The Macao Money Machine

Profit Shifting and Tax Leakage in Indonesia’s Pulp Exports

FORUM PAJAK BERKEADILAN

SUMATERA UTARA

Jaringan Kerja Penyelamat Hutan Riau Citation

Forum Pajak Berkeadilan et al. 2020. The Macao Money Machine: Profit shifting and tax leakage in Indonesia’s pulp exports. November. Jakarta, Indonesia.

Dalam bahasa Indonesia:

Forum Pajak Berkeadilan et al., 2020, Mesin Uang Makao: Dugaan Pengalihan Keuntungan dan Kebocoran Pajak pada Ekspor Pulp Indonesia, November 2020, Jakarta, Indonesia.

Acknowledgement

The organizations publishing this report would like to thank a number of reviewers for their thoughtful comments on drafts of this report. These reviewers include experts at Finance Uncovered, as well as other individuals who wish to remain anonymous. The responsibility for the material contained in this report is that of the publishing organizations alone.

Disclaimer

This report has been prepared based on publicly available information and data obtained from numerous sources as cited. No independent verification of the sources cited has been undertaken, and where the authors express any opinion, it is the authors’ opinion only and is not intended as specific advice to any particular party or person.

APRIL Group and PT Toba Pulp Lestari Tbk were delivered a detailed summary of findings prior to the report’s publication, and their responses are included in this report.

Cover photo: AndyHe829 / Wikimedia Commons The Macao Money Machine

Profit Shifting and Tax Leakage in Indonesia’s Pulp Exports

NOVEMBER 2020 CONTENTS

ABBREVIATIONS AND ACRONYMS...... iv

EXECUTIVE SUMMARY...... v

SECTION I. INTRODUCTION...... 1 1. Purpose and scope of the report...... 1 2. Indonesia’s low tax collection rates ...... 2 3. Profit shifting and tax leakage...... 3 4. Profit shifting in Indonesia’s dissolving pulp exports...... 4

SECTION II. DISCREPANCIES IN INDONESIA’S DISSOLVING PULP TRADE WITH CHINA...... 8 5. Gaps in trade data between Indonesia and China...... 8 6. Indonesia’s only producer of dissolving pulp until 2016...... 8 7. Exports of pulp from Belawan port in North Sumatra ...... 12 8. Statistical correlation between Indonesia’s exports of “Toba Cell Eucalyptus Pulp” and China’s imports of dissolving pulp. . . .16 9. DP Macao’s role in marketing Toba Pulp’s products to international buyers...... 17 10. Toba Pulp’s product mix specified in DP Macao’s sales data...... 21

SECTION III. PROFIT SHIFTING BY TOBA PULP ...... 25 11. What incentives exist to report dissolving pulp as paper-grade pulp?...... 25 12. Estimating DP Macao’s apparent income from marketing for Toba Pulp...... 28 13. Estimating Toba Pulp’s apparent under-statement of revenues...... 30 14. Toba Pulp’s reported profit and corporate tax payments ...... 32 15. More accurate reporting since 2017...... 33

SECTION IV. INDICATIONS OF SIMILAR PROFIT SHIFTING PRACTICES BY THE APRIL GROUP...... 35 16. APRIL’s dissolving pulp production during 2016–2018...... 35 17. Mismatch in Indonesia-China trade data in 2017 and 2018 ...... 37 18. APRIL’s dissolving pulp exports to China...... 39 19. APRIL’s apparent under-statement of revenues...... 40

SECTION V: GOVERNANCE REFORMS TO ADDRESS TAX LEAKAGE FROM PROFIT SHIFTING...... 43 20. Scope of the problem for Indonesia and the world ...... 43 21. Regulatory reform efforts to curb profit-shifting practices...... 44 22. Improving export performance while increasing Customs vigilance ...... 47

SECTION VI: CONCLUSION ...... 48 23. Summary of findings...... 48

SECTION VII: RECOMMENDATIONS...... 50 24. Recommendations for the Government of Indonesia...... 50

SOURCES CITED...... 51

APPENDIX A: PT TOBA PULP LESTARI TBK’S RESPONSE TO TEMPO MAGAZINE ARTICLES OF FEBRUARY 3–9, 2020. . . 60

APPENDIX B. RESPONSE OF PT TOBA PULP LESTARI TBK TO THE MAIN FINDINGS OF THIS REPORT...... 61

APPENDIX C. RESPONSE OF THE APRIL GROUP TO THE MAIN FINDINGS OF THIS REPORT...... 62

APPENDIX D: DOCUMENTATION OF SUKANTO TANOTO’S ROLE AS THE ULTIMATE CONTROLLING SHAREHOLDER OF PT TOBA PULP LESTARI TBK, DP MACAO, AND SATERI...... 63

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE ii IN INDONESIA’S PULP EXPORTS LIST OF FIGURES AND TABLES

Figure E-1. Dissolving pulp sent from Indonesia to China, 2007–2018...... v Figure 1. Overlapping beneficial ownership of Toba Pulp, APRIL, Sateri, and Royal Golden Eagle (RGE) Group International . . . . 5 Map 1: Locations of pulp mills, ports, VSF mills, and countries involved in ownership or trading from Toba Pulp and/or APRIL’s Kerinci mill...... 7 Figure 2. Dissolving pulp sent from Indonesia to China, 2007–2016...... 9 Figure 3. Toba Pulp annual production capacity of dissolving pulp and BHKP paper-grade pulp...... 9 Figure 4. Volume of Toba Pulp’s total pulp production (2007–2016) and sales (2011–2016) ...... 12 Figure 5. Comparison of pulp exported from Belawan port and Toba Pulp sales volumes, 2007–2016...... 13 Figure 6. Example of export record of Toba Pulp shipment to DP Macao classified as HS Code 470329 with “Toba Cell Eucalyptus Pulp” description ...... 14 Figure 7. Comparison of paper-grade BHKP and dissolving pulp...... 14 Table 1. Definitions of HS Codes 470329 and 470200...... 15 Figure 8. Toba Pulp’s exports of “Toba Cell Eucalyptus Pulp” (HS 470329) and China’s imports of dissolving pulp (HS 470200) from Indonesia, April 2010–December 2016...... 16 Figure 9. Value of Toba Pulp’s total sales and sales to DP Macao, 2008–2016 ...... 18 Figure 10. Sukanto Tanoto as ultimate controlling shareholder of Toba Pulp Lestari, DP Macao, and Sateri ...... 19 Figure 11. Trading relationship among Toba Pulp, DP Macao, SC International Macao (after September 2010), and dissolving pulp buyers ...... 19 Table 3. Volume in tons of dissolving pulp reported by Indonesia, China, and Sateri...... 22 Table 2. DP Macao sales of dissolving pulp during 2008, 2009, and January–June 2010...... 22 Figure 12. Annotated excerpts from Sateri Holdings Limited’s 2010 listing prospectus for the Hong Kong Stock Exchange. . . . 23 Figure 13. Average per ton import price to China (CIF) of BHKP paper-grade pulp and dissolving pulp, 2007–2018...... 25 Table 4. DP Macao sales of BHKP paper-grade pulp and dissolving pulp during 2008, 2009, and January–June 2010. . . . . 26 Figure 14. Average unit price of Toba Pulp’s exports and of China’s dissolving pulp imports from Indonesia, 2008–2016. . . 26 Figure 15. Average unit price of United States dissolving pulp exports to China and of China’s dissolving pulp imports from the United States, 2007–2017...... 27 Table 5. Sample shipment-level data of Toba Pulp exports from Indonesia to DP Macao and China mill imports of dissolving pulp from Indonesia...... 28 Figure 16. Estimated distribution of per ton import price to China of dissolving pulp produced and apparently misclassified by Toba Pulp, December 2007–2016...... 29 Figure 17. Estimated distribution of total value of Toba Pulp’s dissolving pulp exported and apparently misclassified from Indonesia to China, December 2007–2016...... 31 Table 6. PT Toba Pulp Lestari Tbk’s reported pulp production, sales, net profit, and corporate income tax, 2007–2016...... 32 Figure 18. Dissolving pulp production at APRIL’s Kerinci mill in Riau Province, Sumatra, 2016–2018 ...... 36 Figure 19. Dissolving pulp sent from Indonesia to China, 2016–2018...... 38 Figure 20. Estimated distribution of per ton import price to China of dissolving pulp produced and apparently misclassified by the APRIL Group in Indonesia, 2016–2018...... 41 Figure 21. Estimated distribution of total value of the APRIL Group’s dissolving pulp exported and apparently misclassified from Indonesia to China, 2016–2018...... 42 Figure 22. PMK-213 documentation requirements for related party transactions...... 45 Figure 23. Excerpts from Sateri Holdings Limited’s listing prospectus on the Hong Kong Stock Exchange in 2010...... 64 Figure 24. Excerpt from PT Toba Pulp Tbk public announcement showing common ownership of Toba Pulp, Pinnacle Company Limited, and DP Macao, as of November 22, 2017...... 66 Figure 25. Excerpts from Bracell Limited notice of privatization on August 30, 2016...... 67 Figure 26. Excerpts from PT Toba Pulp Lestari Tbk’s Annual Report 2018...... 69 Figure 27. Excerpts from Circular of Sateri Holdings Limited on November 4, 2014 ...... 70

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE iii IN INDONESIA’S PULP EXPORTS ABBREVIATIONS AND ACRONYMS AEO Authorized Economic Operator AE pulp Acacia Eucalyptus pulp APRIL Asia Pacific Resources International Limited Group BEPS Base Erosion and Profit Shifting BHKP Bleached hardwood kraft pulp BKPM Badan Koordinasi Penanaman Modal, or Indonesia’s Capital Investment Coordinating Board BPS Badan Pusat Statistik, Indonesia’s Central Statistics Bureau BVI British Virgin Islands CbC Country-by-country CEISA Customs-Excise Information System and Automation CIF Cost, insurance, and freight, referring to the price of goods including shipping and insurance costs up to the border of the importing country DP Macao DP Marketing International Limited – Macao Commercial Offshore FOB Free on board, referring to the price of goods up until they are loaded on a ship prior to being exported GDP Gross Domestic Product HS Harmonized System HTI Hutan Tanaman Industri, or Industrial Forest Plantation INRU Trading symbol for PT Toba Pulp Lestari Tbk on the Indonesia Stock Exchange INSW Indonesia National Single Window Kg Kilogram KPK Komisi Pemberantasan Korupsi, Indonesia’s Corruption Eradication Commission LLC Limited liability corporation Ltd Limited MCAA Multilateral Competent Authority Agreement MCO Macao Commercial Offshore MNE Multinational enterprise NGO Non-governmental organization OECD Organisation of Economic Co-operation and Development OJK Otoritas Jasa Keuangan, Indonesia’s Financial Services Authority PMK Peraturan Menteri Keuangan, or Minister of Finance Regulation PT Perseroan Terbatas, signifying a limited liability company in Indonesia Pte Ltd Private Limited, signifying a privately-owned company in Singapore RAPP PT Riau Andalan Pulp & Paper RGE Royal Golden Eagle International Group RGM Raja Garuda Mas Group Rp Indonesian Rupiah Tbk Terbuka, signifying a publicly-traded company in Indonesia Toba Pulp PT Toba Pulp Lestari Tbk Ton Air-dried ton TPL Alternate abbreviation for PT Toba Pulp Lestari Tbk UN Comtrade United Nations Commodity Trade Statistics Database US$ US Dollar VSF Viscose staple fiber

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE iv IN INDONESIA’S PULP EXPORTS EXECUTIVE SUMMARY The purpose of this report is to provide the Government of Indonesia and other stakeholders with a detailed analysis of profit shifting practices in the nation’s pulp industry. These practices appear to have resulted in the movement of substantial taxable profits generated within Indonesia to at least one offshore tax haven. The use of offshore tax havens by corporate actors has contributed to Indonesia’s low tax collection rates, which limit the country’s potential to fund infrastructure development, social welfare programs, pandemic response, and other fiscal priorities of the Government.

Discrepancies in Indonesia’s dissolving pulp trade with China

A comparison of trade statistics compiled, respectively, by the governments of Indonesia and China highlights major discrepancies in the trade of dissolving pulp, a specialized grade of wood pulp used in the manufacture of textile products. Between 2007 and 2018, China imported over 2.0 million tons of dissolving pulp from Indonesia, according to China’s customs data, as reported to the United Nations Commodity Trade Statistics Database. However, Indonesia only exported to China approximately 400,000 tons of dissolving pulp during that same period, 2007–2018, according to official trade data prepared by the Government of Indonesia’s Central Statistics Bureau.

Figure E-1. Dissolving pulp sent from Indonesia to China, 2007–2018

600,000

500,000

400,000

300,000

Tons of pulp 200,000

100,000

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Exports reported by Indonesia Imports reported by China

Sources: Indonesia data for HS Code 470200 from Badan Pusat Statistik; China data for HS Code 470200 from UN Comtrade.

Profit shifting by PT Toba Pulp Lestari Tbk

By analyzing the mismatch in trade data reported by Indonesia and China for the same trade flow, this report documents the apparent use of profit shifting practices by PT Toba Pulp Lestari Tbk (herafter Toba Pulp), a publicly listed company which operates a mill in North Sumatra capable of producing both dissolving pulp and paper-grade pulp. During 2007–2016, Toba Pulp apparently reported exports of dissolving pulp as lower-value paper-grade pulp when it was sold to an affiliated marketing company in Macao. The Macao company apparently then re-invoiced the shipments as dissolving pulp and sold them at substantially higher prices to buyers in China. The apparent use of profit shifting practices by Toba Pulp

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE v IN INDONESIA’S PULP EXPORTS was first reported in a series of news articles published in February 2020 by a consortium of Indonesian media outlets under the banner of IndonesiaLeaks. Toba Pulp has claimed that its exports during this period were classified “in accordance with the product classification and legal jurisdictions”; and the company’s response to these articles is in Appendix A.

Through analysis of gaps in trade data, audited financial statements, and other reports released by the company and its affiliates, this report estimates that Toba Pulp’s use of this profit shifting arrangement apparently had the effect of under-stating the company’s revenues in Indonesia by approximately US$ 426 million (Rp. 4.23 trillion) during the decade 2007–2016. In hypothetical terms, if taxed at the contemporary statutory corporate tax rates, which ranged between 25% and 30% during this period, this amount of revenue may have generated an additional US$ 108 million (Rp. 1.07 trillion) in corporate tax paid to the Government of Indonesia. The report makes no claim, however, that these figures reflect Toba Pulp’s particular tax situation or its effective tax rate.

In response to this report’s summary of findings, Toba Pulp stated, “Regarding the allegation of profit shifting, the Company [Toba Pulp] has produced and sold products at an appropriate price and every year an assessment of appropriate product prices is carried out by an independent consultant. [. . .] As a public company whose shares have been listed on the Indonesia Stock Exchange since 1990, the Company always upholds Good Corporate Governance and remains committed to carrying out operational activities in accordance with the prevailing laws and regulations.”

Toba Pulp’s apparent use of the profit shifting practices documented in this report seems to have ended in early 2017, when it resumed issuing periodic public announcements disclosing the type of product its mill is producing.

Indications of similar profit shifting by the APRIL Group

The report further analyzes the reported sales of dissolving pulp by Asia Pacific Resources International Limited (hereafter the APRIL Group), Indonesia’s second largest pulp producer, which is controlled by the same beneficial owner as Toba Pulp. APRIL has acknowledged producing over 800,000 tons of dissolving pulp during 2016–2018, and there are strong indications that most of this was exported to viscose staple fiber mills in China operated by APRIL-affiliate Sateri. Yet trade data prepared by the Government of Indonesia that were analyzed for this study do not appear to record any dissolving pulp exports from APRIL, its main operating companies, or its known subsidiaries during this period. These and other findings indicate that APRIL apparently used profit shifting practices during these three years that were similar in structure and effect to the ones apparently used by Toba Pulp during the period 2007–2016.

APRIL’s practices appear to have had the effect of under-stating the group’s revenues in Indonesia by approximately US$ 242 million (Rp. 3.35 trillion) during 2016–2018. In hypothetical terms, if taxed at the statutory corporate tax rate of 25%, this amount of revenue may have generated an additional US$ 60 million (Rp. 838 billion) in corporate tax paid to the Government of Indonesia. The report makes no claim, however, that these figures reflect either the particular tax situation or the effective tax rate of the APRIL Group, its main operating companies, or its known subsidiaries.

In response to this report’s summary of findings, the APRIL Group stated: “In 2016, RAPP [APRIL subsidiary, PT Riau Andalan Pulp & Paper] conducted a 2-year collaboration for the use and quality improvement of AE [Acacia Eucalyptus] Pulp with Sateri in China, with the hope that AE Pulp can be

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE vi IN INDONESIA’S PULP EXPORTS used as raw material for the viscose staple fiber industry. [. . .] Since the AE Pulp product was still in the trial development stage, RAPP was still using the HS Code for Kraft or HS Code 4703.290000 until the specifications of this AE Pulp product met the standards expected by the buyer.”

Since January 2019, it appears that APRIL has reported its exports of dissolving pulp under the appropriate product classification (HS 470200).

Stopping profit shifting and tax leakage to boost Indonesia’s development

The findings presented in this report emerge at a time when the Government of Indonesia is attempting to improve revenue collection in order to fund ambitious infrastructure and social welfare programs and to fill a growing budget gap. The movement of taxable profits offshore has been a major contributor to Indonesia’s low tax collection rate of 11% of GDP, which places it behind regional neighbors such as Malaysia, Thailand, and the Philippines. In 2017, Finance Minister Sri Mulyani Indrawati set a target of increasing tax collection to 15% by 2020, and identified profit shifting practices that facilitate tax avoidance as an important regulatory and law enforcement challenge.

If the Directorate General of Taxation were to determine that Toba Pulp and/or the APRIL Group had understated taxable revenues in Indonesia, collection of these could represent a significant boost to tax collection. More importantly, it would send a powerful signal to Indonesia’s corporate sector that the Government will not tolerate profit shifting schemes that facilitate the transfer of profits generated within Indonesia to offshore jurisdictions.

This report does not allege that any of the companies or individuals named in this report have committed legal or regulatory violations in Indonesia or any other jurisdiction. Indeed, the use of profit shifting practices and the channeling of financial transactions through countries with low corporate tax rates are not necessarily illegal and may be legitimate, provided they are conducted in accordance with relevant laws and regulations. However, it is the opinion of the organizations publishing this report that the findings presented warrant careful scrutiny by the Government of Indonesia.

Recommendations for the Government of Indonesia

The coalition of civil society organizations publishing this report calls on the Government of Indonesia to implement the following recommendations:

1. The Directorate General of Taxation should audit the financial statements of PT Toba Pulp Lestari Tbk to determine whether the company has fairly and accurately stated its taxable revenues and fully complied with prevailing laws and regulations concerning transfer pricing and trade invoicing.

2. The Directorate General of Taxation should audit the financial statements of the APRIL Group’s operating, marketing, and holding companies involved in producing and exporting dissolving pulp to determine whether they have fairly and accurately stated their taxable revenues and fully complied with prevailing laws and regulations concerning transfer pricing and trade invoicing.

3. The Financial Services Authority (Otoritas Jasa Keuangan, OJK) should review the audited financial statements and other corporate reports filed by PT Toba Pulp Lestari Tbk to determine whether the company has adequately disclosed all information and material facts that they are required to provide to investors and shareholders.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE vii IN INDONESIA’S PULP EXPORTS 4. The Customs Authority should investigate whether PT Toba Pulp Lestari Tbk and the APRIL Group (and its operating, marketing, and holding companies) are in compliance with all laws and regulations that govern the classification of pulp exports according to the correct HS code and the reporting of prices that legitimately reflect the value of the products being shipped.

5. The Corruption Eradication Commission (Komisi Pemberantasan Korupsi, KPK) should investigate whether the Customs Authority has conducted adequate oversight of Indonesia’s exports of dissolving pulp and whether the profit shifting practices analyzed in this report have resulted in any fiscal losses to the Government of Indonesia.

6. The Ministry of Finance and KPK should conduct a joint multi-sector assessment to determine whether companies operating in Indonesia’s natural resources sectors are using trade misinvoicing and/or abusive transfer pricing schemes to evade corporate tax payments to the Government of Indonesia.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE viii IN INDONESIA’S PULP EXPORTS SECTION I. INTRODUCTION

1. Purpose and scope of the report

The purpose of this report is to provide the Government of Indonesia and other stakeholders with a detailed analysis of profit shifting practices in the nation’s pulp industry. These practices appear to have resulted in the movement of substantial taxable profits generated within Indonesia to at least one offshore tax haven. The use of offshore tax havens to shield profits from being taxed in Indonesia is a major contributor to Indonesia’s persistently low tax collection rates. Inadequate tax collection limits the Government’s potential to fund infrastructure, social welfare initiatives, pandemic response, and other policy priorities.

Specifically, the report documents the apparent use of profit shifting by PT Toba Pulp Lestari Tbk (hereafter Toba Pulp) during 2007–2016. The trade practices appear to have involved the misclassification and under-pricing of dissolving pulp sold to an affiliated marketing company based in Macao. Dissolving pulp is a specialized grade of wood pulp used in the manufacture of textile products. The report also presents data indicating that the APRIL Group1, Indonesia’s second largest pulp producer, appears to have engaged in similar profit shifting practices after it began producing dissolving pulp in 2016.

Toba Pulp’s apparent use of profit shifting was first reported in a series of news articles published in February 2020 by a consortium of Indonesian media outlets under the banner of IndonesiaLeaks. Following a year-long investigation, this consortium – which included Tempo Magazine2, 3, 4, 5, Katadata6, KBR7, and Suara8 – identified a scheme in which Toba Pulp apparently misclassified dissolving pulp as it was shipped out of Indonesia, so it would be recorded as a lower-priced grade of pulp that is commonly used for paper production. Tempo summarized the consortium’s findings as follows:

1 The APRIL Group includes twelve companies incorporated in Indonesia, according to its 2017 Sustainability Report. These twelve companies include the two companies that own pulp production facilities at APRIL’s mill in Kerinci: PT Riau Andalan Pulp & Paper and PT Intiguna Primatama. APRIL. 2018. Sustainability Report 2017. Singapore: Asia Pacific Resources International Holdings Ltd. https://www.aprilasia.com/images/pdf_files/sr/APRIL%20SR%202017_Interactive.pdf. 2 Tempo English. 2020. “Wood export conjuring tricks.” February 4-10, 2020. https://magz.tempo.co/read/36360/wood-export- conjuring-tricks. 3 Tempo English. 2020. “The profit margins are nearly the same.” February 4-10, 2020. https://magz.tempo.co/read/36361/tobapulp-lestari-head-of-public-relations-norma-patty-handini-hutajulu-the-profit-margins-are-nearly-the-same. 4 Tempo English. 2020. “Step siblings from a tax haven.” February 4–10, 2020. https://magz.tempo.co/read/36362/step-siblings- from-a-tax-haven. 5 Tempo English. 2020. “Suspicious exports: Toba Pulp Lestari is suspected of falsifying export documentation to reduce its tax liabilities.” February 4–10, 2020. 6 Katadata. 2020. “Investigasi: Akal-akalan Toba Pulp melipat untung ekspor bubur kayu.” February 7. 2020. https://katadata.co.id/ telaah/2020/02/07/investigasi-akal-akalan-toba-pulp-melipat-untung-ekspor-bubur-kayu/0. 7 KBR. 2020. “Dugaan manipulasi dokumen ekspor Toba Pulp Lestari.” February 5, 2020. https://kbr.id/berita/02-2020/dugaan_ manipulasi_dokumen_ekspor_toba_pulp_lestari_/102174.html. 8 Suara. 2020. “Dari Porsea ke China, dugaan patgulipat di balik ekspor bubur kayu.” February 3, 2020. https://www.suara.com/ bisnis/2020/02/03/071000/patgulipat-di-balik-ekspor-bubur-kayu-porsea-ke-china.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 1 IN INDONESIA’S PULP EXPORTS At end of 2018, the IndonesiaLeaks team unearthed a number of documents showing suspicious transactions had occurred between Toba Pulp and . . . two affiliated companies. The transactions allegedly were done to conceal company profits amounting to hundreds of billions of rupiah between 2007–2016. These delinquent practices are believed to have been carried out by Toba Pulp by manipulating their export records to customs at Indonesian ports.9

More succinctly, Tempo concluded: “Toba Pulp Lestari is suspected of manipulating documents for wood pulp exports to China to transfer the company’s profits offshore.”10 This alleged manipulation of documents, according to Tempo, involved the apparent misclassification of the Harmonized System (HS) code – that is, the code officially used to designate the product being shipped – on Toba Pulp’s export records.

In a response to Tempo issued on February 3, 2020 (see Appendix A), PT Toba Pulp Lestari Tbk’s Board of Director’s stated:

The Company would like to clarify that the HS code used is in accordance with the product classification and legal jurisdictions. Due to customer demand, the Company produced kraft pulp from mid 2010 to mid 2017. Prior to that, Company produced two kinds of pulp. The appropriate HS codes have been declared at the times these products were exported.11

The present technical report provides further documentation and analysis of the apparent profit shifting practices described in the abovementioned media investigation. This report does not allege that any of the companies or individuals named in this report have committed legal or regulatory violations in Indonesia or any other jurisdiction. Indeed, the use of profit shifting practices and the channeling of financial transactions through countries with low corporate tax rates are not necessarily illegal and may be legitimate, provided they are conducted in accordance with relevant laws and regulations. However, it is the opinion of the organizations publishing this report that the findings presented warrant careful scrutiny by the Government of Indonesia. The final section of the report offers recommendations for specific actions the appropriate agencies may take to address the practices described in this report.

