Global Political-Economic Dynamics, Foreign Direct Investment, and Tax Base Protection under Indonesia’s International Tax Law Framework

Abstract

Global political-economic changes, geopolitical uncertainty, and supply-chain reorganization affect the patterns, structures, and routes of foreign direct investment while increasing the importance of tax base protection and the allocation of Indonesia’s taxing rights. This study analyzes the relationship between changes in global political-economic conditions and the reconfiguration of foreign direct investment, identifies their legal consequences for Indonesia’s tax base and taxing rights, and assesses the functions of the Arm’s Length Principle, tax treaties, anti-avoidance provisions, and the Global Minimum Tax in protecting the tax base while providing investment certainty. This normative legal research applies the statute, conceptual, and policy approaches through a literature-based examination of primary legal materials, academic literature, and institutional data. The findings show that the fiscal consequences of investment reconfiguration depend on transaction characteristics, functions, assets, risks, financing, intangibles, and the substance of economic activities. Once the domestic tax base is determined, tax treaties govern the allocation and limitation of taxing rights across jurisdictions. For Multinational Enterprise Groups that fall within the applicable scope, the GloBE Rules govern minimum taxation based on jurisdictional tax outcomes. Tax base protection requires coordinating legal instruments according to their respective objects, requirements, and stages of application, along with investment policies that prioritize substantial economic activities, legal certainty, administrative quality, and non-fiscal competitiveness.