Acquisition costs of
economic interest are
charged to Operating
Costs according to PSC
Accounting Procedures
Books and Accounts are
reported in English
language and in US
Dollar currency

General Tax Accounting

Assets belong to business
entity
Revaluation of assets is
possible
Acquisition costs of
economic interest shall be
amortized based on unit of
production
Financial Reports in
Bahasa Indonesia and in
Indonesian Rupiah.

Sutadi PU - Understanding PSC - LDI-Slide

19