2. Indonesia’s low tax collection rates

A nation’s tax to gross domestic product (GDP) ratio is commonly used to measure a government’s capacity to mobilize tax revenues, which are needed to fund public investment and to deliver public services.12 At 11%, Indonesia’s tax to GDP ratio places it below Malaysia, Thailand, the Philippines, and similarly large developing countries in other regions, such as Brazil.13 Such a low tax collection rate risks limiting Indonesia’s development potential, and the Government will need to improve the efficiency

9 Tempo English. 2020. “Wood conjuring tricks.” Op. cit. 10 Tempo English. 2020. “Wood conjuring tricks.” Op. cit. 11 PT Toba Pulp Lestari Tbk. 2020a. “Response – PT Toba Pulp Lestari Tbk.” Medan, Indonesia. Company announcement. February 3, 2020. https://www.tobapulp.com/wp-content/uploads/2020/02/Respose-TPL-3-Feb-2020.pdf. 12 Akitoby, Bernardin, Anja Baum, Clay Hackney, Olamide Harrison, Keyra Primus and Veronique Salins. 2019. “Tax Revenue Mobilization Episodes in Developing Countries.” Policy Design and Practice 3 (1): 1–29. https://www.tandfonline.com/doi/full/10 .1080/25741292.2019.1685729. 13 Akhlas, Adrian Wail. 2020. “World Bank calls for stronger tax collection to bring 115 million Indonesians into middle class.” Jakarta Post, January 31, 2020. https://www.thejakartapost.com/news/2020/01/31/world-bank-calls-for-stronger-tax-collection- to-bring-115-million-indonesians-into-middle-class.html. World Bank. 2019. “Aspiring Indonesia: Expanding the Middle Class”. Washington, DC: World Bank and Australian Government. January 30, 2019. https://www.worldbank.org/en/country/indonesia/ publication/aspiring-indonesia-expanding-the-middle-class. United Nations University. 2020. “Government Revenue Dataset.” Accessed on February 24, 2020. https://www.wider.unu.edu/project/government-revenue-dataset.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 2 IN INDONESIA’S PULP EXPORTS of revenue collection in order to sustain its current fiscal programs.14 In 2017, the administration of President Joko Widodo (hereafter Jokowi) set a target of increasing tax collection to 15% of GDP and has since undertaken an ambitious fiscal reform agenda to achieve this.15

Most prominently, the Government adopted Law 11 of 2016 on Tax Amnesty, launching a tax amnesty program aimed at raising tax compliance on the part of individuals and corporations.16 By encouraging the repatriation of financial assets held offshore, the policy aimed to enlarge the country’s tax base and increase government tax revenues. Through March 2017, nearly one million individuals and corporate entities had participated in the program, and over Rp. 4,778 trillion (US$ 358.63 billion) had been reported to the Tax Office and Rp. 128 trillion (US$ 9.6 billion) had been generated in revenue.17

The premise of the tax amnesty policy was that much of Indonesia’s wealth is hidden abroad, beyond the reach of the nation’s fiscal authorities. The policy successfully repatriated a large amount of money that was held outside Indonesia, but it did not stanch the flow of money that continues to move abroad. To stop the flow and build on the tax amnesty’s success in enlarging the tax base, Finance Minister Sri Mulyani Indrawati has sought to curb profit shifting practices like transfer pricing that facilitate the movement of wealth to jurisdictions outside of Indonesia.18,19 According to the Organisation for Economic Co-operation and Development (OECD), profit shifting refers to “tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations.” These practices facilitate the leakage of taxable profits generated within Indonesia to other countries, thereby posing important regulatory and law enforcement challenges.

3. Profit shifting and tax leakage

Two strategies corporate actors commonly use to achieve profit shifting and to minimize tax obligations are transfer pricing and trade misinvoicing. Transfer pricing refers to the setting of prices in transactions between a taxpayer, either a natural person or a legal entity, and a related party.20 For corporations, this includes the sale of goods and services among subsidiaries, affiliated companies, or commercial entities that are under common ownership or control within the same larger enterprise. Under Indonesian law, such transactions are generally legal when they are guided by an internationally-accepted “arm’s length”

14 An 11% tax-to-GDP ratio places Indonesia below the ‘rule of thumb’ that 15–20% collection rate is the minimum to run an effective state (high-income countries typically achieve 35-45%). In the development context, tax collection is important not only to raise revenue, but also as a tool for redistribution, representation, and re-pricing. Cobham, Alex. 2005. “Taxation Policy and Development.” OCGG Economy Analysis Number 2. Oxford: The Oxford Council on Good Governance. http://taxjustice.net/ cms/upload/pdf/OCGG_-_Alex_Cobham_-_Taxation_Policy_and_Development.pdf. 15 Ministry of Finance. 2016. Undang Undang Nomor 11 Tahun 2016 tentang Pengampunan Pajak. Government of Indonesia. https://jdih.kemenkeu.go.id/fullText/2016/11TAHUN2016UU.pdf; Suroyo, Gayatri and Hidayat Setiajati. 2017. “Indonesia tax amnesty nets $330 billion – now for reform.” Reuters, March 21, 2017. https://www.reuters.com/article/us-indonesia-economy-tax/indonesia- tax-amnesty-nets-330-billion-now-for-reformidUSKBN16S0AS. 16 Setiajati, Hidayat. 2017. “Late rush to join Indonesia tax amnesty after $360 billion declared.” Reuters, March 31, 2017. https:// www.reuters.com/article/us-indonesia-economy-tax-idUSKBN1720VJ. 17 Setiajati. 2017. Op. cit. 18 Suroyo. 2017. Op. cit. 19 Suwiknyo, Edi. 2017. “Penghindaran pajak: Ruang transfer pricing dipersempit.” Bisnis, May 3, 2017. https://finansial.bisnis.com/ read/20170503/9/650250/penghindaran-pajak-ruang-transfer-pricing-dipersempit. 20 According to the International Financial Reporting Standards, a “related party” is identified as: “A person or a close member of that person’s family is related to a reporting entity if that person has control, joint control, or significant influence over the entity or is a member of its key management personnel;” Or, “An entity is related to a reporting entity if, among other circumstances, it is a parent, subsidiary, fellow subsidiary, associate, or joint venture of the reporting entity, or it is controlled, jointly controlled, or significantly influenced or managed by a person who is a related party.” In International Accounting Standards Board. 2019. “IAS 24 Related Party Disclosures.” IFRS Foundation website. https://www.ifrs.org/issued-standards/list-of-standards/ias-24-related-party-disclosures/.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 3 IN INDONESIA’S PULP EXPORTS principle – that is, when the price reported between related parties is similar to what would occur in a normal commercial transaction between unrelated parties.21 However, if a transfer price is intentionally manipulated to favor one related party over another in an attempt to reduce the group’s overall tax bill, this is referred to as abusive transfer pricing and may be illegal.

Trade misinvoicing is another method, like transfer pricing, that can be used to shift profits from one jurisdiction to another. Trade misinvoicing, according to Global Financial Integrity, a think-tank based in Washington, DC, is “a method for moving money illicitly across borders which involves the deliberate falsification of the value, volume, and/or type of commodity in an international commercial transaction of goods or services by at least one party to the transaction.”22 Unlike transfer pricing, in which the judgment of market price and comparability analysis can make cases difficult to prove23, trade misinvoicing violations are, in general, easier to prove and are illegal under prevailing laws in most jurisdictions. Global Financial Integrity estimates that trade misinvoicing is the largest component of illicit financial outflows from developing countries globally.24

In Indonesia and many other countries, corporate actors have used profit shifting practices to avoid or evade taxes. Such practices often involve transactions between local companies and affiliated entities based in offshore jurisdictions with low corporate tax rates, commonly known as tax havens. Indonesia’s Ministry of Finance estimated in 2015 that the Government lost US$ 15.6 billion from corporate tax avoidance facilitated by transfer pricing practices, mainly in the commodities sector.25 Global Financial Integrity estimates that US$ 6.5 billion flowed out of Indonesia in 2016 through the under-invoicing of exports and over-invoicing of imports.26 Neither of these sources provided specific information on profit shifting in Indonesia’s pulp industry.

4. Profit shifting in Indonesia’s dissolving pulp exports

This report documents a profit shifting arrangement that apparently had the effect of moving a substantial portion of the profits generated by a pulp mill in North Sumatra outside of Indonesia, and of booking such profits in Macao, an offshore tax haven. PT Toba Pulp Lestari Tbk is a publicly listed company based in Indonesia that manufactures two different grades of wood pulp and has sold these to international buyers, including to affiliated mills in China operated by the Sateri Group. A comparison of trade statistics compiled, respectively, by the governments of Indonesia and China indicates that a critical part of Toba Pulp’s profit shifting practices involved the apparent mis-classification of the type of pulp being exported. This mis-classification, in turn, had the apparent effect of the product being under- priced as it was shipped out of Indonesia.

21 Direktorat Jenderal Pajak. 2011. “Peraturan Direktur Jenderal Pajak Nomor PER-32/PJ/2011 tentang Perubahan atas Peraturan Dirketur Jenderal Pajak Nomor PER-43/PJ/2010 tentang Penerapan prinsip kewajaran dan kelaziman usaha dalam trasaksi antara wajib pajak dengan pihak yang mempuyai hubungan istimewa.” Government of Indonesia. Ministry of Finance. Directorate General of Taxation. November 11, 2011. https://www.pajak.go.id/sites/default/files/2019-04/PER%20-%2032.PJ_.2011%20tg%20 Perubahan%20PER-43.PJ_.2010%20tg%20Penerapan%20Prinsip%20Kewajaran%20dan%20Kelaziman%20Usaha%20.pdf. 22 Global Financial Integrity. 2020. “Trade Misinvoicing.” Accessed on February 20, 2020. https://www.gfintegrity.org/issue/trade- misinvoicing/. 23 Swan, Collin. 2010. “$20,000 for a Refrigerator? Abusive Transfer Pricing Explained.” Boston: Financial Transparency Coalition. August 2, 2015. https://financialtransparency.org/20000-for-a-refrigerator-abusive-transfer-pricing-explained/. 24 Global Financial Integrity. 2020. Op. cit. 25 Suroyo, Gayatri and Eveline Danubrata. 2015. “Indonesia to crack down on corporate tax avoidance.” Reuters, February 23, 2015. https://www.reuters.com/article/us-indonesia-tax-taxavoidance-idUSKBN0LS05320150224. 26 Global Financial Integrity. 2019. “Indonesia: Potential Revenue Losses Associated with Trade Misinvoicing.” Washington, DC. https://gfintegrity.org/report/indonesia-potential-revenue-losses-associated-with-trade-misinvoicing/.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 4 IN INDONESIA’S PULP EXPORTS Figure 1. Overlapping beneficial ownership of Toba Pulp, APRIL, Sateri, and Royal Golden Eagle (RGE) Group International

SUKANTO TANOTO and certain family members

Royal Golden Eagle (RGE) Group Toba Pulp Lestari

APRIL Sateri

Sources: Direktorat Jenderal Administrasi Hukum Umum (Ditjen AHU). 2020. “Profil Perusahaan PT Toba Pulp Lestari Tbk.” Company Profile. Government of Indonesia. Ministry of Law and Human Rights. Directorate General of General Law Administration. February 17, 2020. PT Toba Pulp Lestari Tbk. 2017b. “Keterbukaan informasi kepada pemegang saham mengenai rencana transaksi material dan transaksi afiliasi PT Toba Pulp Lestari Tbk.” [Disclosure of information to shareholders about material and affiliated transaction of PT Toba Pulp Lestari Tbk.] Medan, Indonesia. Company announcement. November 22, 2017. https://www.tobapulp.com/wp-content/uploads/2019/01/Keterbukaan-Information-Transaksi-Material-dan-Afiliasi-Perjanjian- Pinjam-Meminjam-22-November-2017.pdf. Bracell Limited. 2016. “(1) Proposed privatisation of Bracell Limited by BHL Limited by way of a scheme of arrangement under Section 99 of the Companies Act of Bermuda and (2) Proposed withdrawal of listing of Bracell Limited.” Document jointly issued by Bracell Limited and BHL Limited. August 30, 2016. https://www1.hkexnews.hk/listedco/listconews/sehk/2016/0829/ltn20160829301.pdf. Sateri Holdings Limited circular, November 19, 2014; Royal Golden Eagle (RGE) Group website. https://www.rgei.com. Accessed on February 17, 2020.

Through analysis of gaps in trade data and statements released by Toba Pulp and its affiliates, the report estimates that Toba Pulp’s use of this profit shifting arrangement had the apparent effect of under- stating the company’s revenues in Indonesia by approximately US$ 426 million (Rp. 4.23 trillion) during the decade 2007–2016. The data and methodology used for determining this estimate are presented in detail in Sections II and III, below.

The authors of this report acknowledge that there may be legitimate business-related reasons for companies to use profit shifting practices and to book profits in offshore jurisdictions with low corporate

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 5 IN INDONESIA’S PULP EXPORTS tax rates. However, as this report makes clear, it is important for government tax authorities to scrutinize such practices carefully to ensure they are in compliance with prevailing laws and regulations.

The report further analyzes the reported sales of dissolving pulp by Asia Pacific Resources International Limited (hereafter the APRIL Group), Indonesia’s second largest pulp producer, which is controlled by the same beneficial owner27 as Toba Pulp and Sateri, Sukanto Tanoto and members of his family (see Figure 1).28 APRIL has acknowledged producing over 800,000 tons of dissolving pulp during 2016–2018, and there are strong indications that most of this was exported to affiliated mills in China. Yet trade data prepared by the Government of Indonesia do not appear to record any dissolving pulp exports from APRIL, its main operating companies, or its known subsidiaries during this period. APRIL’s exports of paper-grade pulp during those three years were made to affiliated marketing and sales companies in Macao, Singapore and Malaysia, which then apparently re-sold the pulp to other companies in China and elsewhere, according to trade shipment data analyzed for this study.

These and other findings indicate that APRIL apparently used profit shifting practices during these years that were similar in structure and effect to the ones used by Toba Pulp during the period 2007–2016. The APRIL Group’s practices appear to have had the effect of under-stating the company’s revenues in Indonesia by approximately US$ 242 million (Rp. 3.35 trillion) during 2016–2018. The data and methodology used for determining this estimate will be presented in detail in Section IV below.

In response to a summary of this report’s findings, the APRIL Group stated: “In February 2016, RAPP [APRIL subsidiary, PT Riau Andalan Pulp & Paper] obtained permission to produce Dissolving Pulp from BKPM [Indonesia’s Capital Investment Coordinating Board]. After obtaining this permit, RAPP conducted a series of trials to test the production of a new type of pulp that we call Acacia Eucalyptus (AE) Pulp, which is a modified kraft pulp. [. . .] Since AE Pulp production was still in the trial development stage, RAPP continued to use the HS Code for Kraft or HS Code 4703.290000 until the specifications of this AE Pulp product met the standards expected by the buyer. And after 2 years of the trial period, Sateri confirmed that RAPP’s AE Pulp could achieve the same quality of or substitute for Dissolving Pulp in their production process. As a result of this cooperation, RAPP has exported accordingly with the needs of Sateri with the HS Code for Dissolving Pulp or HS Code 4702.000000.” APRIL’s full response received on October 27, 2020 is included in Appendix C.

27 “Beneficial owner” is a term that commonly refers to the person or people who exercise control over a company and/or who benefits from it. The beneficial owner may or may not be the same as the legal or formal owner of the company. 28 The organizations publishing this report have seen no evidence to suggest that Mr. Tanoto or members of his family personally directed any unlawful scheme or practices.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 6 IN INDONESIA’S PULP EXPORTS Map 1: Locations of pulp mills, ports, VSF mills, and countries involved in ownership or trading from Toba Pulp and/or APRIL’s Kerinci mill.

CHINA

Belawan port Sateri Jiujiang NEPAL Sateri Jiangxi

Sateri Fujian INDIA Toba Pulp Lestari Hong Kong BuatanMYANMAR port MACAO Sumatra APRIL Kerinci mill

MALAYSIA

SINGAPORE

INDONESIA

Pulp mills Viscose staple fiber (VSF) mills Ports Location of marketing companies

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 7 IN INDONESIA’S PULP EXPORTS SECTION II. DISCREPANCIES IN INDONESIA’S DISSOLVING PULP TRADE WITH CHINA

5. Gaps in trade data between Indonesia and China Over a ten year period from 2007, China reported a lot more dissolving pulp imports coming from Indonesia than Indonesia reported as having exported to China. China imported over 1.1 million tons of dissolving pulp from Indonesia between 2007 and 2016, according to China’s government data as reported to the United Nations Commodity Trade Statistics Database (hereafter UN Comtrade).29 However, according to official trade data prepared by the Government of Indonesia’s Central Statistics Bureau (Badan Pusat Statistik, BPS), Indonesia exported only around 150,000 tons of dissolving pulp to China during that same period, 2007–2016.30 That is, over this ten-year period, China’s import records indicate approximately 950,000 more tons of dissolving pulp coming from Indonesia – equivalent to more than 30,000 shipping containers – than Indonesia’s export records show going to China. For seven of the ten years, China reported significant amounts of imports where Indonesia either reported none or reported only a negligible amount of corresponding exports.

As shown in Figure 2, China’s import data indicates that the country received shipments of dissolving pulp from Indonesia every year in the period 2007–2016. Although the China import shipments surpassed 100,000 tons annually in 2010, 2011, 2012, and 2015 and exceeded 200,000 tons in 2016, Indonesia’s BPS export data does not report any shipments for significant amounts of dissolving pulp from Indonesia to China during these years except in 2010. The two countries’ statistical data indicate that significantly larger volumes of dissolving pulp were reportedly imported to China from Indonesia than were reportedly exported from Indonesia between 2007 and 2016.31

6. Indonesia’s only producer of dissolving pulp until 2016 This sizeable gap between Indonesia’s export data and China’s import data would appear to hold significant implications for Toba Pulp, as the company was the only reported producer of dissolving pulp in Indonesia until 2016.32 Any dissolving pulp made in Indonesia and exported to buyers in other

29 United Nations Commodity Trade Statistics Database (UN Comtrade). Various years. New York: United Nations Statistics Division. Trade Statistics Branch. https://comtrade.un.org. 30 Badan Pusat Statistik. 2019b. “Export data 2007–2018 for HS Code 4702000000 (Chemical wood pulp, dissolving grades).” Government of Indonesia. Central Statistics Bureau. Received by data request. 31 The UN Comtrade reporting rules for the ultimate importer require that it identify not the immediate exporter but the country of origin as the corresponding export jurisdiction (see Methodology Guide for UN Comtrade User). As a result, data from “triangular trade” patterns may create volume anomalies like the one indicated in Figure 2. This anomaly on its own need not suggest any further issue. However, as the additional information presented below demonstrates, the particular anomaly shown in Figure 2 indicates an apparent case of profit shifting. 32 Tempo. 2020. “Jurus sulap ekspor kayu.” February 1, 2020. https://majalah.tempo.co/read/hukum/159598/jurus-sulap-ekspor- kayu. The head of the Indonesia Pulp & Paper Association (APKI), Saiful Bahri, is quoted in the Tempo article as saying that prior to 2017 Toba Pulp Lestari was the only producer of dissolving pulp in Indonesia.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 8 IN INDONESIA’S PULP EXPORTS Figure 2. Dissolving pulp sent from Indonesia to China, 2007–2016

250,000

200,000

150,000

ons of pulp 100,000 T

50,000

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Reported by Indonesia Reported by China

Sources: Indonesia data from BPS; China data from UN Comtrade. countries prior to 2016 would, therefore, have been produced by Toba Pulp. However, as detailed below, Toba Pulp did not publicly report how much dissolving pulp it produced between 2007 and 2016.

Toba Pulp began operations at its mill in Porsea, North Sumatra in 1988, under the firm’s previous name of PT Inti Indorayon Utama Tbk (see Box 1). The Porsea facility was designed as a “swing mill” capable of producing two types of wood pulp: bleached hardwood kraft pulp (BHKP), which is used to make paper, tissue, and packaging (hereafter referred to as “paper-grade pulp”); and dissolving pulp, which is used to make rayon and viscose staple fiber (VSF) for the production of textile products (see Figure 3). Aside from production of paper-grade pulp and dissolving pulp, Toba Pulp does not report that it produces other products or engages in other lines of business. In 1998, Toba Pulp reported that its installed production capacity for paper-grade pulp was 240,000 air-dried tons (hereafter tons) per year; and its production capacity for dissolving pulp was 180,000 tons per year (see Figure 3).

Figure 3. Toba Pulp annual production capacity of dissolving pulp and BHKP paper-grade pulp

Used to manufacture 180,000 tons/year clothes, medical masks, and other consumer and industrial textiles OR Dissolving pulp Toba Pulp Lestari Used to manufacture paper, tissue, and 240,000 tons/year packaging

BHKP (bleached hardwood kraft pulp)

Source: APRIL Group. 1998. “APRIL switches part of production to dissolving pulp and increases paper pulp price.” Press Release. PR Newswire, March 26, 1998.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 9 IN INDONESIA’S PULP EXPORTS Box 1: Overview of PT Toba Pulp Lestari Tbk

PT Toba Pulp Lestari Tbk was established in 1983 and was formerly known as PT Inti Indorayon Utama Tbk.33 The company was founded by the Raja Garuda Mas (RGM) Group, now known as the Royal Golden Eagle (RGE) International Group, the parent conglomerate for the APRIL Group.34 Toba Pulp is listed on the Indonesia Stock Exchange and trades under the symbol INRU.

As of 31 December 2019, some 92.4% of Toba Pulp’s issued share capital was owned by Pinnacle Company Ltd Pte, a limited liability company incorporated in Singapore, according to information filed with the Jakarta Stock Exchange.35 Sukanto Tanoto, the founder of RGE International, is reported to be the ultimate controlling shareholder of Toba Pulp (see Appendix D).

Toba Pulp’s mill is located in Porsea, North Sumatra, and is reportedly capable of producing 180,000 tons of dissolving pulp or 240,000 tons of paper-grade pulp annually.36 As a “swing” mill, it can switch production between the two grades of pulp.37

The company also has industrial tree plantation (Hutan Tanaman Industri, or HTI) concession licenses that cover 184,486 hectares of land in North Sumatra province.38 On these plantations, Toba Pulp grows eucalyptus trees that are used as fiber in the pulp production process. In recent years, the portion of Toba Pulp’s overall wood fiber sourced from plantations within its own HTI concessions has declined from over 80% in 2017 to under 40% in 2019.39 According to Toba Pulp’s 2018 Annual Report, production of pulpwood from its HTI concessions was “not maximum due to the diseases of little leaf, helopeltis, and ghalwash.”40

Toba Pulp’s mill and industrial tree plantation concessions have a legacy of environmental harm and social conflict.41 During the 1990s, local communities blamed the mill, then operated by PT Inti

33 PT Toba Pulp Lestari Tbk. 2019a. Annual Report 2018 [including Financial Statements as of December 31, 2018 and 2017 and Independent Auditors’ Report]. Medan, Indonesia. https://www.tobapulp.com/wp-content/uploads/2019/05/LAPORAN- TAHUNAN-INRU-2018.pdf. 34 Detik. 2007. “Pinnacle Company incar saham Toba Pulp Lestari.” October 19, 2007. https://finance.detik.com/bursa- danvalas/d-842647/pinnacle-company-incar-saham-toba-pulp-lestari. 35 PT Toba Pulp Lestari Tbk. 2020b. “Laporan Bulanan Registrasi Pemegang Efek.” Medan, Indonesia. Corporate filing number 003/ TPL/MDN/I/20(EReport). January 8, 2020. https://www.idx.co.id/StaticData/NewsAndAnnouncement/ANNOUNCEMENTSTOCK/ From_EREP/202001/445253b404_fe51cb1b20.pdf. 36 APRIL Group. 1998. “APRIL switches part of production to dissolving pulp and increases paper pulp price.” Press Release. PR Newswire, March 26, 1998. 37 Reuters. 2009. “Indonesia’s Toba Pulp to invest $150 mln in capacity.” November 10, 2009. https://www.reuters.com/article/ tobapulpindonesia/indonesias-toba-pulp-to-invest-150-mln-in-capacity-idUSJAK35424420091110. 38 Kementerian Lingkungan Hidup dan Kehutanan. 2019. “Basis Data Geospasial Linkungan Hidup dan Kehutanan Tahun 2019.” Government of Indonesia. Ministry of Environment and Forestry. http://appgis.dephut.go.id/appgis/download/1.5.%20 Buku%20BASIS%20DATA%20SPASIAL%20KEHUTANAN/BUKU%20BASIS%20DATA%20GEOSPASIAL%202019.pdf. 39 Kementerian Lingkungan Hidup dan Kehutanan. 2019. “PT Toba Pulp Lestari Tbk – Laporan Rencana dan Realisasi Pemenuhan Bahan Baku Industri Primer Hasil Hutan Kayu.” Government of Indonesia. Ministry of Environment and Forestry. Kementerian Lingkungan Hidup dan Kehutanan. 2017. “PT Toba Pulp Lestari Tbk – Laporan Rencana dan Realisasi Pemenuhan Bahan Baku Industri Primer Hasil Hutan Kayu.” Government of Indonesia. Ministry of Environment and Forestry. 40 Toba Pulp. 2019a. Op. cit. 41 Cuddy, Alice. 2017. “‘Give us back our land’: Paper giants struggle to resolve conflicts with communities in Sumatra.” Mongabay, June 9, 2017. https://news.mongabay.com/2017/06/give-us-back-our-land-paper-giants-struggle-to-resolve-conflicts- withcommunities-in-sumatra/. Gaworecki, Mike. 2014. “Dissolving pulp: the threat to Indonesia’s forests you’ve probably never heard of.” Mongabay, September 23, 2014. https://news.mongabay.com/2014/09/dissolving-pulp-the-threat-to-indonesias- forestsyouve-probably-never-heard-of/.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 10 IN INDONESIA’S PULP EXPORTS Indorayon Utama, for polluting nearby farms and fishing areas.42 In 1993, a boiler exploded and a chlorine tank burst, causing violent demonstrations.43 After sustained protests from local residents and environmental groups, the Government suspended the mill’s operations in late-1998.44 Following an environmental audit and the firm’s name change to PT Toba Pulp Lestari, the mill was allowed to re-open in 2003 on the condition that it could no longer produce rayon.45, 46

The company’s HTI industrial tree plantation concessions have also been a source of controversy. A number of communities in North Sumatra have protested for years that parts of Toba Pulp’s HTI concessions overlap with their community lands.47

Toba Pulp has frequently indicated that the company decides which of the two types of pulp to produce based on “market conditions and availability of raw materials, amongst other factors.”48 However, Toba Pulp’s annual reports prior to 2018 did not disclose which portions of its overall production or sales were composed of paper-grade pulp versus dissolving pulp. This leads to ambiguity about which type of pulp Toba Pulp produced and exported. Over the decade 2007–2016, for example, Toba Pulp’s annual reports disclose that the company produced a total of 1.8 million tons of pulp of an unspecified grade, with reported annual production peaking in 2009 at 210,607 tons (See Figure 4). Yet the data published in Toba Pulp’s annual reports during these years do not indicate the specific volumes or values of paper- grade pulp or of dissolving pulp, respectively, that the company produced and/or exported.

