Summary of Discussion on the Draft Regulation of the Minister of Communication and Informatics on Over the Top Applications and Content
HPRP had the honor to be one of the invited participants in the regulation dissemination event discussing the draft of Minister of Communication and Informatics (“MoCI”) Regulation (“Draft Reg”) on Over The Top apps and content (“OTT”) in Jakarta (7/8).
The Draft Reg will most likely impact all internet business players, since the definition of OTT Services will include most app platforms and content services platforms that use the internet in providing services. Under the definition, e-commerce, fintech, online game, social media etcetera will be deemed OTT and be bound by Draft Reg. However, the Draft Reg will only impose obligations once the OTT providers conducts its activity in Indonesia (i.e. it provides its services through Indonesian internet access) and receives earnings or income from Indonesian nationals or non-Indonesian who use the OTT on Indonesian soil. The earnings could come from the following activities: Sale and marketing of OTT services; Advertising in the OTT Services; Collection of Customer Database of OTT Services; and/or Electronic Transaction through OTT Services.
To Increase Tax Collection
The purpose of this Draft Reg is clearly to increasing taxes collected on online activities and creating a level playing field for local and foreign OTT providers. In view of this purpose, foreign OTT providers need to have at least a permanent establishment in Indonesia.
Foreign OTT providers must register their services before providing services in Indonesia by submitting (i) an Indonesian Tax Identification Number, also known as Nomor Pokok Wajib Pajak (NPWP), (ii) details of the services, and (iii) a contact center. If a foreign OTT has established a foreign investment company in Indonesia, it will need to submit its principle license or permanent business license issued by the Indonesian Capital Investment Coordinating Board. All documents must be submitted to the MoCI, so that the MoCI can review them and issue a proof of registration.
In operating the OTT in Indonesia, certain activities must be conducted in Indonesian territory, such as signing contracts, delivering the services, and payment for the services. With this mechanism, it is expected that there will be no dispute on where the transaction happened under the law, since all transactions will be have taken place to happen on Indonesian soil and Indonesia will thus have authority to collect tax for the online transaction.
The database of the OTT must be kept for 3 months, unless a case or regulation requires such data. The retention period to be extended the retention period is extend according to the regulation or until the court decision is final and binding.
Contact Service Center
On the side of the contact service center, the OTT provider must provide a service center that would respond to all user’s/customer’s questions and complaints or simply reply within 48 hours. In this matter, the Draft Reg should explain whether the OTT Provider can engage in cooperation with a contact center services company in Indonesia.
Connection with Other Regulations
Some provisions overlap with other regulation(s). For example in this Draft Reg there is no obligation for the OTT Provider to have agreement with the network provider; however, in other regulations a content service provider must cooperate and have an agreement with network provider.
In view of the broad definition of OTT, each type of OTT must also look at other regulation which specifically govern the business model of the OTT, since some of the obligations only concern a specific type of OTT, such as safe harbor policy only applies for e-commerce marketplaces, but not for other platforms, with the result other platform will be held individually responsible for the content that they or anyone post in their platform (i.e. website, apps, game online, social media etcetera).
Compensation for User Loss
The good news for OTT players in the Draft Reg is on the compensation side. The Draft Reg already limits the compensation for user losses to direct losses caused by the OTT Provider.
The sanction for not performing the entire obligation under the Draft Reg is bandwidth management. Bandwidth management is similar to bandwidth throttling, but the decision will be made solely by the MoCI, which has the power to block the OTT services. For this matter, MoCI will reserve the right to instruct network provider to impose bandwidth management sanction on the OTT, and also reserve the right impose sanctions on the network provider, if the network provider does not comply with such instruction. Other than such sanctions, other sanction under other regulations re possible, depending on the type of sanction itself and impact of noncompliance.
As a suggestion, the Draft Reg also needs to consider whether the permanent establishment will be considered an investment or not, since it will have impact on the enforceability of treaty based disputes (i.e. Investor to State Dispute or ISDS). Once the permanent establishment deemed to be an investment, the relevant treaty, such as Bilateral Investment Treaty will protect the investment, if any action by the state can be deemed noncompliance with the treaty. For example, blocking of OTT could be considered an action of expropriation; thus, giving the investor right to sue the state under the treaty`.
Based on the above and due to the impact of the Draft Reg, we would advise that all OTT players who receive income from Indonesian market consult with their tax advisor and legal advisor in order to structure the transaction, to have a good transaction plan and operation scheme to minimize the negative impacts and maximize the operation of OTT products in Indonesia.
The OTT players, may also need to amend or prepare a set of new data protection and data privacy policies to bring them into line with the new regulations recently issued by MoCI. Assisting OTT players to mitigate risks in providing services in Indonesia is one of writer’s specialties.
The executive summary was prepared by Mika Isac Kriyasa (Senior Associate).
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