The world's largest coal Indonesia-based company, PT Adaro Energy Tbk - Photo: Company.

JAKARTA (TheInsiderStories) – The world’s largest coal Indonesia-based company, PT Adaro Energy Tbk (IDX: ADRO), has transferred its profits in large quantities to a network of foreign companies to avoid or minimize taxes that should have been paid in Indonesia for US$125 million during the 2009-2017 periods.

According to the findings of the third report of Global Witness entitled “Taxing Times For Adaro” released in the United Kingdom, Thursday (07/04), the Jakarta-based company utilizes a positive image, in the form of contributing to the Indonesian nation.

But it uses its corporate network in tax havens to avoid taxes for years. If only Adaro had structured its business in a different way, the company would provide more profits in Indonesia, increasing the government budget by $14 million annually.

In the report, Global Witness found three important things about how Adaro was guerrilla in the vortex of this dark business.

First, get huge profits from the coal trade they mine in Indonesia through its subsidiaries in countries with low tax jurisdictions, Singapore (where they pay taxes at an average rate of 10 percent) and not in their home countries, Indonesia (where they pay taxes at an average rate of 50 percent).

Second, transfer most of the profits to related companies in Mauritius that are not subject to tax, until at least 2017. Finally, Adaro established and maintains several subsidiaries in jurisdictions that have low taxes, expand their overseas networks, establish companies in Labuan, tax asylum in Malaysia, and through this company now has a large investment in Australia.

At present, Adaro is in a position to enjoy financial guarantees from the Indonesian government for the $4 billion Batang coal-fired power plant, which will be the largest in Indonesia. Adaro is a joint venture partner. They have 34 percent ownership in the power plant, which is projected to generate revenues of up to $80 million every month when it starts operations.

In its public statement, Adaro strongly emphasized their commitment to the Indonesian people through the taxes they paid and other contributions. One of its subsidiaries in Indonesia has even won an award for achievement in paying taxes.

But the Global Witness investigation actually found things that were completely invisible to the government. Adaro has followed the practices of many Western multinational companies by transferring some of its income abroad and holding assets in tax asylum. Tax avoidance is a common problem in Indonesia, where the percentage of tax collected is very small compared to international standards.

Based on the 2016 and 2017 tax amnesty, wealthy companies and individuals in Indonesia have opened their assets, with a total value of more than $350 billion, and about 25 percent of the assets are stored abroad.

Like many other extractive companies, Adaro has a marketing subsidiary in Singapore. The subsidiary, Coaltrade Services International, buys coal from other Adaro subsidiaries whose mines are in Indonesia. Coal trade also buys from third parties, then sells coal with a raised value.

In this context, Coaltrade also acts as a sales agent for Adaro and third parties and receives commissions for these services. Whereas, more than 70 percent of the coal sold by Coaltrade between 2009-2017 came from the subsidiary of the Adaro coal mining company in Indonesia.

If commissions to sell Adaro’s Indonesian coal are taxed in Indonesia at a higher annual average, than those taxed in Singapore, Indonesia will collect hundreds of millions of dollars during the embezzlement period.

Based on this report, the Indonesian government needs to confirm it to the country’s tax authority for further review and drastically reduce the number of planned coal-fired power plants in Batang. This policy must be reviewed and announced as soon as possible.

Then, the government needs to develop a comprehensive plan for the transition of energy to leave coal in Indonesia, in line with the Paris Agreement Objectives, which have been agreed upon by countries in the world.

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