In a disclosure dated June 8, 2010, Toba Pulp announced it had “switched from producing rayon staple grade of eucalyptus wood pulp to paper grade of wood pulp.” To the best of the authors’ knowledge, Toba Pulp made no subsequent announcements of the grade of pulp it produced until March 3, 2017. As recently as October 15, 2020, Toba Pulp’s corporate website posts no disclosures stating a switch of products between June 8, 2010 and March 3, 2017. This appears to indicate that Toba Pulp produced only one product – paper-grade pulp – during this entire period.

In its response to Tempo Magazine on February 3, 2020, Toba Pulp stated: “Due to customer demand, the Company produced kraft pulp from mid 2010 to mid 2017. Prior to that, Company produced two kinds of pulp.” On the surface, this statement would appear to suggest that Toba Pulp produced only one grade

42 Thoenes, Sander. 1998. “A nation is let loose to protest, but to what end? In Indonesia, a mill accused of ecocide is closed but reopened after protesters waver.” Christian Science Monitor, November 2, 1998. 43 Reuters. 1993. “Factory gas leak sparks mob frenzy.” Herald Sun. November 9, 1993. 44 Solomon, Jay and Puspa Madani. 2000. “Jakarta shuts down rayon plant because of environmental worries.” Wall Street Journal, May 11, 2000. 45 Pulp & Paper International. 2003. “Toba Pulp Lestari prepares to roll again.” 45:3 (April). 46 Borsuk, Richard. 2002. “Toba Pulp to dismantle Indonesian rayon plant.” Wall Street Journal, July 5, 2020. 47 For example, see Akbar, Sofyan. 2019. “Walhi Sumut: Konflik agraria jadikan masyarakat sebagai korban.” Tribun Medan, November 28, 2019. https://medan.tribunnews.com/2019/11/28/walhi-sumut-konflik-agraria-jadikan-masyarakat-sebagai- korban. Karokaro, Ayat S. 2017. “Berkonflik lahan dengan Toba Pulp Lestari, Ketua Adat Tungko Ni Solu terjerat hukum.” Mongabay, May 10, 2017. https://www.mongabay.co.id/2017/05/10/berkonflik-lahan-dengan-toba-pulp-lestari-ketua-adat- tungko-ni-solu-terjerat-hukum/. Gunawan, Apriadi. 2012. “Paper mill deploys force in land conflict.” Jakarta Post, September 22, 2020. https://www.thejakartapost.com/news/2012/09/22/paper-mill-deploys-force-land-conflict.html. 48 See PT Toba Pulp Lestari Tbk. 2019b. “Announcement – PT Toba Pulp Lestari switched to producing pulp-dissolving grade.” Company announcement. Medan, Indonesia. April 24, 2019. https://www.tobapulp.com/wp-content/uploads/2019/04/ Announcement-24-April-2019.pdf and PT Toba Pulp Lestari Tbk. 2018b. “Announcement -- PT Toba Pulp Lestari switched to producing paper pulp.” Company announcement. Medan, Indonesia. May 10, 2018. https://www.tobapulp.com/wp-content/ uploads/2018/05/Announcement.pdf.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 11 IN INDONESIA’S PULP EXPORTS Figure 4. Volume of Toba Pulp’s total pulp production (2007–2016) and sales (2011–2016)

250,000

200,000

150,000

100,000 Tons of pulp

50,000

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Pulp production Pulp sales

Source: Annual reports of PT Toba Pulp Lestari Tbk, 2007–2016. Note: In the period 2007–2010, PT Toba Pulp Lestari Tbk’s annual reports do not report volume of sales. of pulp from mid-2010 to mid-2017, and based on the company’s disclosure dated June 8, 2010, it would seem this product was paper-grade pulp. However, it is important to note that dissolving pulp also uses a modified form of the kraft process. So it is possible the company’s statement about producing kraft pulp could apply both to BHKP and to dissolving pulp.

In March 2017, Toba Pulp resumed issuing periodic public announcements disclosing the type of product its Porsea mill is producing. Between March 2017 and June 2019, the company released six such announcements, each of which indicates a specific date on which the mill switched from producing paper-grade pulp to dissolving pulp, or vice versa.49 In its 2018 annual report, Toba Pulp also disclosed the specific volume of each grade it produced during that year: “Throughout 2018, the Company produced 139,335 tons of dissolving pulp and 30,571 tons of BHKP [paper-grade pulp].” To the best of the authors’ knowledge, this is Toba Pulp’s first public disclosure of the specific volumes of paper-grade pulp and dissolving pulp that it has produced in any year since at least 2007 and possibly earlier (see Section III below for further details on these announcements).

7. Exports of pulp from Belawan port in North Sumatra

According to BPS data, exports of dissolving pulp from Indonesia to China during 2007, 2009, and 2010 are reported to have been shipped from the port of Belawan in North Sumatra. The port of Belawan is the closest deep-water port to Toba Pulp’s mill and is located in the same province, making it a logical facility through which the company ships its pulp exports to buyers in other countries. As indicated above, Toba Pulp was the only Indonesian producer of dissolving pulp until 2016.

49 As of June 15, 2019, Toba Pulp has issued such announcements on March 3, 2017; July 18, 2017; March 10, 2018; July 4, 2018; February 20, 2019; and April 24, 2019. The first of these announcements indicates that the company is making these disclosures “in accordance with [Indonesian Financial Authority] Regulation 31/POJK.04/2015 dated December 16, 2015 about the Disclosure of Information or Material Facts by the Issuer or Public Company.”

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 12 IN INDONESIA’S PULP EXPORTS Figure 5. Comparison of pulp exported from Belawan port and Toba Pulp sales volumes, 2007–2016

200,000

150,000

100,000 Tons of Pulp Tons 50,000

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Dissolving pulp exports from Belawan Toba Pulp production and sales BHKP exports from Belawan

Sources: BPS for BHKP and dissolving pulp exports from Belawan; PT Toba Pulp Lestari Tbk Annual Reports for Toba Pulp production and sales. Note: Toba Pulp’s data are presented as reported production volumes for 2007–2010 and as reported sales volumes for 2011–2016. Prior to 2011, Toba Pulp did not report sales volume in its Annual Report, so production volumes are used here as a proxy for sales during 2007–2010.

Significantly, a review of pulp exports shipped from Belawan during the study period, as reported in Indonesia’s official trade data, indicates a high degree of correspondence to the volumes of pulp that Toba Pulp reported either as produced or as sold. In the years 2008 and 2011–2016 (i.e years in which BPS reports none or only negligible amounts of dissolving pulp exports from Indonesia), the volume of paper-grade pulp shipped from Belawan corresponds very closely to the overall volumes of pulp that Toba Pulp, in its annual disclosure to shareholders, reported either as produced or as sold (see Figure 5). Similarly, in 2007, 2009 and 2010 (i.e. years in which BPS does report dissolving pulp exports from Indonesia), the combined volumes of paper-grade pulp and dissolving pulp shipped from Belawan correspond closely to the volumes of pulp that Toba Pulp reported either as produced or as sold. As indicated above, Toba Pulp did not specify in its annual reports for 2007–2016 the specific volumes of paper-grade pulp and dissolving pulp, respectively, that it either produced or sold.

This correspondence strongly suggests that virtually all of Toba Pulp’s exports during the period 2007– 2016 were shipped out of Belawan port and that the vast majority of these exports were classified as paper-grade pulp. This finding is supported by shipment-level trade data for the period 2010–2016, which the authors of this report obtained from a commercial trade data provider. The shipment-level data, which are reportedly based on data compiled by the Government of Indonesia’s Customs Authority, indicate that Toba Pulp was the sole exporter of pulp of any grade that was shipped from Belawan during 2010–2016.

Moreover, for the vast majority of these shipments, the product exported was described either as “Toba Pulp BHKP” or as “Toba Cell Eucalyptus Pulp”, both of which are classified under Harmonized System (HS) code 470329 (see Figure 6). Under the internationally standardized Harmonized System, this HS code is defined as “Chemical wood pulp, soda or sulphate, other than dissolving grades – non-coniferous”, and it

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 13 IN INDONESIA’S PULP EXPORTS is this HS code that is used to classify BHKP, one of the major types of paper-grade pulp, in international trade.50 The HS code 470200, by comparison, is described as “Chemical wood pulp, dissolving grades” and is used to classify dissolving pulp (see Figure 7). Box 2 provides further details on the Harmonized System and these HS codes.

Figure 6. Example of export record of Toba Pulp shipment to DP Macao classified as HS Code 470329 with “Toba Cell Eucalyptus Pulp” description

Source: Indonesia’s Timber Legality Information System (Sistem Informasi Legalitas Kayu, or SILK). Ministry of Environment and Forestry. Government of Indonesia. http://silk.dephut.go.id/.

Figure 7. Comparison of paper-grade BHKP and dissolving pulp

Paper-grade pulp Dissolving pulp (bleached hardwood kraft pulp, BHKP) HS Code 470200

HS Code 470329 Used to produce viscose for textiles like clothes and Used to produce paper and medical supplies tissue products Requires more wood and Constitutes the majority of processing time than pulp produced in Indonesia paper-grade pulp

Price around $500–700 per Price around $800–1,000 ton (CIF China), on average per ton (CIF China), usually around 60% of price of $150 to $300 per ton more dissolving pulp expensive than paper- grade pulp

50 According to the UN Trade Statistics database, “The Harmonized System is an international nomenclature for the classification of products. It allows participating countries to classify traded goods on a common basis for customs purposes. At the international level, the Harmonized System (HS) for classifying goods is a six-digit code system.” (https://unstats.un.org/unsd/tradekb/ Knowledgebase/50018/Harmonized-Commodity-Description-and-Coding-Systems-HS).

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 14 IN INDONESIA’S PULP EXPORTS Box 2. Harmonized System (HS) Codes The Harmonized System, abbreviated as HS, is a shortened form used to describe the Harmonized Commodity Description and Coding System. This is “a universal economic language and code for goods” that was developed and is maintained by the World Customs Organization, according to the organization’s website. The Harmonized System includes about 5,000 commodity groups, each identified by a six-digit HS code. Over 200 countries, including Indonesia and China, use the Harmonized System “as a basis for their Customs tariffs and for the collection of international trade statistics.” Governments, international organizations, and the private sector also use the Harmonized System for other purposes including “internal taxes, trade policies, monitoring of controlled goods, rules of origin, freight tariffs, transport statistics, price monitoring, quota controls, compilation of national accounts, and economic research and analysis.” Countries may expand the internationally uniform six-digit HS codes to eight- or ten-digit codes, with the additional digits defining commodities at a more detailed level for internal purposes. In countries that use eight- or ten-digit HS codes, the first six digits of these codes follow the World Customs Organization’s rules. Chapter 47 of the Harmonized System is labeled “Pulp of wood or of other fibrous cellulosic material; recovered (waste and scrap) paper or paperboard”, and 21 six-digit HS codes fall under it. The heading 4703 is labeled “Chemical wood pulp, soda or sulphate, other than dissolving grades.” Under this heading, HS Code 4703.29 is labeled “Semi-bleached or bleached, Non-coniferous.” HS Code 4703.29 is the classification for the majority of pulp exported from Indonesia known as Bleached Hardwood Kraft Pulp, Bleached Acacia Kraft Pulp, and/or Bleached Eucalyptus Kraft Pulp. The heading 4702, and the only HS code under it, 4702.00, are labeled “Chemical wood pulp, dissolving grades.”51 Both Indonesia and China are members of the World Customs Organization,52 and the two countries appear to use similar if not identical definitions as the World Customs Organization for HS codes 470329 and 470200 (see Table 1).

Table 1. Definitions of HS Codes 470329 and 470200

HS Code 470329 HS Code 470200 World Customs 4703.29: Chemical wood pulp, soda or sulphate, 4702.00: Chemical wood pulp, dissolving Organization other than dissolving grades. Semi-bleached or grades bleached, Non-coniferous Indonesia 4703.29.00.00: Chemical wood pulp, soda or 4702.00.00.00: Chemical wood pulp, sulphate, other than dissolving grades. Semi- dissolving grades bleached or bleached. Non-coniferous China 4703 2900 00: Chemical wood pulp, soda or 4702 0000 01: Chemical wood pulp, sulphate, semi-bleached and bleached, non- dissolving grades, for the production of coniferous, other than dissolving grades viscose fibre (excluding acetate fiber)…* 4702 0000 90: Other chemical wood pulp, dissolving grades

Sources: World Customs Organization. 2020. “HS Nomenclature.”; Ministry of Trade. 2016. Ministerial Regulation Number 84/M-DAG/ PER/12/2016 about Definition of Forestry Product Exports. Government of Indonesia. December 22, 2016. http://silk.dephut.go.id/app/Upload/ hukum/20170228/54663a489f92d767098cbe2eb0df4eb7.pdf; ETCN. 2020. “China HS Code Search.” https://hs.e-to-china.com/ks-470200.html. * The definition for this Tariff-level HS code includes these technical details, “Pulp viscosity ≥3.7dl/g, and <6.4dl/g, or ≥350ml/g, and <700ml/g, α cellulose content (r18, sulfate) ≥88%, and <95.5%, or α cellulose content (r18, sulfate) ≥87%, and <94%.”

51 The sole Note to chapter 47 refers to this heading and HS code: “For the purposes of heading 47.02, the expression ‘chemical wood pulp, dissolving grades’ means chemical wood pulp having by weight an insoluble fraction of 92% or more for soda or sulphate wood pulp or of 88% or more for sulphite wood pulp after one hour in a caustic soda solution containing 18% sodium hydroxide (NaOH) at 20°C, and for sulphite wood pulp an ash content that does not exceed 0.15% by weight.” 52 World Customs Organization. 2019. “List of Members with Membership Date.” August 19, 2019. http://www.wcoomd. org/-/media/wco/public/global/pdf/about-us/wco-members/list-of-members-with-membership-date.pdf.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 15 IN INDONESIA’S PULP EXPORTS 8. Statistical correlation between Indonesia’s exports of “Toba Cell Eucalyptus Pulp” and China’s imports of dissolving pulp

Toba Pulp’s exports described as “Toba Cell Eucalyptus Pulp” from Belawan port in Indonesia are highly correlated with China’s reported imports of dissolving pulp from Indonesia for most of the period 2010– 2016. Figure 8 shows the monthly total of Toba Pulp’s exports reported as “Toba Cell Eucalyptus Pulp” compared to a moving two-month average of China’s dissolving pulp imports from Indonesia during the period April 2010–December 2016.

The two data sets presented in Figure 8 have been obtained from two different sources: Indonesia’s Customs Authority and China’s Customs Authority (both via a proprietary trade data provider). Moreover, the data sets reportedly cover two different products (paper-grade pulp described as “Toba Cell Eucalyptus Pulp” for Toba Pulp’s exports and dissolving pulp for China’s imports), classified under two different HS codes (HS 470329 for Toba Pulp’s exports and HS 470200 for China’s imports). Under these conditions, if the data accurately reflect the products being traded (and reported), one would reasonably expect the two data sets to be independent of one another – that is, to have different means, to show different levels of variance, and to follow different trends.

Statistical analysis indicates, however, that these two data sets are far from independent during the period April 2010 to September 2016.53 With high confidence, the data show that Toba Pulp’s exports described as “Toba Cell Eucalyptus Pulp” (HS 470329) are during this period a statistically significant

Figure 8. Toba Pulp’s exports of “Toba Cell Eucalyptus Pulp” (HS 470329) and China’s imports of dissolving pulp (HS 470200) from Indonesia, April 2010–December 2016

30,000

25,000

20,000

15,000

Weight (tons) 10,000

5,000

0 Oct 2016 Oct 2015 Oct 2014 Oct 2013 Oct 2012 Oct 2011 Oct 2010 Jun 2016 Jun 2015 Jun 2014 Jun 2013 Jun 2012 Jun 2011 Jun 2010 Apr 2016 Apr 2015 Apr 2014 Apr 2013 Apr 2012 Apr 2011 Apr 2010 Feb 2016 Feb 2015 Feb 2014 Feb 2013 Feb 2012 Feb 2011 Dec 2016 Dec 2015 Dec 2014 Dec 2013 Dec 2012 Dec 2011 Dec 2010 Aug 2016 Aug 2015 Aug 2014 Aug 2013 Aug 2012 Aug 2011 Aug 2010

“Toba Cell Eucalyptus Pulp” exports China dissolving pulp imports from Indonesia (moving two-month average)

Source: Trade data provider of shipment level Indonesia exports for BHKP and China imports for dissolving pulp.

53 As shown in Figure 8, the strong correlation between the two data sets ends in the fourth quarter of 2016. At that time, APRIL Group emerged as a second dissolving pulp producer in Indonesia and began exporting substantial volumes of dissolving pulp to China. This explains why China’s imports of dissolving pulp from Indonesia can be seen to increase sharply during October- December 2016, while Toba Pulp’s exports of “Toba Cell Eucalyptus Pulp” declined.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 16 IN INDONESIA’S PULP EXPORTS indicator of China’s dissolving pulp (HS 470200) import trends from Indonesia – and this relationship continues, with minor exceptions, across the six-and-a-half year period analyzed.54

More specifically, the data show that Toba Pulp’s exports described as “Toba Cell Eucalyptus Pulp” (HS 470329) are a leading indicator of changes in China’s dissolving pulp (HS 47020000) import trends. In a majority of cases during April 2010–September 2016, when Toba Pulp’s exports described as “Toba Cell Eucalyptus Pulp” change from an increase or decrease (or vice versa) compared to the preceding month, China’s imports of dissolving pulp show a corresponding change from an increase or decrease (or vice versa) of a similar magnitude. This statistical correlation between the two data sets points to a high degree of probability that a substantial portion of Toba Pulp’s exports to China was reported as paper- grade pulp in Indonesia’s export records and reported as dissolving pulp in China’s import records.

The high level of statistical correlation is further supported by a significant number of exact matches between the volumes of export and import shipments. In the years 2010–2016, at least 78 shipments of pulp from Toba Pulp classified as HS Code 470329 from Indonesia matched kilogram for kilogram with shipments of pulp classified as HS Code 470200 imported to China from Indonesia. (Details for a sample of these shipments will be presented in Table 4, below.) In addition, several dozen additional cases have been identified in which the volumes of multiple shipments classified as HS Code 470329 from Indonesia have added up to match precisely the volume of a single larger shipment of pulp classified as HS Code 470200 imported to China from Indonesia.

In each case, the import shipments into China occurred within three months after the corresponding export shipments from Indonesia. Given that each of the shipments was hundreds of thousands, if not millions, of kilograms and that the total weights are not round numbers nor do they appear to repeat themselves, the probability that over 150 shipments would by random chance either match exactly or in combinations is extremely small. These corresponding export and import shipments appear to confirm that, according to the trade record, shipments exported under one HS code from Indonesia were imported under a different HS code into China. Toba Pulp, in response to the Indoleaks allegation of manipulating export documents between 2007 and 2016, stated in February 2020 that “the HS code used is in accordance with the product classification and legal jurisdictions.” (See Appendix A for full response).

So what actually was the grade of pulp that Toba Pulp described as “Toba Cell Eucalyptus Pulp” (HS 470329) when it was shipped out of Indonesia: paper-grade pulp or dissolving pulp? To determine this – and why it matters – Toba Pulp’s marketing arrangements must be examined. As detailed below, these arrangements involve Toba Pulp’s product being exported to a related-party marketing company based in the offshore tax haven of Macao, before being sold on to rayon producers, VSF mills, and pulp traders, mainly in China.

9. DP Macao’s role in marketing Toba Pulp’s products to international buyers Toba Pulp reports in its financial statements from 2007 to 2016 that a substantial majority of its sales to international buyers – totaling US$ 811.3 million over this period – were made through an affiliated sales and marketing company based in Macao, identified as DP Marketing International Limited (MCO) (hereafter referenced as DP Macao)55 (see Figure 9). DP Macao apparently served as an exclusive sales and marketing agent for Toba Pulp’s exports of pulp from Indonesia.

54 The data indicates an exception to this trend in the first half of 2013, when exports from Belawan increased as imports to China decreased. The export data shows two shipments in March and April 2013 of 5,000 and 8,000 tons, respectively, which may have been inaccurately reported and skewed the export/import comparison. The 5,000 and 8,000 ton shipments appear to be anomalies because they are round figures, unlike the hundreds of other shipments, and because they are significantly larger than all the other shipments. 55 Sateri Holdings Limited’s 2010 listing prospectus provides DP Macao’s complete name as DP Marketing International Limited – Macao Commercial Offshore, and identifies the entity as a limited liability company incorporated in Macao in February 2007.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 17 IN INDONESIA’S PULP EXPORTS Figure 9. Value of Toba Pulp’s total sales and sales to DP Macao, 2008–2016

140,000,000

120,000,000

100,000,000

80,000,000

60,000,000

Value in US Dollars 40,000,000

20,000,000

0 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total sales Sales to DP Macao

Source: Annual reports of PT Toba Pulp Lestari Tbk, 2008–2016. Note: Toba Pulp identified sales to DP Macao as “related party sales” in its annual reports.

The relationship between Toba Pulp and DP Macao (as it existed until late 2010) is detailed in a prospectus released by Sateri Holdings Limited (hereafter Sateri), a limited liability company incorporated in Bermuda, in November 2010 when Sateri was listing on the Hong Kong Stock Exchange. The prospectus discloses that until September 2010, DP Macao was a wholly owned subsidiary of Sateri; and that Sateri and Toba Pulp were related parties, as they were under common control of the same controlling shareholder, Sukanto Tanoto and members of the Tanoto family.56 Moreover, the prospectus discloses that Sateri disposed of DP Macao in September 2010, just prior to the parent company’s public offering, through a sale to Blue Dot Resources Ltd., an LLC incorporated in the British Virgin Islands (BVI), which is also controlled by the group’s controlling shareholder.57

In the years since Sateri’s listing in 2010, Sukanto Tanoto has reportedly remained the ultimate controlling shareholder of Toba Pulp, DP Macao, and the Sateri mills in China, although the ownership structures of these entities have, in some cases, changed over time (see Figure 10). As indicated above, the organizations publishing this report have seen no evidence to suggest that Mr. Tanoto or members of his family personally directed any unlawful scheme or practices. (Further details concerning Sukanto Tanoto’s ownership of these companies are provided in Appendix D.)

Since late 2007, DP Macao had served as the principal marketing agent for Toba Pulp’s sales of pulp to international buyers. Prior to its disposal by Sateri, DP Macao reportedly purchased both paper-grade pulp (i.e. BHKP) and dissolving pulp from Toba Pulp, and then sold these to Sateri’s customers in international markets, primarily in China, according to Sateri’s 2010 prospectus.58 DP Macao reportedly sold these products both to third-party buyers and to subsidiaries and affiliates of Sateri, including Sateri Jiangxi, which operates a VSF mill in China (see Figure 11). Sateri’s 2010 prospectus summarizes this relationship as follows:

56 Sateri Holdings Limited. 2010. “Sateri Holdings Limited Global Offering.” Company prospectus. Hong Kong. November 26, 2010. http://www3.hkexnews.hk/listedco/listconews/sehk/2010/1126/ltn20101126025.pdf. 57 Sateri Holdings Limited. 2010. Op. cit. 58 Sateri Holdings Limited. 2010. Op. cit.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 18 IN INDONESIA’S PULP EXPORTS Figure 10. Sukanto Tanoto as ultimate controlling shareholder of Toba Pulp Lestari, DP Macao, and Sateri

SUKANTO TANOTO and certain family members Controls 92.42% of issued share Controls through capital through Eden Hall Ltd. Gold Silk Holdings Limited (Seychelles) and Controls through (Cayman Islands) Pinnacle Company Pte. Ltd. Eden Hall Ltd. (Singapore) (Seychelles)

Toba Pulp Lestari DP Macao Sateri mills

Source: Direktorat Jenderal Administrasi Hukum Umum (Ditjen AHU). 2020. “Profil Perusahaan PT Toba Pulp Lestari Tbk.” Company Profile. Government of Indonesia. Ministry of Law and Human Rights. Directorate General of General Law Administration. February 17, 2020. PT Toba Pulp Lestari Tbk. 2017b. “Keterbukaan informasi kepada pemegang saham mengenai rencana transaksi material dan transaksi afiliasi PT Toba Pulp Lestari Tbk.” [Disclosure of information to shareholders about material and affiliated transaction of PT Toba Pulp Lestari Tbk.] Medan, Indonesia. Company announcement. November 22, 2017. https://www.tobapulp.com/wp-content/uploads/2019/01/Keterbukaan-Information-Transaksi- Material-dan-Afiliasi-Perjanjian-Pinjam-Meminjam-22-November-2017.pdf. Bracell Limited. 2016. “(1) Proposed privatisation of Bracell Limited by BHL Limited by way of a scheme of arrangement under Section 99 of the Companies Act of Bermuda and (2) Proposed withdrawal of listing of Bracell Limited.” Document jointly issued by Bracell Limited and BHL Limited. August 30, 2016. https://www1.hkexnews.hk/listedco/listconews/ sehk/2016/0829/ltn20160829301.pdf. Sateri Holdings Limited circular, November 19, 2014. (For more details on ownership arrangements, see Appendix D.)

