OTT Services in Indonesia
The use of OTT services in Indonesia has been
rapidly growing in less than a decade with the introduction of smartphones in
the market that enable the use of mobile internet. Referring to the definition
used in Wikipedia, OTT services are understood as ‘delivery of
audio, video, and other media over the Internet without the involvement of a multiple-system operator in the control or distribution of the
content’. Google, Facebook, WhatsApp, Twitter, YouTube exemplify
global OTT players in Indonesia. OTT services have not been specifically
regulated under certain Law in Indonesia. However, they are subject to the
general obligations under Law No. 11 of 2008 Electronic Information and
Transaction. Now, the problem is that most of the OTT service providers are global
players with no legal entity established in Indonesia. Thus, despite being
subject to Indonesian Law for operating within Indonesian market, the matter of
legal enforcement remains questioned. In order to tackle this problem, by the
end of March, the Government will issue a new regulation to oblige foreign OTT
to establish a permanent establishment (‘Bentuk Usaha Tetap’-BUT) legally recognized in Indonesia. A
transition period will be applied to give time for those companies to adjust to
the new regulation.
Innovation, Competition, and Consumers
OTT
services have become an example of how innovation could make life easier.
Telecommunication services that previously majorly relied on the fixed line
provided by telecommunication service provider like Telkom, international calls
that depended on services provided by Telkom and Indosat, or messaging services
that earlier could be done only via SMS, now are available with competitive to
free price by using online communication services such as Google Hangouts,
Facebook Messenger, Skype, Line, or WhatsApp. Earlier in my post, I discussed
about online platform used to offer transportation moda, Uber. Similar services
are now also available in the market such as GrabTaxi for cars and GrabBike or
GoJek for motorbike ride. Those services run on the internet and while they
challenge and become new competitors for conventional service providers,
either for telecommunication or transportation, regulators have to keep up with
the current development in order to safeguard the interest of different parties
in the market, most of all: consumers.
While
consumers benefit from low to zero prices in the short term, in the long term,
it is necessary to keep the existence of multi players in the market for the
following reason. It is important to ensure that market structure will not
allow monopolistic behaviours, for instance when one or more player(s) become(s)
dominant in the market. Competition authority, thus, shall keep their eyes open
when prices in the market are very low to zero in order to hinder from
predatory pricing practices prohibited under Art. 20 of Law No. 5 of 1999. However, low
or zero prices are not per se illegal. For gaining the right understanding on
pricing in online platform services, it is significantly important to keep in mind
that the pricing model might subject to the practices of multi-sided-platform
(MSP) which allow different pricing for different sides of the of market served
by the online platform,[1] which might falsely be
suspected as predatory or discriminatory when it comes to the side with the low
or zero prices. Having said this, it does not mean that the need to keep multi
players in the market should defeat the importance of efficiency. Thus,
consumers shall not be forced or left with the option of having inefficient
service providers merely in order to keep the existence of those providers.
What necessary is keeping the market open by hindering and removing entry barriers.
The New Obligation and the Way Forward
(1) Permanent Establishment and Taxation
(1) Permanent Establishment and Taxation
The new obligation to establish an Indonesian
permanent obligation has been recognized in the field of energy sector[2] and for taxation purposes.[3] However, the
new obligation for OTT services like Google, Facebook, Twitter, and others, might be intended to also meet other purposes than taxation.
Permanent establishment in Indonesian law according to Law No. 7 of 1983 as Amended by Law No. 36 of 2008 on Income Tax is understood as ‘an establishment used by an individual who does not reside or stay in Indonesia for 183 days or less within a period of 12 months, or entities that are not established or domiciled in Indonesia, but to run the business or activities in Indonesia’.[4] Law No. 22 of 2001 on Oil and Gas defines a permanent establishment as ‘an entity established and incorporated outside the territory of the Republic of Indonesia which have activities in the territory of the Republic of Indonesia and shall comply with the laws and regulations that applicable in the Republic of Indonesia’.[5] According to Law No. 36 of 2008, a permanent establishment can take form of one of the following: seat of management; branch; representative office; office building; factory; workshop; warehouse; space for promotion and sales; mining and quarrying of natural resources; mining area of oil and gas; fisheries, cattle farms, agriculture, farms or forestry; construction, installation or assembly project; provision of services of any kind by employees or others, all made more than 60 days within a period of 12 months; person or entity acting as a free agent; agent or employee of an insurance company that is not established or domiciled in Indonesia who receives insurance premiums or bears risk in Indonesia; computers, electronic agents, or automated equipment owned, leased, or used by the organizers to perform electronic transactions business activities through the Internet.
Permanent establishment in Indonesian law according to Law No. 7 of 1983 as Amended by Law No. 36 of 2008 on Income Tax is understood as ‘an establishment used by an individual who does not reside or stay in Indonesia for 183 days or less within a period of 12 months, or entities that are not established or domiciled in Indonesia, but to run the business or activities in Indonesia’.[4] Law No. 22 of 2001 on Oil and Gas defines a permanent establishment as ‘an entity established and incorporated outside the territory of the Republic of Indonesia which have activities in the territory of the Republic of Indonesia and shall comply with the laws and regulations that applicable in the Republic of Indonesia’.[5] According to Law No. 36 of 2008, a permanent establishment can take form of one of the following: seat of management; branch; representative office; office building; factory; workshop; warehouse; space for promotion and sales; mining and quarrying of natural resources; mining area of oil and gas; fisheries, cattle farms, agriculture, farms or forestry; construction, installation or assembly project; provision of services of any kind by employees or others, all made more than 60 days within a period of 12 months; person or entity acting as a free agent; agent or employee of an insurance company that is not established or domiciled in Indonesia who receives insurance premiums or bears risk in Indonesia; computers, electronic agents, or automated equipment owned, leased, or used by the organizers to perform electronic transactions business activities through the Internet.
