Summary
Full Review
Thank you, Mr. Suryadi, for your question. In fact, grants are not an object of tax imposition. This is regulated in Article 4 paragraph (3) letter a number 2 of Law No. 7 of 1983 concerning Income Tax s.t.t.d. Law No. 7 of 2021 concerning Harmonization of Tax Regulations (“Income Tax Law”) which reads:
“(3) Excluded from the tax object are:
a.
1. assistance or donations, including zakat received by the zakat amil agency or zakat amil agency established or authorized by the government and received by the entitled recipients of zakat or religious donations which are mandatory for adherents of recognized religions in Indonesia, received by religious institutions established or authorized by the government and received by the entitled recipients of donations, the provisions of which are regulated by or based on Government Regulations; and
2. donated assets received by blood relatives in a straight line of descent of one degree, religious bodies, educational bodies, social bodies including foundations, cooperatives, or individuals running micro and small businesses, the provisions of which are regulated by or based on the Minister of Finance Regulation
as long as there is no relationship with business, work, ownership, or control between the parties concerned;”
– (Article 4 paragraph (3) letter a of Income Tax Law)
Grants received by blood relatives in a straight line of descent of one degree, in this case a business store grant from parents to their children, are exempted as tax objects as long as there is no business relationship between parents and children.
Then, what is meant by business relationship?
In the Explanation of Article 4 paragraph (3) letter a, paragraph 2, it is stated that a business relationship between the giving and receiving parties may occur. For example, PT A as a producer of a type of goods whose main raw material is produced by PT B. If PT B contributes raw materials to PT A, the contribution of raw materials received by PT A is a tax object.
The definition of business relationship is clarified in Article 8 of Government Regulation Number 94 of 2010 s Government Regulation Number 45 of 2019 concerning Calculation of Taxable Income and Payment of Income Tax in the Current Year (PP 94/2010 jo PP 45/2019).
“(1) The relationship between the parties concerned as referred to in Article 4 paragraph (3) letter a of the Income Tax Law may occur due to dependence or attachment to one another directly or indirectly with respect to:
-
- business;
- occupation; or
- ownership or control.
(2) The relationship between the parties concerned with respect to business as referred to in paragraph (1) letter a between the giving Taxpayer and the receiving Taxpayer, may occur if there are routine transactions between the two parties.”
(Article 8 paragraph (1) and paragraph (2) of GR 94/2010 jo GR 45/2019)
From the above provisions, it can be seen that the existence of a business relationship is characterized by a gift from the donor Taxpayer to the recipient Taxpayer of the donation/grant, in which case this gift is routine. Meanwhile, referring to Mr. Suryadi’s case, the grant of the business store is made by parents to children, without any routine gift. This means that this grant is made without any business relationship between parents and children.
Thus, the transfer of a business shop from parents to children can be exempted as the object of Final Income Tax Article 4 paragraph (2) because it includes grants received by blood relatives in a straight line of descent of one degree and without any business relationship. However, of course, there may be differences in interpretation of the regulations between the Taxpayer and the Tax Authority, so strong evidence is needed to prove that the grant is made without any business, employment, or ownership relationship.