Figure 11. Trading relationship among Toba Pulp, DP Macao, SC International Macao (after September 2010), and dissolving pulp buyers

December 2007– September 2010

Toba Pulp Lestari DP Macao Dissolving pulp buyers

October 2010–2014

2% commission

Toba Pulp Lestari DP Macao SC Int’l Macao Dissolving pulp buyers

Source: Sateri Listing Prospectus, 2010; Sateri Annual Reports 2011 and 2012.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 19 IN INDONESIA’S PULP EXPORTS Beginning in December 2007, DP Macao engaged in principal trading activities relating to the international trading of paper pulp and dissolving wood pulp primarily sourced from TPL [Toba Pulp Lestari] and hence any sales of TPL’s [Toba Pulp Lestari’s] dissolving wood pulp to customers, including Sateri Jiangxi, were contracted and allocated by DP Macao.59

Following its disposal by Sateri in September 2010, DP Macao continued to serve as an exclusive marketing agent for Toba Pulp’s sales of pulp to international buyers. The terms of its activities, as an entity offiicially outside of Sateri, were framed by the following agreements.

First, under a “Non-Competition Deed” signed by Sateri’s controlling shareholders and Pinnacle (Toba Pulp’s controlling shareholder) on 19 November 2010, it was agreed that “(a) to the extent permitted by applicable Indonesian laws and regulations and the rules of the Indonesia capital market . . . TPL [Toba Pulp Lestari] will continue to sell all of its dissolving wood pulp for sale outside Indonesia through DP Macao” . . . ; and “(b) . . . DP Macao will purchase from TPL [Toba Pulp Lestari] all of the dissolving pulp produced by TPL [Toba Pulp Lestari] for sale outside of Indonesia and will sell such dissolving wood pulp pursuant to the terms of the Agency Agreement” (see below).60

Second, under an “Agency Agreement” executed on 3 November 2010, DP Macao agreed to sell the dissolving pulp it purchased from Toba Pulp through SC International Macao, a wholly owned subsidiary of Sateri, for a fixed commission of 2% of sales value. The terms of this arrangement are summarized as follows in Sateri’s 2010 prospectus:

Pursuant to the Agency Agreement, SC International Macao acts as the agent of DP Macao outside Indonesia with a right of first offer for the sale of dissolving wood pulp produced by TPL [Toba Pulp Lestari] and acquired by DP Macao. DP Macao pays SC International Macao on a quarterly basis a commission of 2% of the actual amount it receives for dissolving wood pulp sales attributable to SC International Macao. All expenses incurred by SC International Macao in connection with the Agency Agreement are for its own account.61

The initial Agency Agreement was effective until 31 December 2012, and the marketing arrangement is referenced in Sateri’s annual reports for 2012 and 2013.62 Filings related to the privatization of Sateri Holdings Limited’s VSF assets in China and name change to Bracell Limited indicate that the Agency Agreement was dissolved in 2014.63

Third, under a “Sales Framework Agreement” executed on 3 November 2010, DP Macao agreed that all sales of dissolving wood pulp produced by Toba Pulp that are made to Sateri Jiangxi and Sateri Fujian would be on normal commercial terms. Sateri’s 2010 prospectus summarizes this agreement as follows:

59 Sateri Holdings Limited. 2010. Op. cit. 60 Sateri Holdings Limited. 2010. Op. cit. 61 Sateri Holdings Limited. 2010. Op. cit. 62 Sateri Holdings Limited. 2013. Annual Report 2012 [including Financial Statements for the Year Ended 31 December 2012 and Independent Auditor’s Report]. Hong Kong. https://www1.hkexnews.hk/listedco/listconews/sehk/2013/0411/ltn20130411190. pdf. Sateri Holdings Limited. 2014a. Annual Report 2013 [including Financial Statements for the Year Ended 31 December 2013 and Independent Auditor’s Report]. Hong Kong. https://www1.hkexnews.hk/listedco/listconews/sehk/2014/0410/ltn20140410829.pdf. 63 Sateri Holdings Limited. 2014b. “(1) Major transaction and connected transaction in relation to the disposal of the viscose staple fiber business in the PRC; (2) Continuing connected transaction in relation to the pulp supply agreement; (3) Connected transactions in relation to the provision of guarantees, interest rate swap arrangements, and termination of the call option and ROFR agreement.” Company circular. Hong Kong. November 19, 2014. https://www1.hkexnews.hk/listedco/listconews/ sehk/2014/1029/ltn20141029952.pdf.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 20 IN INDONESIA’S PULP EXPORTS The Sales Framework Agreement sets out certain terms to which all sales to Sateri Jiangxi and Sateri Fujian of dissolving wood pulp by DP Macao will be subject. These terms require all sales transactions for dissolving wood pulp between DP Macao and Sateri Jiangxi and Sateri Fujian to be on normal commercial terms and at a price that is no greater than the open market spot price at the time of the transaction that would be payable in a contract between independent third parties for a comparable quantity and quality of dissolving wood pulp.64

The initial Sales Framework Agreement was effective until 31 December 2012, and the parties later renewed it for three years until 31 December 2015.

Taken together, the “Non-Competition Deed”, “Agency Agreement”, and “Sales Framework Agreement” meant that during the period November 2010 to November 2014: 1) Toba Pulp was under contract to sell its pulp to DP Macao; 2) DP Macao was under contract to sell pulp purchased from Toba Pulp through SC International Macao for a fixed commission of 2%; and 3) DP Macao agreed that all sales to Sateri VSF mills in China, namely Sateri Jiangxi and Sateri Fujian, would be on normal commercial terms. As disclosed in the 2010 prospectus, all of these entities – Toba Pulp, DP Macao, SC International Macao, and the Sateri mills – shared the same ultimate controlling shareholder, Sukanto Tanoto and certain family members.65

In response to a “Request for Explanation on Media Coverage” from the Indonesia Stock Exchange following the publication of the Tempo article in February 2020, Toba Pulp explained why it did not directly sell pulp to VSF mills in China but through DP Macao: “The Company [Toba Pulp] sold to DP Marketing International Limited because DP Marketing International Limited had control over more market share.”66

10. Toba Pulp’s product mix specified in DP Macao’s sales data

During the ten-year period 2007–2016, Toba Pulp’s annual reports do not specify which type of pulp – i.e. paper-grade pulp or dissolving pulp – the company produced and sold in any particular year. However, Sateri’s 2010 listing prospectus presents audited financial data summarizing DP Macao’s sales of the pulp it purchased from Toba Pulp during the years 2008 and 2009, and the six-month period ending 30 June 2010. These sales data are disaggregated according to type of pulp.

During this 30-month period, according to Sateri’s prospectus, DP Macao sold a total of 160,500 tons of dissolving pulp to both external and inter-company buyers to generate sales revenues of US$ 181.2 million (see Table 2). During the same period, DP Macao also sold 306,069 tons of paper-grade pulp for sales revenues of US$ 166.4 million.

64 Sateri Holdings Limited. 2010. Op. cit. 65 It must be noted that the set of jurisdictions involved in Toba Pulp’s ownership structure and trading arrangements – Macao, the British Virgin Islands, Bermuda, the Cayman Islands, Seychelles, Singapore, and Hong Kong – have among the higher secrecy scores in the world, according to the Financial Secrecy Index published by the Tax Justice Network (https://fsi.taxjustice.net/ en/introduction/fsi-results). This means that these jurisdictions may offer a range of financial secrecy services (e.g. anonymous company formation, bank secrecy, accounting opacity, lack of international cooperation, etc.), and, in some cases, are particularly attractive for corporate profit shifting. 66 PT Toba Pulp Lestari Tbk. 2020. “Penjelasan atas Pemberitaan Media Massa.” February 5, 2020. https://www.idx.co.id/StaticData/ NewsAndAnnouncement/ANNOUNCEMENTSTOCK/From_EREP/202002/43d7216f94_a75786ea1f.pdf.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 21 IN INDONESIA’S PULP EXPORTS Table 2. DP Macao sales of dissolving pulp during 2008, 2009, and January–June 2010

Year External Sales Inter-Company Sales Total Sales Volume (tons) Value (‘000 US$) Volume (tons) Value (‘000 US$) Volume (tons) Value (‘000 US$) 2008 52,087 55,262 3,175 1,800 55,262 57,062 2009 43,899 42,528 6,040 4,300 49,939 46,828 Jan-Jun 2010 53,265 74,227 2,034 3,100 55,299 77,327 Total 149,251 172,017 11,249 9,200 160,500 181,217

Source: Sateri Holdings Limited. 2010. “Sateri Holdings Limited Global Offering.” Company prospectus. Hong Kong. November 26, 2010. http://www3.hkexnews.hk/listedco/listconews/sehk/2010/1126/ltn20101126025.pdf.

The data from the Sateri prospectus conflicts with the official Indonesian trade record on dissolving pulp exports. The Sateri prospectus indicates that DP Macao purchased 160,500 tons of dissolving pulp from Toba Pulp during this 30-month period (January 2008–June 2010), which is more than double the 76,146 tons of dissolving pulp reported by BPS, Indonesia’s Central Statistics Bureau, to have been exported from Indonesia during the 36-month period of 2008–2010.

The gap between the volumes of dissolving pulp reported by Sateri and by BPS is particularly striking in 2008: Sateri reports that DP Macao purchased 52,087 tons of dissolving pulp from Toba Pulp during that year, whereas BPS does not report any dissolving pulp exports from Indonesia (see Table 3 and Figure 12). In 2009, by contrast, the volumes reported by Sateri and by BPS corresponded very closely: Sateri reports that DP Macao purchased 43,899 tons of dissolving pulp from Toba Pulp, and BPS reports that dissolving pulp exports from Indonesia to China totaled 46,856 tons. For 2010, the figures diverge again: Sateri reports that DP Macao purchased 53,265 tons of dissolving pulp from Toba Pulp in just the first six months of the year, whereas BPS reports only 23,666 tons of dissolving pulp exports during the entire year.

It is important to note that Sateri’s 2010 Prospectus provides two charts based on UN Comtrade data reported by China, one of which includes the totals of dissolving pulp imported to China from Indonesia in 2007, 2008, and 2009 (see figure titled “Dissolving Wood Pulp Imports to China by Country” on page 97).67

Significantly, the volume of dissolving pulp that DP Macao purchased from Toba Pulp during this period, according to Sateri, corresponds much more closely to China’s import statistics than to Indonesia’s official export statistics (see Table 2). This, again, suggests that substantial volumes of dissolving pulp that Toba Pulp produced in 2008 and 2010 may have been sold to buyers in China through DP Macao, yet went unreported – or reported as another product – in Indonesia’s official export data.

Table 3. Volume in tons of dissolving pulp reported by Indonesia, China, and Sateri

Description of data Source of data 2008 2009 2010 Indonesia exports to China Government of Indonesia — 46,856 23,666 (via Badan Pusat Statistik) China imports from Government of China 57,589 40,108 111,035 Indonesia (via UN Comtrade) DP Macao purchases from Sateri Holdings Limited 52,087 43,899 53,265 Toba Pulp (Jan–Jun 2010)

Sources: Sateri Holdings Limited. 2010. “Sateri Holdings Limited Global Offering.” Company prospectus. Hong Kong. November 26, 2010. http://www3.hkexnews.hk/listedco/listconews/sehk/2010/1126/ltn20101126025.pdf. UN Comtrade for China imports; Badan Pusat Statistik for Indonesia exports.

67 Sateri Holdings Limited. 2010. Op. cit.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 22 IN INDONESIA’S PULP EXPORTS FINANCIALFINANCIAL INFORMATION INFORMATION