In order to establish a permanent establishment, it
requires a notarial deed certifying that the company has a legal seat in
Indonesia, permanently operates a business in Indonesia, and has a dependence
on and clear connection to the headquarter abroad. An individual who does not
reside or entity not established and domiciled in Indonesia cannot be deemed to
have a permanent establishment in Indonesia if the individual or entity doing
business or conducting activities in Indonesia use a free agent, broker or
intermediary who in fact acts completely to run its own company.
Certain companies offering OTT services like Facebookand Google already have a representative office in Indonesia. The question is
whether they are also subject to the new obligation to create a permanent
establishment, because a representative office is already considered as a form
of permanent establishment according to the Income Tax Law. A supporting argument for creating
a permanent establishment despite the existence of a representative office is
that not all representative offices in practice are taxable when they merely
play a role as a business connector without real business activities. However,
more clarification is needed to avoid ambiguity, especially when an
interpretation is made to narrow down the definition provided in a law.
(2) Data Protection
(2) Data Protection
Data protection becomes one of the concerns of the
Government. However, the scope of concern seems limited to the protection of
customer data and does not extend to the interest of data owners who do not
qualify as customer.
The Minister of Communication and Information argued
that the setting up of a permanent establishment will provide legal assurance
for law enforcement. This would be important in cases where for instance
customer data is abused by a data holder, i.e. a foreign company providing OTT
services in Indonesia. Although currently Indonesia still does not have a
particular data protection law, the protection of customer data can be anchored
to the obligation provided for in Law No. 11 of 2008 that unless otherwise
provided by laws, any use of information through electronic media concerning personal
data is subject to the prior consent of the data owner.[6] Any violation against this
obligation is subject to claims for damages.[7] When a data owner has to
deal with a foreign company, such claim for damages would be difficult to
process without the existence of a permanent establishment of the company in
Indonesia. The same argument also applies for the protection of consumers in
other aspects, for instance in cases of dispute as regards the provision of
services, and for transportation services, typically as regards the compliance
with safety and security regulations.
(3) Consumer Responses
(3) Consumer Responses
Despite the intention to protect the best interest of
consumers, concerns raise that the true intention behind the enactment of the
new regulation was to monitor and steer the content provided over the internet.
At least two cases are referred to in this regard. Since 27 January 2016,Telkom (an internet services provider) has blocked Netflix from using its networkfor video streaming services. While a different issue
brought up in this case, such as the issue of pornography content, Telkom argued
that the blocking was based on the reason that Netflix has not complied with
the existing regulations in Indonesia. It was not clear, which regulations
being referred to. However, the Minister of Communication and Information
supported the act clarifying that a permanent establishment is required in
order to run a business activity in Indonesia. The Minister also referred to
the issue of content monitoring and censorship mechanism. Unwilling to take the
same measure, Telkom’s competitors: Smartfren and XL choose to keep providing
the access for Netflix and allow the American company to offer its services
over their network.
In the other case a microblogging platform
and social networking site, Tumblr, has been required to adjust its content to comply with Indonesian regulations concerning the obligation to not include pornography content over the internet. Rumours have been around,
that the service would be blocked by the Government, i.e. the Ministry of
Communication and Information, due to its content issue. Seeing both cases, it
seems that consumers concerns are not without ground.
The Government needs to clarify its policy for the
interest of providing legal assurance for business players operating in the
country. While the Government argues for supporting consumer interests, it
seems that consumers are less interested in the way the Government approaches
the issue. There are several issues to deal with in order to clear the air:
security - when it comes to necessary actions against terrorism and cybercrimes;
content – when it comes to protection of the minor, a typical case against
pornography; legal enforcement – in cases of procedures for claims for damages
and liability according to the applicable law in Indonesia; competition – when local
players have to compete with global players, a similar phenomenon with the issue
of protecting traditional retailers from the entrance of modern foreign competitors
in the market; data protection – in cases of abuses of personal data and other
types of data which have been done in many fields, on- and offline; and net
neutrality – whether internet service providers have the right to limit access
to content providers. Each of those issues requires different approaches and
measures which can be done only after the Government is clear with what it
wishes to achieve.
[1] J.C.
Rochet and J. Tirole, 'Two-Sided Markets: A Progress Report' (2006) 37 The RAND
Journal of Economics 645, 645.
[2] The obligation is mandated by Law No. 22 of 2001 on Oil and Gas, see
e.g. Art. 6; Ministerial Decree No. 1480 of 2004 on Arrangement and Offering of
Working Area for Oil and Gas, see e.g. Art. 2 par. (3).
[3] Law No. 7 of 1983 as Amended by Law No. 36 of 2008 on Income Tax, Art.
2 par. (1).
[4] Law No. 7 of 1983 as Amended by Law No. 36 of 2008, Art. 2 par.
(5).
[5] The obligation is mandated by Law No. 22 of 2001 on Oil and Gas,
Art. 1 no. 18.
[8] Law No. 11 of
2008 Art. 26 par. (1).
[9] Law No. 11 of
2008 Art. 26 par. (2).
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