Asian Agri Tax Manipulations Scheme

Asian Agri has 16 subsidiary companies in Indonesia that most of these companies produced Crude Palm Oil (CPO) for export and 5 companies in Tax Havens countries as affiliated companies (so-called mailboxes company) to minimize corporate taxes for the group as a whole.

A necessary element of such strategy is the prices at which goods and services are transferred between group companies. Profits for the corporate system as a whole can be increased by setting high transfer prices on components shipped from subsidiaries in relatively low tax countries, and low transfer price on component shipped from subsidiaries in relatively high tax countries Asian Agri Profit Shifting

The transfer pricing system can be used to shift taxable profits from a country with a high tax rate to a country with a lower tax rate: the result is that after taxes the MNC retain more profits

There are16 (sixteen) Asian Agri Group Companies in Indonesia, manufactures goods (CPO) and most of the CPO for sale overseas. Finished goods (CPO) are transferred from Asian Agri Group to its wholly owned sales affiliate for overseas sales through 5 (five) so-called mailbox companies in Tax Havens country, using a low markup policy and using a high markup policy for the real buyer.(1A, 2A, 3A, 1B, 2B)

The low markup policy results in larger pretax income, income taxes, and net income per unit in the selling country. On the other hand, the high markup policy has the opposite effect , that is, higher taxable income, income taxes, and net profit per unit in the manufacturing country. The affiliate companies in Tax Havens Country are likely represent the manufacturing company, there is no problem of larger pretax income since the tax rate imposes in tax havens country are very low: the result is that after taxes profit the Asian Agri Group retain a big profit.

The choice of organizational form for conducting foreign operation is also influenced by country incentives encourage to designed certain types of activities considered beneficial to the national economy. The location of production and distribution systems also offer tax advantages. Thus final sales of goods or services can be channeled through affiliates located in jurisdiction that offer tax shelter or deferral.

In these case, parent corporation (Asian Agri Indonesia) ships the product (CPO) directly from 16 (sixteen) factories Asian Agri Group Companies in Indonesia to the European buyer, but also makes a paper sale of the goods to its wholly owned affiliate as foreign sales corporations (FSCs) in Macao, Mauritius, and British Virgin Island. The payment from the buyer is routed through Hong Kong Companies that arrange how much money will be sent to Asian Agri Indonesia as an income for tax purposes.

Extracted from:

Mohammad Zain. TAX MANAGEMENT THROUGH TAX HAVENS COUNTRY, TRANSFER PRICING AND PROFIT SHIFTING (With special reference to Indonesia case). 2nd INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH (2nd ICBER 2011) PROCEEDING

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