Six months ended Six months ended Year ended December 31, June 30, Year ended December 31, June 30, Figure 11. Annotated excerpts FINANCIAL from Sateri INFORMATION Holdings 2007 2008 Limited’s 2010 2009 listing 2009 prospectus 2010 for the Figure 11. Annotated excerpts from Sateri Holdings 2007 2008 Limited’s 2010 2009 listing 2009 prospectus 2010 for the (unaudited) Hong Kong Stock Exchange. (unaudited) Hong Kong Stock Exchange. (US$ in thousands) Six months ended IMPORTANT (US$ in thousands) IMPORTANT Year ended December 31, June 30, (fromIf youProfit are in any doubt title (loss) about the contents for page) of the this prospectus, year/period you should seek independent attributable professional advice. to:S.342 (fromIf youFigure ProfitFigure are in any doubt title (loss) about12. the 11. contents forAnnotated page) of the this prospectus, Annotated year/period you should excerpts excerpts seek independent attributable professional from from advice. SateriSateri to: S.342 Holdings Holdings 2007 Limited’s 2008 Limited’s 2010 2010 2009 listing listing prospectus 2009 prospectus 2010 for the for the Owners of the Company ...... 94,966 (3,979) 106,867 (14,597) 165,064 Hong HongOwners Kong Kong of theStock Company Stock Exchange . . . . Exchange...... 94,966 (3,979) 106,867(unaudited) (14,597) 165,064 Non-controlling interests ...... 8,533 (5,482) 563 497 1,500 Non-controlling interests ...... 8,533 (5,482)(US$ in thousands) 563 497 1,500 IMPORTANT DEFINITIONS On title page: DEFINITIONS103,499 (9,461) 107,430 (14,100) 166,564 If you are in any doubt about the contents of this prospectus, you should seek independent professional advice. S.342 (fromProfit title (loss)(Incorporated for page) the in Bermuda year/period with limited liability) attributable to: LR8.02 103,499 (9,461) 107,430 (14,100) 166,564 (Incorporated in Bermuda with limited liability) LR8.02 TotalOwners comprehensive of theGLOBAL Company OFFERING income . . . .(expense) ...... attributable . . . . .LR11.07 . . . to: . . 94,966 (3,979) 106,867 (14,597) 165,064 TotalNumber comprehensive of Offer SharesGLOBAL under theOFFERING income: 505,330,000(expense) Shares (subject to the attributableLR11.07 to: “Shares” Global Offering Over-allotment Option) ordinary shares in the capital of our Company with a nominal A1A 23(1) NumberNumberNon-controllingOwnersoftheCompany...... of Offer of Hong Shares Kong under Offer the Shares interests: 505,330,000 : 50,533,000 Shares...... Shares (subject (subject to the to reallocation) 8,533 101,044 (5,482) 4,729 563 105,883 497 (12,973) 1,500 165,484 Global Offering Over-allotment Option) “Shares”OwnersoftheCompany...... Number of International Offer Shares : 454,797,000 Shares (subject to reallocation and ordinaryA1A 15(1), shares 101,044 in the capital 4,729 of our105,883 Company (12,973) with a nominal 165,484 A1A 23(1) Number of Hong Kong Offer Shares : 50,533,000the Over-allotment Shares (subject Option) to reallocation) (2)(a),value (2)(c) of US$0.05 each Non-controlling interests ...... DEFINITIONS3rd Sch 9 10,151 (5,384) 1,375 (733) 1,621 Number of InternationalMaximum Offer Shares Offer Price : 454,797,000 : HK$9.20 Shares per Offer (subject Share to plusreallocation brokerage and of A1A 15(1),3rd Sch 2 103,499 (9,461) 107,430 (14,100) 166,564 the Over-allotment Option) (2)(a),value (2)(c) of US$0.05 each Non-controlling(Incorporated in Bermuda interests with1.0%, limited SFC...... liability) transaction levy of 0.003% and LR8.02 3rd Sch 9 10,151 (5,384) 1,375 (733) 1,621 Maximum Offer Price : HK$9.20Stock per Exchange Offer Share trading plus fee brokerage of 0.005% of (payable 3rd Sch 2 GLOBAL OFFERING1.0%,in SFC full transaction on application levy in of Hong 0.003% Kong and dollarsLR11.07 and 111,195 (655) 107,258 (13,706) 167,105 “ShareTotal comprehensive Option Scheme”Stock incomesubject Exchange to refund)(expense) trading fee of 0.005% attributable (payable to:the share option scheme conditionally approved and adopted by Number of Offer Shares under the : 505,330,000 Shares (subject to the Nominal valuein full: US$0.05 on application per Share in Hong Kong dollars and A1A 15(2)(c) 111,195 (655) 107,258 (13,706) 167,105 “Share“Shares” OptionGlobal Scheme” Offering subjectOver-allotment to refund) Option) ordinarythe share shares option in the scheme capital conditionally of our Company approved with a nominal and adoptedA1A 23(1) by NumberOwnersoftheCompany...... of Hong Kong OfferStock Shares code : 50,533,000 : 1768 Shares (subject to reallocation) 101,044 4,729 105,883 (12,973) 165,484 Earnings (loss)Nominal value per : US$0.05 Share per Share A1A 15(2)(c)our Company on November 8, 2010 for the grant of options to Number of International Offer Shares : 454,797,000 Shares (subject to reallocation and A1A 15(1), JointStock Global code Coordinators : 1768the Over-allotment and Joint SponsorsOption) (2)(a),value (2)(c) of US$0.05 each EarningsNon-controlling (loss) per interestsShare ...... 3rd Sch 9 our Company 10,151 on November (5,384) 8, 1,375 2010 forthe (733) grant 1,621of options to Maximum Offer Price(in alphabetical : HK$9.20 per order) Offer Share plus brokerage of 3rd Sch 2 eligible participants, the principal terms of which are - basic (US$)Joint Global Coordinators...... 1.0%, and SFC Joint transaction Sponsors levy of 0.003% and 0.03 (0.00) 0.04 (0.01) 0.06 (in alphabeticalStock order) Exchange trading fee of 0.005% (payable eligible participants, the principal terms of which are - basic (US$) ...... in full on application in Hong Kong dollars and summarized111,195 in0.03 the (655) section (0.00) 107,258 headed 0.04 (13,706) “Statutory (0.01) 167,105 and General 0.06 “Share Option Scheme”subject to refund) the share option scheme conditionally approved and adopted by Nominal value : US$0.05 per Share A1A 15(2)(c) summarizedInformation in — the Share section Option headed Scheme” “Statutory in Appendix and IX General to this JointStock Bookrunners code : 1768 and Joint Lead Managers our Company on November 8, 2010 for the grant of options to EarningsSet (loss) forth per below Share are the sales volumes,Information revenue — and Share average Option selling Scheme” prices infor Appendix each segment IX to and this the JointJoint Bookrunners Global Coordinators and Joint and Lead Joint Managers Sponsors eligibleprospectus participants, the principal terms of which are -businesses basicSet (US$) forth engaged...... (in below alphabetical order) arein the the sale sales of volumes, cellulose products,revenue and0.03 namely average (0.00) Bahia selling Specialty 0.04 prices Cellulose for (0.01) each and segment DP 0.06 Macao, and the for summarizedprospectus in the section headed “Statutory and General Hongbusinesses Kong Exchanges and Clearing Limited, engaged The Stock Exchange of Hong Kong in Limited andthe Hong Kong sale Securities Clearing of Company cellulose Limited take no responsibility for products,LR10.06(1)(b)(xi) namely Bahia Specialty Cellulose and DP Macao, for the contentsthe of this prospectus, periods make no representation as to its indicated. accuracy or completeness and expressly disclaim Unless any liability whatsoeverstated for any loss howsoever arising otherwise,LR11.20 throughout this section, all amounts are excluding from“SISA” or in reliance upon the whole or any part of the contents of this prospectus. Information Sateri — International Share Option Scheme” SA, a in limited Appendix liability IX to this company Hong KongAExchanges copy of this and prospectus, Clearing Limited,having attached The StockJoint thereto Exchange the Bookrunners documents of Hong specifiedKong andLimited in the Joint and section Hong Lead headed Kong Managers “DocumentsSecurities Clearing Delivered Company to the RegistrarLimited take of Companies no responsibility and Available for LR10.06(1)(b)(xi) for S.342C the contentsInspection”the of this prospectus, in Appendix periods make X to noSet this representation prospectus, forth has as to been its indicated. accuracy registeredbelow or by completeness the Registrar and of Companies expressly are disclaim in Unless Hong the any Kong liability as required sales whatsoever by Sectionstated for any 342C volumes, loss of howsoever the Companies arising Ordinanceotherwise,LR11.20 revenue and throughout average selling thisprices section, for alleach amounts segment and are the excluding from“SISA” or in(Chapter reliance 32 uponintercompany of the the Laws whole of or Hong any part Kong). of the The contents Securities of and this Futures prospectus. sales. Commission of Hong Kong and the Registrar of Companies in Hong Kong take no responsibility forSateri International SA, a limited liability company the contents of this prospectus or any of the other documents referred to above. prospectusincorporated in Switzerland on November 11, 2004 and A copy of this prospectus, having attached thereto the documents specified in the section headed “Documents Delivered to the Registrar of Companies and Available for S.342C Inspection”(fromThe inOffer Appendix Price X is to expected this prospectus, to page be determined has been by registered agreement by between the Registrar 152) the Joint of Bookrunners Companies in(on Hong behalf Kong of the as Underwriters) required by Section and our 342C Company of the on Companies or about Thursday, Ordinance December (Chapter 32 of the Lawsbusinesses of Hong Kong). The Securities and engaged Futures Commission of Hong in Kong and the the Registrar sale of Companies of in Hong Kongcellulose take no responsibility for products, namely Bahia Specialty Cellulose and DP Macao, for 2,intercompany 2010 and, in any event, not later than Monday, December sales. 6, 2010. The Offer Price will be not more than HK$9.20 per Offer Share and is currently expected to be notincorporated in Switzerland on November 11, 2004 and the contentsless of than this HK$6.60 prospectus per or Offer any of Share, the other unless documents otherwise referred announced. to above. Investors applying for the Hong Kong Offer Shares must pay, on application, the maximum Offer Price formerly one of our subsidiaries ofOn HK$9.20 perpage Offer Share, together 152: with brokerage of 1.0%, SFC transaction levy of 0.003% and Stock Exchange trading fee of 0.005%, subject to refund if the Offer (fromThe OfferHong Price Kong is expected Exchanges to page be and determined Clearing Limited, by agreement The Stock between Exchange 152) theof Joint Hong Bookrunners Kong Limited (on and behalf Hong of Kong the Underwriters)Securities Clearing and Company our Company Limited on take or about no responsibility Thursday, Decemberfor LR10.06(1)(b)(xi) Price is less than HK$9.20 per Offer Share. 2, 2010 and,the contentsin anythe event, of this not prospectus, laterperiods than make Monday, no representation December as 6, to 2010. its indicated. accuracy The Offer or completeness Price will be and not expressly more than disclaim Unless HK$9.20 any liability per Offer whatsoever Sharestatedand for any is currently loss howsoever expected arisingotherwise, to beLR11.20 not throughout this section, all amounts are excluding from or in reliance upon the whole or any part of the contents of this prospectus. Year ended December 31, Six months ended June 30, less than HK$6.60The“SISA” Joint per Bookrunners Offer Share, (on unlessbehalf ofotherwise the Underwriters), announced. with Investors the consent applying of our for Company, the Hong may Kong reduce Offer the Shares indicative must Offer pay, onPrice application, range stated the in maximum this prospectus Offer and/or PriceSateri reduceformerly International one of our SA, subsidiaries a limited liability company of HK$9.20Athe copy per number Offer of this of Share, prospectus, Offer together Shares having being with attached brokerage offered thereto pursuant of the 1.0%, documents toSFC the Global transaction specified Offering in levy the atsection of any 0.003% time headed on and “Documents or Stock prior Exchange toDelivered the morning trading to the of Registrarfee the of last 0.005%, day of Companies for subject lodging and to applications Available refund if for the under OfferS.342C the Hong Price is lessInspection”Kong than Public HK$9.20 in AppendixOffering. per Offer X In to such this Share. aprospectus, case, notices has been of the registered reduction byof the the Registrar indicative of Companies Offer Price in Hong range Kong and/or as requiredthe number by Section of Offer 342C Shares of the will Companies be published Ordinance in the South China (ChapterMorning 32 Post of the(in LawsEnglish) of Hong andthe Kong). Hong The Kong Securities Economic and Futures Times Commission (in Chinese) of not Hong later Kong than and the the morning Registrar of of the Companies last day for in Honglodging Kong applications take no responsibility under the Hong for Kong Public The Joint Bookrunnersintercompany (on behalf of the Underwriters), with the consent sales. of our Company, may reduce the indicative Offer Price range stated in this prospectusYear and/or ended reduceincorporated December 31, in Switzerland on NovemberSix months11, 2004ended June and 30, theOffering. contents Such of this notice prospectus will also or any be ofavailable the other at documents the website referred of the to Hong above. Kong Stock Exchange at www.hkexnews.hk and at our Company’s website at www.sateri.com. the number“sq.m.” of OfferSegments/Business Shares being offered pursuant to the Global Offering at any time on or prior to the morning2007 of the last day for lodging applications under the Hong 2008square meter 2009 2009 2010 Further details are set out in the sections headed “Structure of the Global Offering” and “How to Apply for the Hong Kong Offer Shares” in this prospectus. If, for any reason, Kong Public(fromThe Offering. Offer Price In is suchexpected a case, to page be notices determined of the by agreement reduction between of the indicative 152) the Joint Bookrunners Offer Price (on range behalf and/or of the Underwriters)the number of and Offer our Company Shares will on or be about published Thursday, in Decemberthe South China the Offer Price is not agreed between our Company and the Joint Bookrunners (on behalf of the Underwriters) on or before Monday, December 6, 2010 (Hong Kong time), 2, 2010 and, in any event, not later than Monday, December 6, 2010. The Offer Price will be not more than HK$9.20 per Offer Share and is currently expected to be not Morning Postthe Global(in English) Offering and (includingthe Hong Kong the Hong Economic KongTimes Public (in Offering) Chinese) will not not later proceed than the and morning will lapse. of the last day for lodging applications under the Hong Kong Public Offering.less Such than notice HK$6.60 will alsoper Offer be available Share, unless at the otherwise website announced. of the Hong Investors Kong applying Stock Exchange for the Hong at www.hkexnews.hk Kong Offer Shares mustand pay, at onour application, Company’s the website maximum at www.sateri.com Offer Price .formerly one of our subsidiaries “sq.m.”ofSegments/Business HK$9.20 per Offer Share, together with brokerage of 1.0%, SFC transaction levy of 0.003% and2007 Stock Exchange trading fee of 0.005%, subject to refund if the Offer 2008square meter 2009 2009 2010 Further detailsThe Offer are set Shares out in have the sections not been headed and will “Structure not be registered of the Global under Offering” the US Securities and “How Act to Apply or any for state the securities Hong Kong law Offer in the Shares” United Statesin this andprospectus. may not If, be for offered, any reason, sold, pledged Price is less than HK$9.20 per Offer Share. Average Average Average Average Average the Offer Priceor transferred is not agreed within between the United our CompanyStates, except andthat the Joint Offer Bookrunners Shares may be (on offered, behalf sold of the or Underwriters) delivered to QIBs on or in before reliance Monday, on Rule December 144A. The 6, Offer 2010 Shares (Hong may Kong be time), offered, sold the GlobalTheor Offering delivered Joint Bookrunners (including outside (onthe the behalf United Hong of KongStates the Underwriters), Public in offshore Offering) with transactions the will consent not in proceed of accordance our Company, and willwith may lapse. Regulation reduce the S. indicative Offer Price range stated in this prospectusYear and/or ended reduce December 31, Six months ended June 30, the number of Offer Shares being offered pursuant to the Global Offering at any time on or prior to the morning of the last day for lodging applications under the Hong The OfferKongPrior Shares“Stabilizing Public to have making Offering. not anbeen investment In and such will a case, notdecision, noticesbe registered prospective of the reduction under Manager” investors the of US the Securitiesshould indicative consider OfferActSales or Price carefully any range state all and/orsecurities of the the information number law in theof Offer United setAverage outShares States in thisselling will and prospectus,be publishedmay not includingbe in theoffered, SouthSales the sold, China risk pledged factors set out CreditAverageselling SuisseSales Averageselling Sales Averageselling Sales Averageselling or transferredMorningin the within section Post the (in headedUnited English)States, “Risk and the Factors” except Hong Kongthat in thisOffer Economic prospectus. Shares Times may The(in be Chinese) obligations offered, not sold later of or the than delivered Hong the morning Kong to QIBs ofUnderwriters the in last reliance day for under on lodging Rule the 144A.applications Hong The Kong Offer under Underwriting Shares the Hong may Kong Agreement be Public offered, are sold subject to or deliveredOffering.termination“sq.m.” outside SuchSegments/Business the by notice United the Joint will States Bookrunnersalso bein availableoffshore (on at transactions behalf the website of the in of Underwriters) accordancethe Hong Kong with if certainStock Regulation Exchange grounds S.at arisewww.hkexnews.hk2007 prior to 8:00 a.m.and on at the our Listing Company’s Date. website(1) Such at groundswww.sateri.com are set out. in2008 thesquare section meter(1) 2009 (1) 2009 (1) 2010 (1) Furtherheaded details “Underwriting are set out —in the Underwriting sections headed Arrangements “Structure of and the Global Expenses Offering” —volume Hong and “How Kong to Public Apply Offering for Revenue the Hong — Kong Grounds Offer for Shares” Termination”price in this prospectus. in this prospectus. If, forvolume any reason, Revenue price volume Revenue price volume Revenue price volume Revenue price Prior“Stabilizing to makingthe Offer an Price investment is not agreed decision, between prospective our Company Manager” investors and the should Joint Bookrunners considerSales carefully (on behalf all of of the the Underwriters) information on set or beforeout in Monday, thisselling prospectus, December including 6, 2010 (HongSales the risk Kong factors time), set out Creditselling SuisseSales selling Sales selling Sales selling in the sectionthe Global headed Offering “Risk (including Factors” thein this Hong prospectus. Kong Public The Offering) obligations will not of proceed the Hong and Kong will lapse. Underwriters under the Hong Kong Underwriting Agreement are subject to termination by the Joint Bookrunners (on behalf of the Underwriters) if certain grounds arise prior to 8:00 a.m. on the Listing Date.(1) Such grounds areNovember set out in the section 26, 2010 S.342 (1) (1) (1) (1) The Offer Shares have not been and will not be registered under the US Securities Act or any state securities law in the UnitedAverage States and may not be offered, sold, pledged Average Average Average Average headed “Underwritingor transferred within — Underwriting the United States, Arrangements except that and Offer Expenses Shares may —volume be Hong offered, Kong sold Public or delivered Offering Revenue to QIBs — Grounds in reliance for on Termination” Ruleprice 144A. The in Offer this Sharesprospectus.volume may be offered, sold Revenue price volume Revenue price volume Revenue price volume Revenue price or“Stock delivered outside the United States Borrowing in offshore transactions in accordance with Agreement” Regulation S. the stock borrowing agreement expected(unaudited) to be entered into on Prior“Stabilizing to making an investment decision, prospective Manager” investors should considerSales carefully all of the information set out in thisselling prospectus, includingNovemberSales the risk factors 26, set out 2010CreditS.342 selling SuisseSales selling Sales selling Sales selling in the section headed “Risk Factors” in this prospectus. The obligations of the Hong Kong Underwriters under the Hong Kong(US$ Underwriting per Agreement are subject to (US$ per (US$ per (US$ per (US$ per “Stocktermination by the Joint Borrowing Bookrunners (on behalf of the Underwriters) if certainAgreement” grounds arise prior to 8:00 a.m. on the Listing Date.(1) Such grounds are set out in the section the(1) stock borrowing(1) agreement expected(unaudited)(1) to be entered(1) into on headed “Underwriting — Underwriting Arrangements and Expenses —volume Hong Kong Public Offering Revenue — Grounds for Termination”price in this prospectus.volume Revenue priceor aboutvolume the Revenue Priceprice Determinationvolume Revenue price Datevolume between Revenue theprice Stabilizing (metric (US$ in metric (metric (US$ in metric (metric (US$ in metric (metric (US$ in metric (metric (US$ in metric (US$ perNovember 26, 2010 S.342 (US$ per (US$ per (US$ per (US$ per orManager about the and Price Gold Determination Silk (unaudited) Date between the Stabilizing “Stock Borrowing(metric Agreement”tons) (US$thousands) in metricton) (metrictons) (US$thethousands) in stockmetricton) borrowing(metrictons) (US$thousands) agreement in metricton) expected(metrictons) (US$thousands) to in be enteredmetricton) (metric intotons) on(US$thousands) in metricton) (US$ per (US$ per (US$ per (US$ per (US$ per tons) thousands) ton) tons) thousands)orManager aboutton) the Priceandtons) Gold Determinationthousands) Silkton) Datetons) betweenthousands) theton) Stabilizingtons) thousands) ton) (metric (US$ in metric (metric (US$ in metric (metric (US$ in metric (metric (US$ in metric (metric (US$ in metric Cellulose products(2) “Stock Exchange”tons) thousands) ton) tons) thousands)ManagerTheton) Stockandtons) Goldthousands) Exchange Silkton) oftons) Hongthousands) Kongton) Limitedtons) thousands) ton) “StockCelluloseBahiaExchange” products Specialty(2) The Stock Exchange of Hong Kong Limited Cellulose(2)(3) . . 79,109 93,593 1,183 121,178 117,915 973 354,368 314,124 886 135,691 94,300 695 192,820 276,750 1,435 “StockCelluloseBahia SpecialtyExchange” products(2) The Stock Exchange of Hong Kong Limited “SUDENE(4)(5) Report” FINANCIALthe report INFORMATION provided by the Superintendência do BahiaCelluloseDP Macao Specialty(2)(3) .... . 79,109 93,593 1,183 121,178 117,915 973 354,368 314,124 886 135,691 94,300 695 192,820 276,750 1,435 “SUDENE Report”(2)(3) FINANCIALtheDesenvolvimento report INFORMATION provided do Nordeste by the(SuperintendencySuperintendência for do the “SUDENEDP MacaoCelluloseDissolving(4)(5) Report”... wood. . 79,109 93,593 1,183 121,178FINANCIAL 117,915the 973 report 354,368 INFORMATION provided 314,124 886 by 135,691 the 94,300Superintendência 695 192,820 276,750 do 1,435 DP Macao(4)(5)pulp(6)...... 9,038 13,271 1,468 52,087 55,262DesenvolvimentoDevelopment 1,061 43,899 of 42,528 the do Northeast) Nordeste 969 —(Superintendency — — 53,265 for74,227 the 1,394 Dissolving wood Desenvolvimento do Nordeste (Superintendency for the (3) ComprisesDissolvingpulpOther(6) pulp. wood . . sales 9,038 of 13,271 dissolving 1,468 wood 52,087 pulp 55,262Development produced 1,061 by 43,899 Bahia of 42,528 the Specialty Northeast) 969 Cellulose — to —external — customers. 53,265 74,227 1,394 pulpproducts(6) . .(7) .. 9,038 — 13,271 — 1,468 — 52,087 141,497 55,262Development 84,178 1,061 43,899 595 of 142,163 42,528 the Northeast) 67,740 969 476— 79,032 — 31,419 — 53,265 398 74,227 22,409 1,394 14,494 647 (3)“SUDIC”(4) ComprisesOther Includes pulp sales revenue of dissolvingderived from wood the sale pulp of produced celluloseSuperintendência by products Bahia Specialty (including de Desenvolvimento Cellulose dissolving to wood external pulp Industrial customers. and other e Comercial pulp products), primarily (3) ComprisesOther pulp sales of dissolving wood pulp produced by Bahia Specialty Cellulose to external customers. products(7) . — — — 141,497 84,178 595 142,163 67,740 476 79,032 31,419 398 22,409 14,494 647 “SUDIC”(4) IncludesSubtotalsourcedproducts DP Macao revenue(7) from. . . TPL. —derived 9,038 The — 13,271 from average — the 1,468 141,497 sale selling 193,584 of 84,178 cellulose price 139,440Superintendênciaan of595 autonomous the products 142,163 720 DP 186,062 Macao 67,740 (including 110,268 de governmental business 476 Desenvolvimento dissolving 79,032 593 is affected 31,419 79,032 entitywood 31,419 398by pulp Industrial product of 22,409 and the 398 14,494 othermix State 75,674 e because Comercial pulp 647 of 88,721 products) Bahia, of the 1,172, lower primarily price “SUDIC”(4)Total celluloseIncludes products revenue . . 88,147 derived 106,864 from the 1,212 sale 314,762 of celluloseSuperintendência 257,355 products 818 (including 540,430 de Desenvolvimento 424,392 dissolving 785 wood 214,723 pulp Industrial 125,719 and other e 585Comercial pulp 268,494 products), 365,471 primarily 1,361 SubtotalsourcedSubtotalof DP DPother Macao Macao from . .pulp . . TPL. 9,038 9,038 products The 13,271 average compared 1,468 1,468 selling 193,584 193,584 to dissolving 139,440 price 139,440 ofBrazil 720 thewood 720 186,062 DP pulp. 186,062 Macao 110,268 The 110,268 business results 593 79,032 593 of is the affected 79,032 31,419 DP Macao 31,419 by 398 product business 75,674 398 mix 88,721 75,674 for because 2007 1,172 88,721 reflect of the 1,172 one lower month price of Viscosesourced staple fibers from . . . TPL. 72,782 The 165,303 average 2,271selling 60,766 pricean 124,904ofan autonomous the autonomous DP 2,055 Macao 67,273 governmental business governmental 127,606 is affected 1,897 entity by 34,577 entity product of the 55,263 of mix State the because 1,598 of State Bahia,30,801 of the of 75,391 lower Bahia, price 2,448 TotalTotal cellulose celluloseoperations products products . . . . from88,147 88,147December 106,864 1,212 1,212 2007. 314,762 314,762 Excludes 257,355 257,355 818nil, 818 540,430 US$1.8 540,430 424,392 million, 424,392 785 US$4.3 214,723 785 214,723 125,719 million, 125,719 585 US$1.9 268,494 585 365,471 million 268,494 1,361 365,471 and US$3.1 1,361 million of ofof other other pulp pulp products products compared to to dissolving dissolvingBrazilBrazil wood wood pulp. pulp. The The results results of the of DP the Macao DP Macao business business for 2007 for reflect 2007 one reflect month one of month of “TAC”ViscoseViscoseoperations stapleTotal...... operations stapleintercompany fibers fibers . . . . from. from. 72,782 72,782 sales December December 165,303 between272,167 2007. 2,2712007. 2,271 DP 60,766 Excludes Macao60,766 Excludes 124,904 124,904 and382,259 nil, nil,Termo Sateri 2,055 US$1.8 2,055 US$1.8 67,273 Jiangxi de million, 67,273 127,606 million, Ajustamento for 127,606 US$4.3551,998 the 1,897 US$4.3years 1,897 million,34,577 ended de million,34,577 55,263 US$1.9 Conduta December 55,263180,982 1,598 US$1.9 million 30,801(Conduct 31, 1,598 millionand 2007, 75,391 30,801 US$3.1 2008 andAdjustment 2,448 75,391440,862 millionand US$3.1 2009 2,448 of million and the ofsix Total...... months ended June272,167 30, 2009 and 2010,382,259 respectively. 551,998 180,982 440,862 “TAC”“TAC”Total...... intercompanyintercompany sales sales between272,167 DP DP Macao Macao and and382,259Termo SateriTermo SateriAgreement) Jiangxi de Jiangxi de Ajustamento for Ajustamento the for entered years551,998 the years ended de into Condutaended Decemberde Conduta by December(Conduct180,982 31, Bahia 2007,(Conduct 31, Specialty2008 Adjustment2007, and 2008 2009 Adjustment440,862 Cellulose, and and2009 the six and the six (5) monthsmonths Excluding ended ended intercompany June June 30, 2009 2009 sales, and and 2010, 2010, our respectively. DP respectively.Agreement) MacaoCopener business entered and sold the intoUS$13.3 State by Public million, Bahia Prosecutor’s US$55.3Specialty million, OfficeCellulose, US$42.5 on July million, 14, nil and (5) Excluding intercompany sales, our DP MacaoAgreement) business sold US$13.3 entered million, into US$55.3 by Bahia million, Specialty US$42.5 million, Cellulose, nil and (5) Notes: ExcludingUS$74.2 intercompany million of dissolving sales, our wood DP pulp MacaoCopener and2009 nil, business and US$84.2 the sold State million, US$13.3 Public US$67.7 Prosecutor’s million, million, US$55.3 Office US$31.4 million, on million July US$42.5 14, and US$14.5 million, million nil and of (fromNotes:US$74.2 page million 153) of dissolving wood pulp and nil,Copener US$84.2 and million, the US$67.7 State Public million, Prosecutor’s US$31.4 million Office and US$14.5 on July million 14, of (1)US$74.2other Average pulp million selling products of price dissolving for is the calculated years wood ended by pulp dividing2009 andDecember nil, revenue US$84.2 31, by 2007, sales million, 2008volume. andUS$67.7 2009 million, and the six US$31.4 months million ended and June US$14.5 30, 2009 million and 2010, of (fromNotes:On pageother page 153: pulp products 153) for the years ended December2009 31, 2007, 2008 and 2009 and the six months ended June 30, 2009 and 2010, (from (1)other page respectively. Average pulp products selling 153) price for is the calculated years by ended dividing December revenue by 31, sales 2007, volume. 2008 and 2009 and the six months ended June 30, 2009 and 2010, “Tangshan (1)(2)respectively. Average Excludes Sanyou” selling US$41.1 price is million, calculated US$47.6 by dividing million, revenue US$41.6Tangshan by million, sales Sanyou volume. US$18.5 Chemical million Industries and US$30.8 Co., million Ltd of (唐山三友化工 intercompany sales “Tangshan(6)(2) Comprises Excludes Sanyou” US$41.1 principal million, trading US$47.6 sales million, of dissolving US$41.6Tangshan million,wood Sanyou pulp US$18.5 Chemical by DP million Macao Industries and US$30.8 to external Co., million Ltdcustomers of (唐山三友化工 intercompany that was sales primarily sourced from (6)respectively. Comprisesbetween principal Bahia Specialty trading Cellulose sales of dissolving and Sateri Jiangxiwood股份有限公司 pulp for 2007, by DP 2008 Macao), and a to 2009, external company and the customers six which months that ended was specializes primarily June 30, 2009 sourced in and from the2010, “Tangshan(2) ExcludesTPL.between Sanyou” BahiaUS$41.1 Specialty million, Cellulose US$47.6 and Sateri million, Jiangxi股份有限公司 US$41.6Tangshan for 2007, million, 2008 Sanyou), and US$18.5a 2009, company Chemical and million the six whichIndustries months and US$30.8 ended specializes JuneCo., million 30, Ltd 2009 of ( in唐山三友化工 andintercompany the2010, sales (6) ComprisesTPL.respectively, principal which trading corresponds sales to of approximately dissolvingmanufacture wood 36,600, pulp 44,800, by of, DP 54,100, among Macao 32,900 to other external andthings, 23,300 customers metric soda tonsash, that of was sales viscose primarily volume staple for sourced the from (7)between Comprisesrespectively, Bahia principal which Specialty corresponds trading Cellulose to sales approximately and of Sateri othermanufacture Jiangxi股份有限公司 36,600, pulp for products 44,800, 2007, of, 54,100, 2008 amongby), DP and 32,900 a Macao 2009,other company and andthings, 23,300 to theexternal metricsix soda which months customerstons ash, of ended sales viscose specializesJunevolume that staple30,were for 2009 the primarily in and the2010, sourced from (7) TPL. Comprisesyears ended principal December trading 31, sales 2007, of 2008 other and pulp 2009 products and the by six DP months Macao endedto external June customers 30, 2009 and that 2010, were respectively. primarily sourced from respectively,years ended which December corresponds 31, 2007, to 2008 approximately and 2009fibers,manufacture andfibers, 36,600, the caustic six months44,800, caustic soda of, ended 54,100, and soda among June calcium 32,900 and 30, other 2009 calcium and chloride andthings, 23,300 2010, chloride in metric respectively. soda China tons inash, of China sales viscose volume staple for the (7) ComprisesTPL.TPL. principal trading sales of other pulp products by DP Macao to external customers that were primarily sourced from (fromyears page page ended 31) December 31) 31, 2007, 2008 and 2009fibers, and the caustic six months soda ended and June calcium 30, 2009 chloride and 2010, in respectively. China On pageTPL. 31: (from“Tanoto page Family” Family” 31) Mr. SukantoMr. Sukanto Tanoto Tanoto and certain and certain members members of his family of his family OVERVIEW A1A 28(1)(a) A1A 28(1)(a) “Tanoto Family” Mr. Sukanto Tanoto and certain members of his family A1A 34(1)(a), (b) A1A 34(1)(a), (b) OVERVIEW “TPL” PTPT Toba Toba Pulp Pulp Lestari, Lestari, Tbk, a Tbk, limited a limited liability liability company company LR11.07 A1ALR11.07 28(1)(a) WeWe are are one one of of the the largest largest specialty specialtyincorporated celluloseincorporated cellulose— 152— producers in— 152 producers Indonesia in— inIndonesia the and in world, listed the and world, producing on listed the producing Indonesia on dissolving the Indonesia Stock dissolving wood Stock pulp wood3rd Sch pulp 1 A1A3rd Sch34(1)(a), 1 (b) “TPL”at our mill in Brazil and viscose staple fibersPT at our Toba mill Pulp in China. Lestari, We also Tbk, operate a limited our own liability wood plantations company LR11.07 at ourWe mill are in one Brazil of the and largest viscose specialty stapleExchange. fibers celluloseExchange.— at As our152 producers of mill As — the of in Latest the China. in Latest Practicablethe We world, Practicable also Date, operateproducing our Date, our Ultimate dissolving ourown Ultimate wood wood plantations pulp in Brazil which provide us with a secure andincorporated stable supply in Indonesia of eucalyptus and wood, listed the on principal the Indonesia raw material Stock 3rd Sch 1 atin our Brazil mill in which Brazil provide and viscose us with staple a secure fibersControllingControlling and at our stable Shareholder mill Shareholder supply in China. controlled of eucalyptus We controlled also approximately operate wood, approximately our90.6% the own principal of 90.6% wood raw plantationsof material used in our production of dissolving woodTPL’sExchange. pulp. issued share As of capital the Latest Practicable Date, our Ultimate inused Brazil in which our production provide us of with dissolving a secure woodControlling andTPL’s pulp. stable issued Shareholder supply share ofcapital eucalyptus controlled wood, approximately the principal 90.6% raw of material used “Track inOur our Record business production Period” model of allowsdissolving us to wood maintaintheTPL’s financial pulp. issued a cost years share competitive of our capital Company operating ended December structure 31, and 2007, benefit from “Track Our Record business Period” model allows us to maintainthe financial a cost years competitive of our Company operating ended December structure 31, and 2007, benefit from Source: economiesSource: SateriSateri Holdings of scale. Limited. Holdings Our 2010. integrated “Sateri Limited. Holdings upstream Limited2008 dissolving 2010. Global and 2009 Offering.” “Global Offering”. and wood theCompany pulp six months The prospectus. business ended Stock Hong and JuneKong. downstream 30,November Exchange 2010 26, viscose 2010. of staple Hong Kong Source: economiesSateri of scale. Holdings Our integrated Limited. upstream2008 dissolving 2010. and 2009 “Global Offering”. and wood the pulp six months The business ended Stock and June downstream 30, Exchange 2010 viscose of staple Hong Kong “Track Limited. fibershttp://www3.hkexnews.hk/listedco/listconews/sehk/2010/1126/ltn20101126025.pdfOur Record business business November Period” allow model us to 26. take allows advantage us to of maintainthe market financial opportunities a cost years competitive of. our at multiple Company operating points ended of December the structure value chain, 31, and 2007, price benefit from fibers business allow us to take advantage of market opportunities at multiple points of the value chain, price Source: economieshttps://www1.Limited. our productsSateri of competitivelyscale. November hkexnews.hk/listedco/listconews/sehk/2010/1126/ltn20101126025.pdf Holdings Our integrated and 26. maximize Limited. upstream our2008 profit dissolving 2010. and on 2009 a “Global Offering”. consolidated and wood the pulp six basis. months The business We ended participate Stock and June downstream in 30, Exchange every 2010. stage viscose of of staple Hong Kong Limited. fibershttps://www1.theour production productsbusiness November competitivelyallow process,hkexnews.hk/listedco/listconews/sehk/2010/1126/ltn20101126025.pdf us from to 26. take research and advantage maximize and development of our market profit opportunities and on a planting consolidated of at seedlings multiple basis. of points We eucalyptus participate of the trees value in to every chain, the. stage price of ourproductiontheTHE products MACAO production MONEY of competitively dissolving process,MACHINE: wood PROFIT from and pulp researchmaximizeSHIFTING and viscose AND and our TAX development stapleprofit LEAKAGE fibers. on a consolidated Ourand plantations planting basis. of have seedlings We a relatively participate of eucalyptus short in harvest every trees23 stage to the of https://www1.IN INDONESIA’S PULPhkexnews.hk/listedco/listconews/sehk/2010/1126/ltn20101126025.pdf EXPORTS . thecycleproduction production and as ofa process,result dissolving are frommore wood productive, research pulp and and which viscose development means staple that the fibers.and cost planting Our of our plantationswood of seedlings is lower have of than a eucalyptus relatively that produced short trees harvest to the productionbycycle many and other of as dissolving a plantations result are wood elsewhere more pulp productive, where and viscose the—31— which harvest staple means cycle fibers. thatis longer. the Our cost In plantations addition, of our wood our have mills is a lower relativelyare strategically than shortthat produced harvest located to keep our transportation costs low: our dissolving wood pulp mill at Bahia Specialty Cellulose is cycleby many and as other a result plantations are more elsewhere productive, where which the—31— means harvest that cycle the is cost longer. of our In addition, wood is lower our mills than are that strategically produced onlylocated approximately to keep our 155 transportation kilometers from costs our low:wood our sources dissolving on average wood and pulp approximately mill at Bahia 50 kilometers Specialty from Cellulose is byPort many of Salvador, other plantations a deep water elsewhere port; and where our viscose the—31— harvest staple fibers cycle mill is longer. at Sateri In Jiangxi addition, is located our mills near are Poyang strategically locatedonly approximately to keep our transportation 155 kilometers costs from low: our our wood dissolving sources on wood average pulp and mill approximately at Bahia Specialty 50 kilometers Cellulose from is Lake,Port of with Salvador, convenient a deep access water to port; water and transportation our viscose staple on the fibers Yangtze mill River at Sateri and Jiangxi in close is proximity located near to Poyang onlycustomers approximately in the textile 155 production kilometers centers from our in China. wood Moreover, sources on all average of our production and approximately facilities are 50 located kilometers in from Lake, with convenient access to water transportation on the Yangtze River and in close proximity to Portcountries of Salvador, where awe deep are ablewater to port; access and cost our competitive viscose staple labor. fibers mill at Sateri Jiangxi is located near Poyang customers in the textile production centers in China. Moreover, all of our production facilities are located in Lake, with convenient access to water transportation on the Yangtze River and in close proximity to countriesThe short where harvest we are cycle able of to our access plantations cost competitive and low transportation labor. and labor costs, together with the customersadvanced in production the textile processes production we utilize centers at our in millsChina. using Moreover, modern equipment, all of our production allow us to enhance facilities our are cost located in countriescompetitiveness.The where short we As harvest are a percentage able cycle to access of of ourcost cost plantations of sales, competitive the and costlow of labor. wood transportation used as a raw and material labor costs,(which together includes with the treeadvanced plantation production and maintenance processes costs, we utilize harvesting, at our transportation,mills using modern road maintenance equipment, asallow well us as to depletion enhance our cost The short harvest cycle of our plantations and low transportation and labor costs, together with the charges)competitiveness. was 11.0%, As 6.6%, a percentage 16.7%, 15.7% of cost and of 16.6% sales, for the the cost years of ended wood December used as 31, a raw 2007, material 2008 and (which 2009 includes advanced production processes we utilize at our mills using modern equipment, allow us to enhance our cost andtree the plantation six months and ended maintenance June 30, 2009 costs, and harvesting, 2010, respectively. transportation, road maintenance as well as depletion competitiveness. As a percentage of cost of sales, the cost of wood used as a raw material (which includes charges) was 11.0%, 6.6%, 16.7%, 15.7% and 16.6% for the years ended December 31, 2007, 2008 and 2009 tree plantationWe have andapproximately maintenance 150,000 costs, hectares harvesting, of plantation transportation, land, of which road approximately maintenance 92,000 as well hectares as depletion and the six months ended June 30, 2009 and 2010, respectively. charges)are covered was by 11.0%, our licenses 6.6%, for16.7%, operating 15.7% wood and plantation 16.6% for activities the years with ended the remaining December plantation 31, 2007, land 2008 being and 2009 either legal reserve or permanent preservation areas under Brazilian law, land used for infrastructure, or land and theWe six havemonths approximately ended June 150,00030, 2009 hectares and 2010, of plantationrespectively. land, of which approximately 92,000 hectares which is not suitable for eucalyptus planting, for example, due to streams or other bodies of water. Of the are covered by our licenses for operating wood plantation activities with the remaining plantation land being 92,000We hectares have approximately covered by our 150,000 licenses, hectares approximately of plantation 84,000 land,hectares of are which productive approximately and/or plantable. 92,000 hectares Eucalyptuseither legal wood reserve is the or principalpermanent raw preservation material used areas in our under production Brazilian of dissolvinglaw, land used wood for pulp. infrastructure, or land arewhich covered is not by our suitable licenses for eucalyptusfor operating planting, wood plantation for example, activities due to with streams the remaining or other bodies plantation of water. land Ofbeing the either92,000 legalOur hectares Bahia reserve Specialty covered or permanent Cellulose by our preservation licenses,mill has a approximately design areas annual under production Brazilian 84,000 hectares law, capacity land ofare used 465,000 productive for infrastructure, metric and/or tons of plantable. or land whichdissolvingEucalyptus is not wood suitable wood pulp is for acrossthe eucalyptus principal two production raw planting, material lines for and used example, produces in our due bothproduction to rayon streams grades of dissolvingor and other specialty bodies wood grades of pulp. water. of Of the 92,000pulp. The hectares second covered production by line our at licenses, this mill, approximately which was completed 84,000 in 2008, hectares has aare design productive annual production and/or plantable. EucalyptuscapacityOur of wood Bahia 350,000 is Specialtythe metric principal tons Cellulose and raw is capable millmaterial has of a switchingused design in our annual production production production between of dissolving capacity rayon grades of wood 465,000 and specialty pulp. metric tons of gradesdissolving of pulp. wood For pulpthe year across ended two December production 31, 2009 lines and and the produces six months both ended rayon June 30,grades 2010, and the specialty utilization grades of ratepulp.Our at The our Bahia Bahia second Specialty Specialty production Cellulose Cellulose line millat mill this was has mill, approximately a designwhich was annual 79% completed and production 95%, in respectively, 2008, capacity has baseda of design 465,000 on the annual design metric production tons of dissolvingcapacity woodof 350,000 pulp acrossmetric tonstwo production and is capable lines of and switching produces production both rayon between grades rayon and grades specialty and grades specialty of pulp.grades The of second pulp. For production the year line ended at December this mill, which 31, 2009 was and completed the six months in 2008, ended has June a design 30, 2010, annual the production utilization capacityrate at ourof 350,000 Bahia Specialty metric tons Cellulose and is mill capable was— approximately of 153 switching — production 79% and 95%, between respectively, rayon grades based and on the specialty design grades of pulp. For the year ended December 31, 2009 and the six months ended June 30, 2010, the utilization rate at our Bahia Specialty Cellulose mill was approximately 79% and 95%, respectively, based on the design — 153 —

— 153 — In the years immediately following Sateri’s disposal of DP Macao in September 2010, Sateri’s annual reports describe continued purchases of dissolving pulp (also referred to as rayon-grade pulp) from DP Macao. Sateri’s annual report for 2011 states:

In the year ended 31 December 2010, the Group’s VSF Business acquired 15,644 metric tons of rayon-grade pulp from DP Macao, for an average price of US$1,586 per ton.

In the year ended 31 December 2011, the Group’s VSF Business acquired 49,713 metric tons of rayon-grade pulp from DP Macao, a related party as explained in Note 43, for an average price of US$1,516 per ton.

Sateri’s annual report for 2012 states:

The value of sales of dissolving wood pulp by DP Macao to Sateri Jiangxi for the year ended 31 December 2012 was approximately US$23,732,000.

Sateri’s annual report for 2013 states:

The value of sales of dissolving wood pulp by DP Macao to Sateri Jiangxi and Sateri Fujian for the year ended 31 December 2013 was approximately US$37,323,000.

The authors of this report have seen no indication in any of Sateri’s reports that DP Macao has sold dissolving pulp from any source other than Toba Pulp. In this way, these statements collectively indicate that DP Macao purchased substantial volumes of dissolving pulp from Toba Pulp during 2010–2013 and sold these to Sateri for VSF production by its operating companies, Sateri Jiangxi and Sateri Fujian. This finding calls into question the reliability of Toba Pulp’s limited disclosures of the product it produced between June 2010 and March 2017. As noted earlier in Section 6, Toba Pulp’s disclosures appear to indicate that the company claims to have produced only paper-grade pulp from June 8, 2010 until March 3, 2017. The Sateri Jiangxi and Sateri Fujian mills produce VSF which requires dissolving pulp.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 24 IN INDONESIA’S PULP EXPORTS SECTION III. PROFIT SHIFTING BY TOBA PULP

11. What incentives exist to report dissolving pulp as paper-grade pulp?

Cumulatively, the data presented thus far apparently show that during 2008–2016, Toba Pulp exported from Indonesia large volumes of dissolving pulp to DP Macao that appear to have been classified as paper-grade pulp. This raises questions about the reasons for which these shipments would have been reported as a different grade of pulp than what they apparently were. What potential motivation would the parties involved have to mis-report the type of pulp being shipped?

In terms of the underlying economics, paper-grade pulp prices are consistently much lower in international markets than prices for dissolving pulp. China’s imports of the two pulp products between 2007 and 2018 indicates that dissolving pulp prices were between US$ 243 and US$ 1,117 per ton higher than the prices of paper-grade pulp, based on annual averages of imports (see Figure 13). In percentage terms, the price of paper-grade pulp was, on average, 57% of the price of dissolving pulp for imports to China between 2007 and 2018. The financial data for DP Macao’s pulp sales during 2008, 2009, and the first half of 2010, as presented in Sateri’s 2010 prospectus, exemplify these pricing differences between paper-grade pulp and dissolving pulp (see Table 4). During this 30-month period, DP Macao received an average of US$ 544 per ton for the BHKP paper-grade pulp that it sold and an average price of US$ 1,129 per ton for dissolving pulp.

Figure 13. Average per ton import price to China (CIF) of BHKP paper-grade pulp and dissolving pulp, 2007–2018

2,000 1,800 1,600 1,400

ton 1,200 1,000 800 600

US Dollars pe r 400 200 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Paper-grade pulp (BHKP) Dissolving pulp

Source: UN Comtrade.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 25 IN INDONESIA’S PULP EXPORTS Table 4. DP Macao sales of BHKP paper-grade pulp and dissolving pulp during 2008, 2009, and January–June 2010

Year BHKP Paper-Grade Pulp Sales Dissolving Pulp Sales Volume (tons) Value (‘000 US$) Average Price Volume (tons) Value (‘000 US$) Average Price (US$/ton) (US$/ton) 2008 141,497 84,178 595 55,262 57,062 1,033 2009 142,163 67,740 476 49,939 46,828 938 Jan-Jun 2010 22,409 14,494 647 55,299 77,327 1,398 Total 306,069 166,412 544 160,500 181,217 1,129 Source: Sateri Holdings Limited. 2010. “Sateri Holdings Limited Global Offering.” Company prospectus. Hong Kong. November 26, 2010. http://www3.hkexnews.hk/listedco/listconews/sehk/2010/1126/ltn20101126025.pdf.

Over the period 2008–2016, Toba Pulp’s average prices for exports of an unspecified grade of pulp (as derived from Toba Pulp’s annual reports) did not track the market price of dissolving pulp. Between 2010 and 2013, a cotton shortage drove up demand in the global dissolving pulp sector, causing prices to spike. The average import price for dissolving pulp into China went from below US$ 1,000 per ton to over US$ 1,600 per ton (CIF)68, representing an unusually high market upswing. However, the average price of the pulp exported by Toba Pulp remained flat during this period (see Figure 14).

Figure 14. Average unit price of Toba Pulp’s exports and of China’s dissolving pulp imports from Indonesia, 2008–2016 1,800 1,600 1,400 1,200 1,000 ton of pulp 800 600 400 US Dollars pe r 200 0 2008 2009 2010 2011 2012 2013 2014 2015 2016

Toba Pulp export price (FOB) China import price of dissolving pulp from Indonesia (CIF)

Sources: Annual Reports of PT Toba Pulp Lestari Tbk, 2008–2016; UN Comtrade.

As a point of comparison, the price of dissolving pulp exports from the United States closely tracked the import price into China during 2007–2017 (See Figure 15). The export and import prices both climbed steadily from 2007 until 2011 before entering a declining trend that continued through 2017. In contrast to the export and import prices for Indonesia’s dissolving pulp trade with China as shown in Figure 14, the export and import prices in the US-China dissolving pulp trade showed a high degree of correlation through this period.

68 CIF refers to “cost, insurance, and freight”. See Box 3 below on FOB and CIF conversions.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 26 IN INDONESIA’S PULP EXPORTS Figure 15. Average unit price of United States dissolving pulp exports to China and of China’s dissolving pulp imports from the United States, 2007–2017

1,800 1,600 1,400 1,200 1,000 ton of pulp 800 600

US Dollars pe r 400 200 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

US export price to China (FOB) China import price from US (CIF)

Source: UN Comtrade.

Box 3. Conversion of FOB to CIF to compare export and import prices In the data used for this report, Indonesia export prices are expressed in FOB, or “free on board”. FOB prices include the price of goods up until they are loaded on a ship prior to being exported from Indonesia. FOB prices do not include the cost of transport or insurance associated with shipping the goods from Indonesia to the destination market. The import prices used in this report are expressed in CIF, or “cost, insurance and freight”. CIF prices include shipping and insurance costs up to the border of the importing country.69 Therefore, the difference between FOB and CIF prices is the combined cost of freight and insurance. The relation between FOB and CIF values is complicated when there is trans-shipment or trans-invoicing, i.e. an intermediary party may re-export or re-invoice the shipment. The CIF price would then include the intermediary party’s commission or marketing fee. FOB [export price] + Freight + Insurance (+ Marketing Fee) = CIF [import price] Macro-level studies that convert FOB into CIF prices, or vice versa, have often used a 10% adjustment to compare the two prices, however, more recent studies indicate that a 6% adjustment is a more accurate estimate to use when converting between FOB and CIF.70

It appears that Toba Pulp was charging its affiliated marketing company, DP Macao, below-market prices for dissolving pulp (i.e. the market price of the lower-valued paper-grade pulp) during the period analyzed. Customs authorities usually have a range of acceptable unit prices for each HS code

69 Marini, Marco, Robert Dipplesman and Michael Stanger. 2018. “New Estimates for Direction of Trade Statistics.” IMF Working Paper WP/18/16 (January). Washington, DC: International Monetary Fund. https://www.imf.org/~/media/Files/Publications/WP/2018/wp1816.ashx. 70 Miao, Guannan and Fabienne Fortanier. 2017. “Estimating Transport and Insurance Costs of International Trade.” OECD Statistics Working Papers 2017/04. Paris: Organisation for Economic Co-operation and Development. https://www.oecd-ilibrary.org/docserver/8267bb0f-en.pdf.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 27 IN INDONESIA’S PULP EXPORTS as an efficient way to check whether the commodity is valued within the normal range of open market prices. However, since Toba Pulp’s exports were apparently classified as a lower-priced product (i.e. BHKP paper-grade pulp – HS 470329) rather than as dissolving pulp (HS 470200), the below-market price Toba Pulp apparently charged DP Macao could presumably have escaped the attention of Indonesia’s customs authorities. As indicated above, Toba Pulp, in response to the Indoleaks allegation of manipulating export documents between 2007 and 2016, stated in February 2020 that “the HS code used is in accordance with the product classification and legal jurisdictions” (see Appendix A for full response).

12. Estimating DP Macao’s apparent income from marketing for Toba Pulp

According to the above analysis, Toba Pulp apparently sold dissolving pulp at non-market prices to DP Macao, and DP Macao then apparently re-sold the dissolving pulp to external and inter-company buyers in China, presumably at prevailing market prices. This meant that DP Macao was apparently able to capture spreads (i.e. the difference between the purchase and sales prices) well beyond what a marketing company could generally expect to earn on normal commercial transactions for the sale and marketing of a product it did not produce.

On an individual shipment level, it appears to have worked liked this: In one shipment sent during September 2010, for example, Toba Pulp reportedly exported 1,015,433 kilograms (kg) of pulp labeled as “Toba Cell Eucalyptus Pulp” (HS 470329) to DP Macao for a unit price of US$ 550 per ton (FOB), according to figures from a commercial trade data provider. Later the same month, the Chinese company Bora Jingwei Fibre Co. reportedly imported a shipment of 1,015,433 kg of dissolving pulp (HS 470200) for a unit price of US$ 1,630 per ton (CIF). Assuming these are two corresponding records of the same shipment and that the product traded is dissolving pulp, then these figures would indicate DP Macao sold the shipment for nearly three times the price that it had apparently paid to Toba Pulp.

Table 5 shows several additional shipments that exemplify the scale of spreads DP Macao apparently captured on sales of pulp purchased from Toba Pulp. These shipments are a few of the many dozen

Table 5. Sample shipment-level data of Toba Pulp exports from Indonesia to DP Macao and China mill imports of dissolving pulp from Indonesia

HS Code 470329: HS Code 470200: Adjustments from DP Macao’s spread Toba Pulp export to China imports from Indonesia FOB to CIF DP Macao reported as reported as dissolving pulp paper-grade pulp Date Volume Price (FOB) Date Importer Volume Price (CIF) Freight, insurance, Spread % of Total (kg) Name (kg) normal commission Sales Value of 2% 2010 1,015,433 $558,488 2010 Bora Jingwei 1,015,433 $1,655,156 $103,554 $993,114 60% Sep Sep 2011 503,482 $251,741 2011 Sateri Jiangxi 503,482 $579,004 $42,318 $284,945 49% Nov Nov 2012 1,007,651 $468,558 2012 Anhui Somet 1,007,651 $856,503 $78,294 $309,651 36% Dec Dec 2013 594,427 $282,352 2013 Sateri Fujian 594,427 $534,984 $50,770 $201,862 38% Aug Aug 2014 497,404 $261,137 2014 Nanjing 497,404 $442,690 $44,707 $136,846 31% Mar Apr Chemical

Source: Commercial trade data provider for shipment volumes and value and importer names; Transport costs are based on Fastmarkets RISI data for average annual freight costs (US$ per ton) for BHKP shipments between Indonesia and Shanghai during 2010–2014. Insurance costs are estimated to be 0.6% of the net sales price of the product shipped.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 28 IN INDONESIA’S PULP EXPORTS shipments identified between 2010 and 2016, in which the volume of Indonesian exports classified as paper-grade pulp matched precisely, kilogram for kilogram, with the volume of China’s imports classified as dissolving pulp, as described above in Section II. To calculate the spreads, freight and insurance costs must be considered, in addition to a 2% marketing commission (i.e. the amount a marketing company such as DP Macao would be expected to earn under normal commercial terms). In these five examples of shipments, DP Macao’s spread was more than 10 times the commission it would be expected to have earned under normal commercial terms.

The large spreads DP Macao apparently received on pulp purchased from Toba Pulp can also be estimated using the annual average export prices (as derived from Toba Pulp’s annual reports) and average annual import prices for China’s dissolving pulp imports from Indonesia (as derived from UN Comtrade data) (see Figure 16). Under normal conditions, marketing companies can reasonably be expected to receive commissions of approximately 2% of the sales price of the goods they sell.71 But DP

Figure 16. Estimated distribution of per ton import price to China of dissolving pulp produced and apparently misclassified by Toba Pulp, December 2007–2016

2,000 1,800 1,600 1,400 1,200 ton 1,000 800

US Dollars pe r 600 400 200 0 2007 (Dec.) 2008 2009 2010 2011 2012 2013 2014 2015 2016

DP Macao’s spread Normal marketing commission Transport and insurance costs Toba Pulp revenue China import price (CIF) of dissolving pulp from Indonesia Toba Pulp export price (FOB)

Sources: Annual reports of PT Toba Pulp Lestari Tbk, 2007–2016; UN Comtrade; Transport costs are based on Fastmarkets RISI data for average annual freight costs (US$ per ton) for BHKP shipments between Indonesia and Shanghai during 2007–2016. Insurance costs are estimated to be 0.6% of the net sales price of the product shipped. Notes: Normal marketing commission is assumed to be fixed at 2%. Toba Pulp’s selling price is expressed in FOB and importer buying price in CIF, so adjustments are made for transport, insurance, and marketing commission. Prior to 2011, Toba Pulp did not report sales volume in its Annual Report, so production volumes are used as a proxy for sales volumes to calculate Toba Pulp’s revenue per ton 2007–2010. For 2007, the export price is derived from annual sales and volume data reported in Toba Pulp’s 2007 Annual Report, and the import price is based on figures reported in Sateri Holdings Limited. 2010. Op. cit. for the average buying price by DP Macao of dissolving pulp in December 2007. The Sateri Prospectus indicates US$ 13.271 million revenue was derived from Toba Pulp’s dissolving wood pulp in December 2007 at an average selling price of US$1,468 per metric ton.

71 It is highly relevant that following Sateri’s disposal of DP Macao in September 2010, the latter entered into an “Agency Agreement” under which it agreed to sell the dissolving pulp it purchased from Toba Pulp through SC International Macao, a wholly owned subsidiary of Sateri, for a fixed commission of 2% of sales value (Sateri Holdings Limited, 2010).

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 29 IN INDONESIA’S PULP EXPORTS Macao’s spread was, on average, more than 50% on sales in 2010 and 2011. In five other years, the spread was, on average, more than 30%.72

The spread was largest in 2011 when DP Macao reportedly bought Toba Pulp’s product for US$ 532 per ton, on average, and sold it for an average price of US$ 1,717 per ton. After adjusting for freight and insurance costs (estimated to average US$ 64 per ton) and a normal marketing commission of 2%, the spread DP Macao apparently earned was, on average, US$ 1,087 per ton. The lowest average spread was earned in 2015, which was still significant at US$ 172 per ton, or 21% of the selling price.

These findings indicate that DP Macao apparently captured much of the sales value derived from dissolving pulp that Toba Pulp produced. Given that Macao is a low-tax jurisdiction, this pattern of trade may have facilitated the avoidance of potential corporate tax obligations within Indonesia.

13. Estimating Toba Pulp’s apparent under-statement of revenues

To what degree did these trade practices result in a reduction of the revenues that might otherwise have appeared on Toba Pulp’s financial statements and a corresponding increase in those booked by DP Macao? And what impact did this have for Toba Pulp’s corporate tax obligations in Indonesia?

Between December 2007 and December 2016, China imported a total of 959,834 tons of dissolving pulp from Indonesia, according to the country’s trade data.73 Toba Pulp was the only producer of dissolving pulp in Indonesia and, therefore, the only logical source for these imports until 2016, when APRIL also began producing dissolving pulp. The Chinese import figures that estimate Toba Pulp’s sale of dissolving pulp to DP Macao (with adjustments made for 2009 and 2010 when Toba Pulp reported at least a portion its dissolving pulp exports as such, and for 2016, when APRIL started producing dissolving pulp) can be used to estimate the scale of revenue shifting (and presumably movement of potential profits) during this period.

In total, DP Macao appears to have received an estimated total spread of US$ 426 million from its sale of pulp produced by Toba Pulp during the period 2007–2016. This estimate excludes an assumed 2% commission on the import price that a marketing agent such as DP Macao could be expected to earn under normal commercial terms. In other words, this means that the estimated spread is over and above a normal commission. Presumably, Toba Pulp could have earned this estimated spread instead of DP Macao had it exported its dissolving pulp as such at prevailing market prices (see Figure 17).

The spread that DP Macao apparently captured varied considerably from year to year. When the price of dissolving pulp increased in 2010 and 2011, DP Macao’s annual spread from Toba Pulp’s products was apparently US$ 65 million and US$ 156 million, respectively. In other years, when the difference between the market prices for dissolving pulp and paper-grade pulp was less, the average spread per ton was smaller, and the overall volume of dissolving pulp declined, as that is when Toba Pulp might have

72 It must be noted that in 2009, Toba Pulp apparently classified all of its dissolving pulp exports under the appropriate HS code (470200). The average price of these dissolving pulp exports appears to have been higher than that of the paper-grade pulp exports during that year. Still, there was a significant spread in 2009 between the dissolving pulp export price from Indonesia and the dissolving pulp import price to China, where most of Toba Pulp’s shipments were sent. This resulted in similar profit dynamics as seen in other years. However, any spread that DP Macao may have captured in 2009 is not analyzed in this study (or presented in Figures 14 and 15), as it was apparently not derived from the particular trade practices documented in this report. 73 UN Comtrade for import volumes between January 2008 and December 2016. The source of the December 2007 import volume is from Sateri Holdings Limited. 2010. “Sateri Holdings Limited Global Offering.” Company prospectus. Hong Kong. November 26, 2010. http://www3.hkexnews.hk/listedco/listconews/sehk/2010/1126/ltn20101126025.pdf. This Prospectus indicates the volume for December 2007 was 9,038 tons.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 30 IN INDONESIA’S PULP EXPORTS sensibly switched to paper-grade pulp production. In 2013, DP Macao’s spread was US$ 17 million, and in 2014 it was around US$ 8 million.

In aggregate, the analysis indicates that Toba Pulp, the company that actually produced the pulp being sold, earned only slightly more revenue over the ten-year period than DP Macao’s estimated spread. Toba Pulp’s sales of dissolving pulp to China that were apparently reported as paper-grade pulp during 2007– 2016 generated estimated gross revenues of US$ 495 million. This amount is only moderately greater than the US$ 426 million that DP Macao apparently earned in gross profit, over and above a standard 2% commission from selling and marketing the product. The fact that the companies involved are affiliated entities with overlapping beneficial owners suggests the marketing and pricing arrangement may have one or more attributes of a profit shifting scheme.

Figure 17. Estimated distribution of total value of Toba Pulp’s dissolving pulp exported and apparently misclassified from Indonesia to China, December 2007–2016

300,000,000

250,000,000

200,000,000

150,000,000

US Dollars 100,000,000

50,000,000

0 2007 (Dec.) 2008 2009 2010 2011 2012 2013 2014 2015 2016

DP Macao's spread Normal marketing commission Toba Pulp revenues Transport and insurance costs

Sources: Annual reports of PT Toba Pulp Lestari Tbk, 2007–2016; UN Comtrade; Badan Pusat Statistik; Commercial trade data provider; Transport costs are based on Fastmarkets RISI data for average annual freight costs (US$ per ton) for BHKP shipments between Indonesia and Shanghai during 2007–2016. Insurance costs are estimated to be 0.6% of the net sales price of the product shipped.74 Notes: Normal marketing commission is assumed to be 2%. Toba Pulp’s selling price is expressed in FOB and importer buying price in CIF, so adjustments are made for transport, insurance, and marketing commission (assumed to be fixed at 2% of sales price). 2007 data includes only December shipments (not January through November 2007), since Toba Pulp’s trading relationship with DP Macao is documented beginning in December 2007. The source of the 2007 volume data is from Sateri Holdings Limited, 2010. Prospectus for Initial Public Offering, prepared for The Stock Exchange of Hong Kong Limited and the Securities and Futures Commission. This Prospectus indicates the volume of dissolving pulp that DP Macao purchased from Toba Pulp was 9,038 tons. The source of the 2016 volume data is shipment-level data from a commercial trade data provider. The 2016 volume is calculated from the volume of shipments exported by Toba Pulp that were classified as paper-grade pulp (HS 470329) and described as “Toba Cell Eucalyptus Pulp”.

74 Sourcing for the 2007 data is different than for other years since Toba Pulp’s trading relationship with DP Macao only started in December 2007, according to Sateri’s 2010 prospectus. For the average import price and volume, the data are from Sateri’s listing prospectus. Sateri (2010) states that DP Macao generated revenue of US$ 13,271,000 from sales of 9,038 tons of dissolving pulp “primarily produced by TPL” to external customers. The Sateri prospectus lists the average selling price of DP Macao’s dissolving pulp for 2007 as US$ 1,468 per ton. For the average export price, this estimate uses Toba Pulp annual report data, as with the other years.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 31 IN INDONESIA’S PULP EXPORTS 14. Toba Pulp’s reported profit and corporate tax payments During the period 2007–2016, Toba Pulp paid relatively little corporate income tax, despite producing over 1.8 million tons of pulp (both paper-grade pulp and dissolving pulp), which it sold for over US$ 1.0 billion (see Table 6). From those sales, the company earned an aggregate net profit of US$ 45.6 million and paid a net total of US$ 15.9 million in corporate income tax, according to the company’s cash flow statements. This amounts to an average of US$ 8.66 of corporate tax per ton of pulp produced, as compared to an average sales value of just over US$ 550 per ton during this period.

Table 6. PT Toba Pulp Lestari Tbk’s reported pulp production, sales, net profit, and corporate income tax, 2007–2016

Unit 2007 2008 2009 2010 2011 2012 Pulp production air-dried tons 172,710 197,093 210,607 175,989 189,630 178,676 Pulp sales air-dried tons Not reported Not reported Not reported Not reported 171,556 197,396 Sales value US Dollars $137,620,000 $115,506,000 $78,753,000 $98,182,000 $91,189,000 $108,146,000 Net profit (or loss) US Dollars $11,818,000 $2,020,000 ($5,521,000) $401,000 $37,000 $3,128,000 Tax (paid) or US Dollars $0 ($17,650,000) ($1,341,000) $4,323,000 $1,959,000 ($1,204,000) refunded per cash flow statement

Unit 2013 2014 2015 2016 2007–2016 Pulp production air-dried tons 182,437 187,609 171,270 167,953 1,833,974 Pulp sales air-dried tons 170,362 196,798 165,057 161,598 Sales value US Dollars $91,552,000 $109,193,000 $96,421,000 $84,074,000 $1,010,636,000 Net profit (or loss) US Dollars $3,780,000 $1,456,000 ($2,752,000) $37,492,000 $45,642,000 Tax (paid) or US Dollars ($113,000) ($18,000) ($1,337,000) ($508,000) ($15,889,000) refunded per cash flow statement

Source: PT Toba Pulp Lestari Tbk. Annual reports, 2007–2016.

In Indonesia, as in most other countries, it is not unusual for corporations to manage their reporting of profits in order to minimize corporate tax obligations.75 Moreover, as noted earlier, the use of profit shifting practices and the booking of profits in low-tax jurisdictions may not be illegal as long as these are done in compliance with prevailing laws and regulations. However, at a time when the Government of Indonesia is actively seeking to curb the flow of taxable profits to offshore jurisdictions with lower tax rates, one could reasonably expect Indonesia’s fiscal authorities to be interested in assessing whether Toba Pulp’s sales and marketing arrangement with DP Macao has been based on the accurate invoicing and arms-length pricing of dissolving pulp exports when these are shipped. For at least some of the time that Toba Pulp was reportedly making little profit or producing at a net loss, DP Macao was making substantial profits marketing pulp produced by Toba Pulp. In 2008, when Toba Pulp’s net profit was US$ 2.0 million, DP Macao’s “segment profit” within Sateri was US$ 22.8 million.76,77 And, in 2010, when Toba Pulp’s net profit was less than US$ 0.5 million, DP Macao’s profit was US$ 43.9 million in just the first six months.78

75 Multinational companies such as Apple, Amazon, Starbucks, Nike and General Electric have managed reported profits to minimize tax obligations, according to reports in recent years. 76 PT Toba Pulp Lestari Tbk. 2009. Op. cit.; Sateri Holdings Limited. 2010. Op. cit. 77 In 2009, when Toba Pulp reported a US$ 5.5 million loss, DP Macao’s profit was US$ 25.5 million (PT Toba Pulp Lestari Tbk. 2010. Op. cit.; Sateri Holdings Limited. 2010. Op. cit.). However, as noted above, the substantial profits that DP Macao recorded in 2009 from sales of dissolving pulp are not analyzed in this study, as they were apparently not derived from the particular trade practices documented in this report. During that year, Toba Pulp apparently classified all of its dissolving pulp exports under the appropriate HS code (470200). 78 PT Toba Pulp Lestari Tbk. 2011. Op. cit.; Sateri Holdings Limited. 2010. Op. cit.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 32 IN INDONESIA’S PULP EXPORTS After Sateri sold DP Macao to Blue Dot Resources, also a Tanoto-controlled company, in September 2010, there has been no public reporting of DP Macao’s profits, to the best of the authors’ knowledge. For the beneficial owner(s) of Toba Pulp and DP Macao, there would apparently have been a strong financial incentive to shift profits that might otherwise have been taxable in Indonesia to Macao, a jurisdiction which is widely recognized as a tax haven. Under Macao law, DP Macao is registered as an offshore service company, with the designation “Macao Commercial Offshore”.79 As such, the company apparently would have qualified for an exemption of Macao’s complementary tax, or tax on corporate profits, during the period 2007–2016. This suggests that DP Macao may have paid no corporate income tax on the estimated US$ 426 million (Rp. 4.23 trillion80) that it apparently earned in gross profit, over and above a standard 2% commission from selling and marketing the product, during this period. By contrast, if these revenues had been booked as taxable income for Toba Pulp, they could have been subject to Indonesia’s corporate income tax. In 2007 and 2008, the corporate income tax rate was 30%.81 In 2009, the rate was reduced to 28%, and then in 2010, it was further reduced to 25%, where it has remained until the present.82 In hypothetical terms, if it is assumed that the understated revenue were taxed at the statutory rate for the corresponding year, Indonesia’s fiscal authority could potentially have collected as much as US$ 108 million (Rp. 1.07 trillion) from the understated revenues estimated in this report. It must be emphasized, of course, that the authors do not know Toba Pulp’s particular tax situation or its effective tax rate. A more specific estimation of the amount of tax that Toba Pulp might have been required to pay to the Government of Indonesia had the company not engaged in the apparent profit shifting practices described in this report would require more detailed analysis of the company’s profit and loss statements and the company’s particular tax status under the Government’s fiscal policy. In response to this report’s summary of findings, Toba Pulp stated, “As an entity listed in Indonesia Stock Exchange since 1990, the Company upholds a high level of Good Corporate Governance and is committed to corporate compliance with prevailing laws and regulations.” (For Toba Pulp’s full response see Appendix B.)

15. More accurate reporting since 2017 Toba Pulp’s apparent use of the profit shifting practices documented in this report seems to have ended shortly after 2016. By March 2017, Toba Pulp began issuing public disclosures each time it switched from producing paper-grade pulp to dissolving pulp (or vice versa), and the company’s dissolving pulp exports were reported as such (i.e. HS 470200) in official Indonesian trade records. A corporate announcement signed by the company’s Executive Director and released on March 3, 2017 disclosed that Toba Pulp was switching production from paper pulp to dissolving pulp.83 The announcement indicated that the company made this disclosure “in accordance with OJK [Indonesia’s Financial Services Authority] Regulation 31/POJK.04/2015 dated December 16, 2015 about the Disclosure of

79 For details on Macao offshore companies and the tax exemptions provided under Macao’s offshore regime, see http://www.hmv. com.mo/english/offshore/link/1.htm. 80 The conversion from US Dollars to Indonesian Rupiah is based on the official exchange rate calculated as an annual average based on monthly averages. The annual exchange rates for Indonesian Rupiah to US Dollars were accessed from the International Monetary Fund’s International Financial Statistics. The exchange rates for 2007 to 2018 were applied to the corresponding annual totals of under-statement of revenue and potential tax loss. 81 KPMG. 2019. “Corporate tax rates table.” KPMG International website. https://home.kpmg/xx/en/home/services/tax/tax-tools- and-resources/tax-rates-online/corporate-tax-rates-table.html. 82 KPMG. 2019. Op. cit. 83 PT Toba Pulp Lestari Tbk. 2017c. “Letter to Director of Indonesia Stock Exchange from Vinod Kesavan.” Medan, Indonesia. March 3, 2017. https://www.idx.co.id/StaticData/NewsAndAnnouncement/ANNOUNCEMENTSTOCK/From_EREP/201703/c623e30904_dd00a72ac7.pdf.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 33 IN INDONESIA’S PULP EXPORTS Information or Material Facts by the Issuer or Public Company.” A month after this announcement, in April 2017, Toba Pulp exported dissolving pulp under the HS code for dissolving pulp (HS 470200) with the description “TPL-High Alpha Pulp”.84 During 2017, Toba Pulp reportedly exported to China 121,241 tons of dissolving pulp reported as such for a total value of US$ 80,920,832 and an average unit value of US$ 667 per ton.85

In the three months prior to April 2017, Toba Pulp reportedly exported 48,776 tons of pulp to China under the HS code for BHKP paper-grade pulp (HS 470329) with the description “Toba Cell Eucalyptus Pulp”.86 The total value of these shipments was US$ 23,238,282 and the average unit value was US$ 476 per ton.87 It appears that the company’s shift to reporting the product correctly as dissolving pulp had the effect of increasing the average unit price by 40%, or US$ 191 per ton. During this period, the average CIF price of dissolving pulp imports from countries to China did increase, but only about 12%, from approximately US$ 825 per ton to around US$ 925 per ton.88

As of October 21, 2020, Toba Pulp has issued announcements of a switch in production between paper- grade pulp and dissolving pulp on March 3, 2017; July 18, 2017; May 11, 2018; June 30, 2018; February 20, 2019; and April 24, 2019. The third announcement, on May 11, 2018, declared Toba Pulp was switching production from dissolving pulp to paper pulp effective a day earlier on May 10, 2018.89 In 2018, Toba Pulp’s exports under HS 470329 for BHKP paper-grade pulp began in June, and all of these shipments include the product description “Toba Pulp BHKP (Euca) 100% PEFC Certified”.90 This product description further supports the idea that Toba Pulp may have used the product description “Toba Cell Eucalyptus Pulp” to indicate dissolving pulp that was exported under the HS code for paper-grade pulp (HS 470329).

Toba Pulp’s 2018 annual report states, “Throughout 2018 the Company produced 139,335 tons of dissolving pulp and 30,571 tons of BHKP.”91 To the best of the authors’ knowledge, this is the first time Toba Pulp included the breakdown of its pulp production by grade in an annual report during the period 2007–2018. The volumes of reported production generally match the volumes reported in Indonesia’s shipment-level trade data that Toba Pulp exported under the corresponding HS codes for dissolving pulp and paper pulp. Therefore, it appears that in 2018 Toba Pulp began to take a more transparent approach towards disclosing the specific grades of pulp it produces, both in its corporate reporting and its classification of exports as the pulp was shipped. However, the authors of this report have not been able to independently verify the accuracy of the company’s reporting both in its annual report and as indicated in trade data.

Toba Pulp’s 2019 Annual Report continues the trend from 2018 of disclosing more information, with the Board of Directors Report stating: “The company produced 146,195 tons of dissolving pulp and 38,966 tons of BHKP pulp in 2019, a total increase of 8.98% compared to 2018 with a volume of dissolving pulp production of 139,335 tons and 30,570 tons of BHKP pulp. Achievement of sales in 2019 reached 167,788 tons (pulp dissolving 128,825 tons and BHKP pulp 38,963 tons), decreasing by 0.42%.”92

84 Commercial trade data provider of shipment level Indonesia exports for dissolving pulp. 85 Commercial trade data provider of shipment level Indonesia exports for dissolving pulp. 86 Commercial trade data provider of shipment level Indonesia exports for BHKP. 87 Commercial trade data provider of shipment level Indonesia exports for BHKP. 88 Commercial trade data provider of shipment level Indonesia exports for dissolving pulp. 89 PT Toba Pulp Lestari Tbk. 2018c. Letter to Director of Indonesia Stock Exchange from Anwar Lawden, S.H. Company announcement. Medan, Indonesia. May 11, 2018. https://www.idx.co.id/StaticData/NewsAndAnnouncement/ ANNOUNCEMENTSTOCK/From_EREP/201805/e4f56b8448_e1aa3b29b1.pdf. 90 Commercial trade data provider of shipment level Indonesia exports for BHKP. 91 PT Toba Pulp Lestari Tbk. 2019. Op. cit. 92 PT Toba Pulp Lestari Tbk. 2020. Annual Report 2019. Medan, Indonesia. https://www.tobapulp.com/wp-content/ uploads/2020/08/TPL_Annual-Report-2019.pdf.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 34 IN INDONESIA’S PULP EXPORTS SECTION IV. INDICATIONS OF SIMILAR PROFIT SHIFTING PRACTICES BY THE APRIL GROUP

16. APRIL’s dissolving pulp production during 2016–2018

By the end of 2016, Toba Pulp apparently was ending its use of the trade practices documented in the previous sections of this report. Around that same time, another much larger pulp mill, also under the beneficial ownership of Sukanto Tanoto, appears to have begun using profit shifting practices that were similar to those apparently used by Toba Pulp during 2007–2016. These practices, in turn, appear to have been carried out through 2018.

The APRIL Group is Indonesia’s second largest pulp and paper producer and owns one of the world’s largest pulp mills, located in Pangkalan Kerinci, Riau Province, and is operated by affiliated companies, PT Riau Andalan Pulp & Paper (RAPP) and PT Intiguna Primatama. APRIL’s Kerinci mill reportedly has a pulp production capacity of approximately 2.8 million tons per year of BHKP. Much of the mill’s pulp output is directly integrated with paper production.

In 2015, APRIL announced it had received approval to convert one of its BHKP production lines into a “swing” line capable of producing dissolving pulp.93 According to an industry source, APRIL began trial production of dissolving pulp at the Kerinci mill in mid-201694, and the company expanded its production of dissolving pulp in each of the succeeding years, at least until 2019. In 2020, APRIL-affiliate Asia Pacific Rayon initiated operations of a 240,000 ton per year viscose rayon production facility at the Kerinci mill complex, following an investment of Rp 15 trillion (US$ 1.1 billion).95

APRIL’s website currently states, “Other than paper grade pulp, APRIL also produces rayon grade pulp that is supplied to Sateri and Asia Pacific Rayon, which are also business groups under RGE, along with APRIL. Rayon grade pulp is produced using the prehydrolysis kraft cooking process, and the final product is called AE pulp.”96 It is understood that rayon grade pulp is a form of dissolving pulp.

It appears that one of the first public acknowledgements of APRIL’s production of dissolving pulp at the Kerinci mill was published in a sustainability assessment of Sateri’s VSF operations in China prepared by Rainforest Alliance.97 The document indicates that one the Sateri mills’ two biggest suppliers during the

93 Kontan Harian. 2015. “Riau Andalan Bikin Produk Pulp Larut.” February 25, 2015. https://kemenperin.go.id/artikel/11218/Riau- Andalan-Bikin-Produk-Pulp-Larut. 94 Lansdell, O. 2017. “The outlook for dissolving wood pulp supply and demand.” Hawkins Wright Ltd. May 2017. https://cellulosefibres.eu/wp-content/uploads/2019/04/LansdellOliver_Abstract.pdf. 95 Harahap, Rizal. 2020. “Jokowi officiates Asia Pacific Rayon plant in Riau.” Jakarta Post. February 22, 2020. https://www. thejakartapost.com/news/2020/02/22/jokowi-officiates-asia-pacific-rayon-plant-in-riau-islands.html. 96 APRIL. 2020. “Pulp Products.” Company website. Accessed on October 11, 2020. https://www.aprilasia.com/en/products/pulp-products. 97 Rainforest Alliance. 2018. “CanopyStyle Verification and Guidelines Evaluation Report for: Sateri Corporate Office and Manufacturing Mills In China.” Richmond, Vermont. May 16, 2018. https://www.rainforestalliance.org/business/wp-content/ uploads/2018/10/Canopy-Verification-Report_Sateri_Final-Draft-16MAY2018.pdf.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 35 IN INDONESIA’S PULP EXPORTS Figure 18. Dissolving pulp production at APRIL’s Kerinci mill in Riau Province, Sumatra, 2016–2018

600,000 500,000 500,000

400,000

300,000 240,000

200,000 ons of dissolving pulp T 90,000 100,000

0 2016 2017 2018

APRIL dissolving pulp production

Source: Letter from APRIL and Asia Pacific Rayon Sustainability Directors to six NGOs on December 17, 2018. ten-month audit period January to October 2016 was APRIL’s Kerinci mill in Indonesia. To the best of the authors’ knowledge, APRIL did not make any public announcements in 2016 or 2017 disclosing that the Kerinci mill had begun producing dissolving pulp.

In response to questions from a group of NGOs, in December 2018 APRIL acknowledged that it had produced 90,000 tons of dissolving pulp as “trial volumes” in 2016, during the first year of the swing line’s production; another 240,000 tons in 2017; and an estimated 500,000 tons in 2018 (see Figure 18):

In your email on 28 November, it was mentioned that “According to the CanopyStyle audit of Sateri published in May 2018, APRIL’s Kerinci mill (under RAPP) was one of Sateri’s two largest suppliers of dissolving pulp during the audit period in 2016.” As indicated by our participation in this audit, APRIL through Sateri has shared historical supply data for the relevant audit period. For the purpose of your query, we can confirm that in 2016, APRIL produced trial volumes of about 90,000 tonnes while commercial production commenced in 2017 at a volume of about 240,000 tonnes. Estimated 2018 production is 500,000 tonnes.98

In APRIL’s 2018 Sustainability Report, the company indicated that it produced dissolving pulp at the Kerinci mill in 2017 and 2018: “This increase [in black liquor] from 2017 is due to the increased production of dissolving pulp during the year, which generates more black liquor.”99

Despite these reports that APRIL’s Kerinci mill had produced substantial volumes of dissolving pulp during 2016–2018, Indonesia’s official trade records indicate no export shipments of dissolving pulp (i.e. HS Code 470200) from Buatan port in Riau Province during these years. APRIL-affiliated companies PT Riau Andalan Pulp & Paper and PT Intiguna Primatama are known to ship the paper-grade pulp

98 Email from APRIL Director of Sustainability and External Affairs, Lucita Jasmin, and Asia Pacific Rayon Vice President of Communications and Sustainability, Cherie Tan, to six NGOs (Environmental Paper Network, Greenpeace, Hutan Kita Institute, Jaringan Masyarakat Gambut Riau, Jikalahari, Woods & Wayside International, and Yayasan Auriga Nusantara), sent on December 17, 2018. 99 APRIL. 2018. Sustainability Report. Jakarta. https://www.aprilasia.com/images/pdf_files/sr/APRIL_SR-2018_EN.pdf.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 36 IN INDONESIA’S PULP EXPORTS produced at the Kerinci mill from Buatan port, and it is reasonable to assume that APRIL would also ship dissolving pulp from that facility or from other port facilities in Riau province. This omission in the export data raises the question of whether APRIL also adopted the practice of reporting and apparently valuing dissolving pulp as paper-grade pulp. Unlike Toba Pulp during much of the period between 2007 and 2016, APRIL has acknowledged that it produced and exported dissolving pulp during 2016–2018, as indicated above.

17. Mismatch in Indonesia-China trade data in 2017 and 2018

The import data from China for 2016–2018 appear to support the idea that APRIL was exporting dissolving pulp to China during this period. In 2016, China’s imports of dissolving pulp from Indonesia set a new record high at 230,546 tons.100 Previously, Toba Pulp had not produced more than 210,607 tons of dissolving pulp in any single year; and China’s record-high imports from Indonesia in 2016 signaled that Toba Pulp was no longer the country’s only exporter of dissolving pulp. In 2017, dissolving pulp imports to China from Indonesia hit another record high of 385,707 tons.101 And in 2018, China imports of dissolving pulp from Indonesia reached 573,727 tons.102

In 2016, Indonesia’s trade records indicate no dissolving pulp exports, except for a sample shipment of 2 tons reportedly sent to Austria in December 2016.103 In 2017, the trade data indicates that 140,410 tons of dissolving pulp was exported from Belawan port, 86% of which went to China.104 Belawan port, as explained above, is located in North Sumatra and is used by Toba Pulp. In 2018, Indonesia’s trade data indicates that 137,926 tons of dissolving pulp was exported, and as in 2017, all of those shipments came from Belawan port.105 It is highly unlikely that any production from APRIL’s Kerinci mill in Riau Province would be shipped from Belawan port in North Sumatra, as the cost of transporting the pulp an additional 700 km would have been prohibitive (see Map 1). This appears to mean that all of Indonesia’s reported dissolving pulp exports in 2017 and 2018 can be attributed to Toba Pulp. Shipment-level trade data indeed indicates that all dissolving pulp exports from Indonesia reported in official BPS statistics for 2017 and 2018 were made by Toba Pulp.

A comparison of China’s imports and Indonesia’s exports in 2016–2018, respectively, shows significant gaps, which would appear to indicate that APRIL’s dissolving pulp exports were not reported as such in Indonesia’s trade data (see Figure 19).106 In 2016, 2017, and 2018, Indonesia’s trade data indicates no dissolving pulp exports originating from Buatan port, from which pulp produced at APRIL’s Kerinci mill is usually exported.107

100 UN Comtrade. Op. cit. 101 UN Comtrade. Op. cit. 102 UN Comtrade. Op. cit. 103 Badan Pusat Statistik. 2019. Op. cit. 104 Badan Pusat Statistik. 2019. Op. cit. 105 Badan Pusat Statistik. 2019. Op. cit. 106 The UN Comtrade reporting rules for the ultimate importer require that it identify not the immediate exporter but the country of origin as the corresponding export jurisdiction (see Methodology Guide for UN Comtrade User). As a result, data from “triangular trade” patterns may create volume anomalies like the one indicated in Figure 18. This anomaly on its own need not suggest any further issue. However, as the additional information presented demonstrates, the particular anomaly shown in Figure 18 indicates an apparent case of profit shifting. 107 Badan Pusat Statistik. 2019. Op. cit.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 37 IN INDONESIA’S PULP EXPORTS Figure 19. Dissolving pulp sent from Indonesia to China, 2016–2018

600,000 573,727 550,000 500,000 450,000 385,707 400,000 350,000 300,000 250,000 230,546 200,000

ons of dissolving pulp 137,926 T 150,000 120,745 100,000 50,000 2 0 2016 2017 2018

Reported by Indonesia Reported by China

Sources: Badan Pusat Statistik and UN Comtrade.

In response to the findings in this report, APRIL stated in an email received on October 22, 2020 from Corporate Affairs Director Agung Laksmana:

As background, we explain that PT Riau Andalan Pulp & Paper (RAPP) has been producing Kraft Pulp since 1995 and in February 2016, RAPP obtained permission to produce Dissolving Pulp from BKPM [Indonesia’s Capital Investment Coordination Board]. After obtaining this permit, RAPP conducted a series of production trials for a new type of pulp which we named Acacia Eucalyptus (AE) Pulp, which is a modified kraft pulp. This type of pulp uses a new technology with a mixture of Acacia Crassicarpa and Eucalyptus wood.

In 2016, RAPP conducted a 2-year collaboration for the use and quality improvement of AE Pulp with Sateri in China, with the hope that AE Pulp can be used as raw material for the viscose staple fiber industry. During this trial period, Sateri mixed AE pulp from RAPP in its production process with a certain compositional mixture with Dissolving Pulp to achieve the quality they wanted. The trial and error process and modification of the composition of the mixture took place intensively in this two year period.

Since AE Pulp’s product was still in the trial development stage, RAPP was still using the HS Code for Kraft or HS Code 4703.290000 until the specifications of this AE Pulp product met the standards expected by the buyer. And after 2 years of testing, Sateri confirmed that RAPP’s AE Pulp could achieve the same quality of or substitute for Dissolving Pulp in their production process. As a realization of the collaboration, RAPP has exported according to Sateri’s needs with the HS Code for Dissolving Pulp or HS Code 4702.000000.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 38 IN INDONESIA’S PULP EXPORTS 18. APRIL’s dissolving pulp exports to China

An estimate of the volumes of dissolving pulp that APRIL’s Kerinci mill apparently exported and priced as paper-grade pulp during 2016–2018 can be derived by calculating the difference between China’s reported dissolving pulp imports from Indonesia and the dissolving pulp that Toba Pulp apparently exported to China.

In 2016, when Toba Pulp was apparently not yet reporting dissolving pulp exports as such, Toba Pulp’s exports of dissolving pulp can be estimated by the shipments it exported to China as paper-grade pulp that were labeled as “Toba Cell Eucalyptus Pulp” (HS 470329). (See Section II above for an explanation of Toba Pulp’s apparent practice of exporting dissolving pulp misclassified as paper-grade pulp and described as “Toba Cell Eucalyptus Pulp”.) In 2016, the total volume of these shipments by Toba Pulp was 154,646 tons.108 By comparison, the volume of dissolving pulp imported into China from Indonesia in 2016 was 230,546 tons, according to China’s reporting to UN Comtrade.109 This means that 75,900 tons (i.e. the difference between the China reported imports and the estimated Toba Pulp exports) is presumed to be the amount of dissolving pulp that APRIL’s Kerinci mill exported to China. This amount represents 84.3% of the “trial volumes” of 90,000 tons of dissolving pulp that APRIL reported to NGOs as having been produced in 2016.110

In 2017, the volume of Toba Pulp’s exports to China of pulp classified as paper-grade pulp and labeled as “Toba Cell Eucalyptus Pulp” (HS 470329) was 48,776 tons.111 As described above, in March 2017, Toba Pulp publicly announced it was switching production to dissolving pulp, and from April 2017, Toba Pulp apparently exported dissolving pulp classified under the correct HS code (HS 470200). Indonesia reported that 120,745 tons of dissolving pulp was exported from Indonesia to China in 2017, all of it originating from Belawan port in North Sumatra.112 Therefore, the estimate of Toba Pulp’s total export volume of dissolving pulp to China in 2017 is 169,521 tons (i.e. the exports apparently misclassified as paper-grade BHKP and described as “Toba Cell Eucalyptus” added to the dissolving pulp exports classified under the correct HS code).

China reported that dissolving pulp imports from Indonesia in 2017 were 385,707 tons.113 Therefore, the difference between the dissolving pulp imports from Indonesia reported by China and the estimate of Toba Pulp’s export volume of dissolving pulp to China is 216,186 tons. This volume is presumed to be the amount of dissolving pulp that APRIL’s Kerinci mill exported to China in 2017. This figure is is equivalent to 90% of the 240,000 tons of dissolving pulp that APRIL reported to NGOs as the volume produced by the Kerinci mill in 2017.114

In 2018, the volume of dissolving pulp reported as exported from Indonesia to China was 137,926 tons, and BPS data indicates that all of this originated in Belawan port, indicating it was exported by Toba Pulp.115

108 Commercial trade data provider of shipment-level Indonesia exports for BHKP. 109 UN Comtrade. Op. cit. 110 Email from APRIL Director of Sustainability and External Affairs, Lucita Jasmin, and Asia Pacific Rayon Vice President of Communications and Sustainability, Cherie Tan, to six NGOs (Environmental Paper Network, Greenpeace, Hutan Kita Institute, Jaringan Masyarakat Gambut Riau, Jikalahari, Woods & Wayside International, and Yayasan Auriga Nusantara), sent on December 17, 2018. 111 Commercial trade data provider of shipment level Indonesia exports for BHKP. 112 Badan Pusat Statistik. 2019. Op. cit. 113 UN Comtrade. Op. cit. 114 Email from APRIL Director of Sustainability and External Affairs, Lucita Jasmin, and Asia Pacific Rayon Vice President of Communications and Sustainability, Cherie Tan, to six NGOs (Environmental Paper Network, Greenpeace, Hutan Kita Institute, Jaringan Masyarakat Gambut Riau, Jikalahari, Woods & Wayside International, and Yayasan Auriga Nusantara), sent on December 17, 2018. 115 Badan Pusat Statistik. 2019. Op. cit.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 39 IN INDONESIA’S PULP EXPORTS In 2018, it is assumed that Toba Pulp classified all of its dissolving pulp exports under the correct HS code. China reported that the volume of dissolving pulp imports from Indonesia in 2018 was 573,727 tons.116 The difference between the reported dissolving pulp imports into China from Indonesia and the reported exports from Indonesia to China is 435,801 tons, and this is presumed to be the volume of dissolving pulp that APRIL’s Kerinci mill exported to China in 2018. This volume is is equivalent to 87% of the 500,000 tons that APRIL reported to NGOs as an estimate of APRIL Kerinci mill’s dissolving pulp production in 2018.117

From January 2019, it appears that APRIL has started reporting dissolving pulp exports from Indonesia under the appropriate HS Code 470200. According to trade data, pulp exports from Buatan Port reported as dissolving pulp are priced significantly higher than exports from Buatan Port reported as paper-grade pulp.

19. APRIL’s apparent under-statement of revenues

If APRIL did, in fact, classify dissolving pulp exports as paper-grade pulp, this would appear to have had a significant impact on the declared value of the company’s exports from Indonesia and revenue reported to the Government of Indonesia. The average prices of exports from APRIL’s mill in Kerinci for paper-grade pulp were well below the import prices of dissolving pulp to China from Indonesia during the period 2016–2018.

Indonesia’s official trade data indicates that paper-grade pulp was exported from Buatan port to China (presumably all production from APRIL’s Kerinci mill) at an average price of US$ 417 per ton in 2016, $458 per ton in 2017, and $547 per ton in 2018.118 By comparison, dissolving pulp from Indonesia was imported to China at an average price of $881 per ton in 2016, $894 per ton in 2017, and $928 per ton in 2018.119

Shipment level trade data of Indonesia exports indicates that all paper-grade pulp exports with the final destination of China from APRIL’s producers PT Riau Andalan Pulp & Paper and PT Intiguna Primatama during the period 2016–2018 were made to affiliated marketing companies in Macao, Malaysia, and Singapore.120 The related parties receiving the export shipments are: AP Enterprises (Macao Commercial Offshore) Limited; Alkira Trading (Macao Commercial Offshore) Limited; APRIL Far East (Malaysia) Sdn Bhd; and APRIL International Enterprise Pte Ltd. Whichever of these affiliated marketing companies in Macao, Malaysia, and Singapore may

116 UN Comtrade. Op. cit. 117 Email from APRIL Director of Sustainability and External Affairs, Lucita Jasmin, and Asia Pacific Rayon Vice President of Communications and Sustainability, Cherie Tan, to six NGOs (Environmental Paper Network, Greenpeace, Hutan Kita Institute, Jaringan Masyarakat Gambut Riau, Jikalahari, Woods & Wayside International, and Yayasan Auriga Nusantara), sent on December 17, 2018. 118 Badan Pusat Statistik. 2019. Op. cit. An examination of shipment level data obtained from a proprietary trade data provider for Indonesia exports indicates that the pricing of paper-grade pulp shipments from APRIL’s two pulp exporters (PT Riau Andalan Pulp & Paper and PT Intiguna Primatama) did not show much variation, precluding the possibility that APRIL may have been reporting the pulp as paper-grade but pricing it at a higher value that reflected the market value for dissolving pulp. 119 UN Comtrade. Op. cit. An examination of shipment level data obtained from a proprietary trade data provider for China imports indicates that the average pricing of dissolving pulp shipments to Sateri mills from Indonesia closely corresponded to the overall average prices for all dissolving pulp imports to China from Indonesia during the period 2016–2018. It is important to note that in a 2018 sustainability “audit” by Rainforest Alliance, Sateri indicated that in September 2016 it discontinued sourcing dissolving pulp from Toba Pulp. This presumably means that after September 2016 all dissolving pulp to Sateri mills in China from Indonesia would have come from APRIL’s mill, since APRIL’s mill was the only producer of dissolving pulp in Indonesia other than Toba Pulp. 120 These businesses are listed as “Sales Administration Offices” on PT Riau Andalan Pulp & Paper and PT Intiguna Primatama’s Chain of Custody Registration Certificate from the Programme for the Endorsement of Forest Certification (PEFC). This Registration Certificate from PEFC was issued on May 25, 2015, renewed on May 4, 2017, and expired on May 24, 2020 (it was subsequently renewed until May 24, 2025). Additionally, a complaint submitted to the Forest Stewardship Council (FSC) by Greenpeace International, WWF Indonesia, and Rainforest Action Network on May 13, 2013 about APRIL Group companies includes documentation on the links between APRIL Group and two of the related parties receiving export shipments: AP Enterprises (Macao Commercial Offshore) Limited and Alkira Trading (Macao Commercial Offshore) Limited (see http://ic.fsc.org/download. april-group-complaing.1163.htm). The complaint led to dis-association of the APRIL Group and related companies from FSC.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 40 IN INDONESIA’S PULP EXPORTS Figure 20. Estimated distribution of per ton import price to China of dissolving pulp produced and apparently misclassified by the APRIL Group in Indonesia, 2016–2018

$1,000 $900 $800 $700 ton $600 $500 $400 US Dollars pe r $300 $200 $100 $0 2016 2017 2018

Spread captured by aﬃliated marketing/ Normal marketing commission sales companies outside Indonesia Transport and insurance costs APRIL revenue China import price (CIF) of dissolving APRIL export price (FOB) pulp from Indonesia

Sources: BPS; UN Comtrade; Transport costs are based on Fastmarkets RISI data for average annual freight costs (US$ per ton) for BHKP shipments between Indonesia and Shanghai during 2016–2018. Insurance costs are estimated to be 0.6% of the net sales price of the product shipped.. Notes: Normal marketing commission is assumed to be fixed at 2%. The APRIL Group’s selling price is expressed in FOB and importer buying price in CIF, so adjustments are made for transport and insurance costs, and a normal marketing commission. have been used to reclassify dissolving pulp originally classified as paper-grade pulp when it was exported from Indonesia apparently captured quite substantial spreads.

One or more of these marketing companies apparently captured spreads of approximately US$ 396 per ton in 2016, US$ 366 per ton in 2017, and US$ 305 per ton in 2018 (see Figure 20). These estimated spreads are calculated by deducting the average annual FOB price for paper-grade pulp exports from Buatan port to China from the average CIF price for dissolving pulp imports to China from Indonesia, and adjusting for estimated freight and insurance costs121 and an assumed normal marketing commission of 2%. When the per ton spreads are multiplied by the volumes of dissolving pulp that APRIL is presumed to have exported from the Kerinci mill during this period – 75,900 tons in 2016, 216,186 tons in 2017, and 435,801 tons in 2018 – the overall amounts are considerable: US$ 30 million in 2016, US$ 79 million in 2017, and US$ 133 million in 2018 (see Figure 21). Taken together, the estimates derived from these data indicate that APRIL’s revenues reported in Indonesia from its dissolving pulp exports appear to have been under-stated by approximately US$ 242 million (Rp. 3.35 trillion122) during these three years.

121 Transport costs are based on Fastmarkets RISI data for average annual freight costs (US$ per ton) for BHKP shipments between Indonesia and Shanghai during 2016–2018. Insurance costs are estimated to be 0.6% of the net sales price of the product shipped. 122 The conversion from US Dollars to Indonesian Rupiah is based on the official exchange rate calculated as an annual average based on monthly averages. The annual exchange rates for Indonesian Rupiah to US Dollars were accessed from the International Monetary Fund’s International Financial Statistics. The exchange rates for 2007 to 2018 were applied to the corresponding annual totals of under-statement of revenue and potential tax loss.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 41 IN INDONESIA’S PULP EXPORTS Figure 21. Estimated distribution of total value of the APRIL Group’s dissolving pulp exported and apparently misclassified from Indonesia to China, 2016–2018

$450,000,000 $400,000,000 $350,000,000 $300,000,000 $250,000,000

US Dollars $200,000,000 $150,000,000 $100,000,000 $50,000,000 $0 2016 2017 2018

Spread captured by aﬃliated marketing Normal marketing commission companies outside Indonesia Transport and insurance costs APRIL sales revenue

Sources: BPS; UN Comtrade; Commercial trade data provider; Transport costs are based on Fastmarkets RISI data for average annual freight costs (US$ per ton) for BHKP shipments between Indonesia and Shanghai during 2016–2018. Insurance costs are estimated to be 0.6% of the net sales price of the product shipped; Shipment-level data from a commercial trade data provider for pulp export volumes. Notes: Normal marketing commission is assumed to be fixed at 2%. The APRIL Group’s selling price is expressed in FOB and importer buying price in CIF, so adjustments are made for transport and insurance costs, and a normal marketing commission.

The amount of under-stated revenue could apparently have been booked as taxable profits within Indonesia if APRIL’s dissolving pulp exports had been correctly reported as such. In hypothetical terms, if it is assumed that this full amount were taxed at the statutory corporate tax rate of 25%, Indonesia’s tax authority could potentially have collected as much as US$ 60 million (Rp. 838 billion) from the understated revenues estimated in this report.

It must be emphasized, of course, that the authors do not know the particular tax situation or the effective tax rate of the APRIL Group or its operating companies. A more specific estimation of the amount of tax that APRIL and/or its operating companies might have been required to pay to the Government of Indonesia had they not engaged in the profit shifting practices described in this report would require more detailed analysis of the companies’ profit and loss statements and their particular tax status under the Government’s fiscal policy.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 42 IN INDONESIA’S PULP EXPORTS SECTION V: GOVERNANCE REFORMS TO ADDRESS TAX LEAKAGE FROM PROFIT SHIFTING

20. Scope of the problem for Indonesia and the world

Over the twelve year period between 2007 and 2018, the Government of Indonesia could hypothetically have collected up to US$ 168 million in taxes, from the corporate revenues that are estimated to have been moved offshore through the profit sharing practices described in this report.123 This would represent a small fraction of the overall potential tax revenue that the Indonesian government fails to collect as a result of profit shifting practices like trade misinvoicing and abusive transfer pricing across all sectors of the economy.

A report published by the United Nations Economic and Social Commission for Asia and the Pacific estimated outflows from Indonesia due to export under-invoicing in 2016 of US$ 15.5 billion.124 The report also estimated that lost tax revenue for the Government of Indonesia as a result of trade misinvoicing amounted to over US$ 4.5 billion.125

Global Financial Integrity, the Washington-based think tank, recently estimated that the Government of Indonesia lost US$ 6.5 billion of potential tax revenue in 2016 from trade misinvoincing, equivalent to 6% of the country’s overall tax collection in that year.126 This figure is based on GFI’s estimate that the value of the trade gap for misinvoiced goods flowing in and out of Indonesia amounted to US$38.5 billion, or 13.7 percent of the country’s total trade of US$280.2 billion in 2016.127 But even this substantial estimate of fiscal losses is “conservative”, according to Global Financial Integrity, because it “does not include many types of trade misinvoicing and other IFFs [illegal financial flows] that do not show up in official trade statistics.”

123 This estimate is based on the amount of tax that hypothetically could have been collected by the Government of Indonesia if the contemporary statutory tax rates, which ranged between 25% and 30% during the period 2007–2018, had been applied to the estimated corporate revenues that were apparently under-stated through the profit shifting practices described in this report. The report makes no claim, however, that this estimate reflects Toba Pulp and/or APRIL Group’s particular tax situations or effective tax rates. A more specific estimation of the amount of tax that these companies might have been required to pay to the Government of Indonesia had they not engaged in the apparent profit shifting practices described in this report would require more detailed analysis of their profit and loss statements and the companies’ particular tax status under the Government’s fiscal policy. 124 Kravchenko, Alexey. 2018. “Where and How to Dodge Taxes and Shift Money Abroad Using Trade Misinvoicing: A Beginner’s Guide.” Trade, Investment, and Innovation Working Paper Series No. 1. Bangkok: United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). Trade, Investment, and Innovation Division. https://www.unescap.org/sites/ default/files/publications/Where_and_how_to_dodge_taxes_and_shift_money_abroad_using_trade_misinvoicing_A_ beginner%E2%80%99s_guide_0.pdf. This study cautions that “estimates of misinvoicing largely depend on the methodological assumptions, and analysis is severely constrained by lack of access to detailed, ideally transaction-level export and matching import data […] This study, however, aimed to […] provide rough order of magnitude estimates of misinvoicing […]” 125 Kravchenko, Alexey. 2018. Op. cit. See caution on limitations of this estimate in footnote directly above. 126 Global Financial Integrity. 2019. Op. cit. 127 Global Financial Integrity. 2019. Op. cit.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 43 IN INDONESIA’S PULP EXPORTS Prakarsa, a Jakarta-based research organization, estimated in 2018 that between 1989 and 2017, trade misinvoicing losses from six of Indonesia’s leading non-oil/gas export commodities – coal, copper, palm oil, rubber, coffee, and crustaceans – reached US$ 40.58 billion.128 Trade misinvoicing losses from coal exports alone, according to Prakarsa, accounted for US$ 19.64 billion, leading to US$ 5.32 billion in potential loss of tax revenue.

The profit shifting practices described in this report, as well as those responsible for the loss estimates above, are part of a broader set of activities called base erosion and profit shifting (BEPS). BEPS refers to “tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations.”129 Indonesia’s Ministry of Finance estimated in 2015 that the Government lost US$ 15.6 billion from tax avoidance facilitated by profit shifting practices, mainly in the commodities sector.130

A doctoral study submitted to Australian National University in 2018 used confidential tax return data for the period 2009–2015 to provide empirical evidence that profit shifting by multinational enterprises erodes Indonesia’s corporate income tax base.131 Dr. Arnaldo Purba, whose research was completed while on academic leave from his staff position with the International Taxation Directorate of Indonesia’s Directorate General of Taxes, established that transfer pricing, not debt financing, is the most important channel for profit shifting in Indonesia.

Profit shifting does not only affect the tax base of Indonesia. BEPS is recognized as a growing international problem that impacts almost every country in the world. Global estimates of government revenue losses from profit shifting practices range from US$ 100 billion to more than US$ 600 billion on an annual basis.132 The problem appears to impact developing countries disproportionately, with annual losses estimated in 2015 to be around US$ 200 billion, according to researchers at the International Monetary Fund.133

21. Regulatory reform efforts to curb profit-shifting practices

The Government of Indonesia seems to be well aware of the problems caused by profit shifting and is taking steps to address them, as are many other countries around the world. Minister of Finance, Sri Mulyani Indrawati, issued regulation Number 213/PMK.03/2016 in December 2016 (hereafter PMK-213) establishing more stringent documentation requirements for Indonesian taxpayers with related party transactions.134

128 Prakarsa. 2019. “Highlighting Illicit Financial Flow of Indonesia’s Top Six Export Commodities.” Policy Brief No. 17 (November). Jakarta: Prakarsa. 129 Organisation of Economic Development and Co-operation (OECD). 2019. “Base erosion and profit shifting.” OECD website. Accessed on May 16, 2019. https://www.oecd.org/tax/beps/. 130 Suroyo, Gayatri and Eveline Danubrata. 2015. “Indonesia to crack down on corporate tax avoidance.” Reuters, February 23, 2015. https://www.reuters.com/article/us-indonesia-tax-taxavoidance-idUSKBN0LS05320150224. 131 Purba, Arnaldo. 2018. Base Erosion and Profit Shifting in Indonesia. PhD thesis submitted to the Australian National University. July, 20, 2018. https://openresearch-repository.anu.edu.au/handle/1885/148758. 132 The OECD estimates US$ 100 to US$ 240 billion in annual revenue is lost due to BEPS. The UNCTAD World Investment Report 2015 estimates revenue losses in developing countries alone to be US$ 100 billion annually. An IMF working paper estimates overall losses at $600 billion annually. Researchers from the Tax Justice Network estimated overall losses in 2012 to be $660 billion from US multinationals. 133 Crivelli, Ernesto, Ruud de Mooij, and Michael Keen. 2015. “Base Erosion, Profit Shifting, and Developing Countries.” IMF Working Paper WP/15/118 (May). Washington, DC: International Monetary Fund. https://www.imf.org/external/pubs/ft/wp/2015/wp15118.pdf. 134 Kementerian Keuangan. 2016. “Peraturan Menteri Keuangan Republik Indonesia Nomor 213/PMK.03/2016 tentang Jenis Dokumen dan/atau Informasi Tambahan yang Wajib Disimpan oleh Wajib Pajak yang Melakukan Transaksi dengan Para Pihak yang Mempunyai Hubungan Istimewa, dan Tata Cara Pengelolaannya.” Government of Indonesia. Ministry of Finance. December 30, 2016. https://peraturanpajak.com/2017/01/06/pmk-213pmk-032016/.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 44 IN INDONESIA’S PULP EXPORTS These requirements meet standards set out in Action 13 of the OECD, which describes a three-tiered approach to documentation of transfer pricing transactions, i.e. transactions between related parties. The Master File provides an overview of a multinational enterprise’s (MNE’s) business activities, supply chains, legal entity structure, and value drivers. The Local File focuses on an MNE’s transactions within the country to which it is reporting, including transfer pricing practices, results, and comparability analyses. The Country-by-Country Report (CbC) includes information for each legal entity within the MNE group, including revenues, profit, income tax paid, assets, and number of employees.

Previously, the scope of transfer pricing documentation required under Indonesian regulations was only specific to operations in Indonesia. However, by using the three-tiered approach prescribed in OECD Action 13, PMK-213 has expanded the scope of documentation requirements to include ownership and financial information about the parent group’s other subsidiaries in jurisdictions outside of Indonesia (see Figure 22). To be in compliance with PMK-213, taxpayers must report, among other information, the profit and tax paid by related parties in offshore jurisdictions with low tax rates.135 While these documentation requirements alone are likely not sufficient to eradicate profit shifting practices, they mark an important recognition of the problem and an attempt to establish a baseline of information upon which law enforcement and further policy measures can build.

Figure 22. PMK-213 documentation requirements for related party transactions

Master File Local File Country- by-Country • Ownership structure of • Information on Report group and jurisdiction taxpayers’ transactions of group companies with related parties • Allocation of income, taxes paid, and • Financial activities • Application of arm’s business activities carried out by the length principle per jurisdiction of all group group members • Financial information Applies to taxpayer that is “parent • Tax information of taxpayer entity” of group, or taxpayer with of related party “parent entity” located in foreign transactions jurisdiction meeting certain requirements

Required within 4 months of the end of fiscal year Required within 12 months of the end of fiscal year

Source: Kementerian Keuangan. 2016. “Peraturan Menteri Keuangan Republik Indonesia Nomor 213/PMK.03/2016 tentang Jenis Dokumen dan/atau Informasi Tambahan yang Wajib Disimpan oleh Wajib Pajak yang Melakukan Transaksi dengan Para Pihak yang Mempunyai Hubungan Istimewa, dan Tata Cara Pengelolaannya.” Government of Indonesia. Ministry of Finance. December 30, 2016. https://peraturanpajak.com/2017/01/06/pmk- 213pmk-032016/. Also see Deloitte. 2017. “Transfer Pricing Alert January 2017: Minister of Finance Regulation No. 213/PMK.03/2016.” Jakarta: Deloitte Tax Solutions. January 11, 2017. https://www2.deloitte.com/content/dam/Deloitte/id/Documents/tax/id-tax-alert-en-jan2017.pdf.

In addition to country-specific reforms like those adopted by Indonesia, growing concern about profit shifting practices has led to promising global initiatives to combat them. Under the OECD, 80 nations – including Indonesia, China and tax haven jurisdictions like Macao, the Seychelles, and the British Virgin Islands (BVI)136 – have agreed to share information in the Multilateral Competent Authority Agreement on Exchange of country- by-country reporting (CbC MCAA). More than 2,400 bilateral exchange relationships have been activated under this agreement since its initial implementation in June 2018, including between Indonesia and China.137

135 Under this regulation, Indonesian taxpayers are supposed to prepare this information within four months from the end of the fiscal year and to share it on demand (within one month) if requested by the Government auditors. 136 Lomas, Ulrika. 2019. “BVI, Seychelles to automatically exchange CbC reports.” Tax-News, September 13, 2019. https://www.tax- news.com/news/BVI_Seychelles_To_Automatically_Exchange_CbC_Reports____97313.html. 137 Organisation of Economic Development and Co-operation (OECD). 2020. “Country-by-Country exchange relationships.” OECD website. Accessed on January 24, 2020. https://www.oecd.org/tax/beps/country-by-country-exchange-relationships.htm.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 45 IN INDONESIA’S PULP EXPORTS Indonesia’s regulatory reforms, in combination with the international instruments to facilitate exchange of information with other countries, are potentially powerful tools for the Government of Indonesia to combat profit-shifting practices more aggressively. It remains to be seen whether sufficient resources and political support for law enforcement efforts will be focused on the problem. One prominent case in which Indonesia’s law enforcement apparatus prosecuted a major corporation for crimes related to profit shifting was that of PT Asian Agri, a palm oil conglomerate found guilty of tax evasion in 2012 (see Box 4).

Box 4. The Asian Agri Case

Despite the multi-billion dollar losses the Government of Indonesia faces from abusive profit- shifting practices, law enforcement measures targeting specific cases appear to be few. One notable example of such a case, however, involves PT Asian Agri, a leading producer of palm oil that is affiliated with the Royal Golden Eagle conglomerate. In December 2012, Indonesia’s Supreme Court upheld the conviction of the former tax manager of Asian Agri on charges of “misreporting tax notification files” for 14 of the company’s subsidiaries.138

A 2014 article in the Bulletin for International Taxation summarized the case as follows:

[Asian Agri] established four paper companies in Hong Kong, one in Macau and one in the British Virgin Islands. Products were sold to end buyers first through companies in Hong Kong and then through either the company in Macau or the British Virgin Islands. Prices were set so as to reduce the profits of Indonesian entities and transfer higher profits to the jurisdictions in which the intermediaries were located. In this regard, the conviction was in respect of under-invoicing.139

The Prosecutor’s indictment in the case noted, “As a result of under-invoicing on the export sales, the profits reported by companies in Indonesia are lower than they should be so that the tax payable is less than it should be.”140 Following appeals, Indonesia’s Supreme Court ordered Asian Agri to pay a fine of Rp 2.5 trillion (approximately US$ 205 million) to the Government of Indonesia, representing twice the value of the tax allegedly evaded between 2002 and 2005, in addition to Rp. 1.9 trillion (approximately US$ 156 million) in back taxes.141

Asian Agri’s ultimate controlling shareholders are Sukanto Tanoto and members of the Tanoto family, who also are controlling shareholders of Toba Pulp, DP Macao, Sateri, and the companies operating under the APRIL Group.

138 Mahkamah Agung Republik Indonesia. 2012. No. 2239 K/PID.SUS/2012. Supreme Court of the Republic of Indonesia. https:// putusan3.mahkamahagung.go.id/direktori/putusan/2dec38361ab4193b649785cf9c668f52.html. Dharmasaputra, Metta. 2007. Saksi Kunci [Key Witness]. Jakarta: Tempo Publishing. 139 Nugroho, Adrianto Dwi. 2014. “The Asian Agri Case (2012): The Giant Goes Berserk.” Bulletin for International Taxation. 68 (8): 445-450. August. https://www.ibfd.org/IBFD-Products/Journal-Articles/Bulletin-for-International-Taxation/collections/bit/html/ bit_2014_08_id_1.html. 140 Mahkamah Agung Republik Indonesia. 2012. Op. cit. Dharmasaputra. 2013. Op. cit. 141 Jakarta Post. 2014. “Tax Court rejects Asian Agri’s appeal.” November 6, 2014. https://www.thejakartapost.com/ news/2014/11/06/taxcourt-rejects-asian-agri-s-appeal.html.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 46 IN INDONESIA’S PULP EXPORTS 22. Improving export performance while increasing Customs vigilance

Still, it is unclear that more comprehensive transfer pricing documentation requirements alone will be sufficient to detect cases like the ones described in this report. Without increased vigilance from Customs inspectors, tax authorities would have little basis to know that Toba Pulp or APRIL may have exported dissolving pulp at artificially low prices.

Unfortunately, Indonesia’s current trade regulations appear to be making Customs procedures less stringent in an effort to reduce export wait times at ports. The Government of Indonesia’s efforts to streamline the export process is understandable as it seeks to limit the country’s trade deficit and attract foreign investors. However, relaxing Customs checks and verification can also have the opposite effect. If companies ‘ export declarations are not thoroughly verified to detect under-valued exports, this can have a negative impact on Indonesia’s trade deficit and tax base. The experience of the APRIL Group may provide a useful example.

In February 2017, several companies affiliated with the APRIL Group received Authorized Economic Operator (AEO) status from the Customs Service. AEO status gave the two companies that export pulp from APRIL’s pulp mill in Riau – PT Riau Andalan Pulp & Paper and PT Intiguna Primatama – permission to conduct self-assessments for their exports.142 At the time of granting this status, the Head of the Customs Service stated, “No more physical and documentary checks are needed because we have verified them [the companies receiving AEO] for months, so the [status] will not be misused.”143 The AEO status, that is, was granted just months after the APRIL Group started the apparent profit shifting practices documented in this report.

Indonesian President Jokowi has instructed his administration to improve export performance. To this end, the Ministry of Finance has built information technology systems that aim to reduce export costs, decrease processing time, and improve service quality. The Government of Indonesia has gone to great efforts to build and implement the Indonesia National Single Window (INSW)144 and the Customs-Excise Information System and Automation (CEISA)145. These facilities cut wait times and export costs, but they could be better leveraged for detecting trade misinvoicing and other profit shifting practices if they incorporated artificial intelligence systems. Similarly, the integration of data between the Directorate General of Customs and relevant ministries and agencies would improve export controls. Production data from the Ministry of Industry, for example, could be integrated into the CEISA portal, thereby limiting the possibilities for exporters to misreport HS codes.

142 Antara. 2017. Op. cit. 143 Antara. 2017. Op. cit. [Note: Comment translated from bahasa] 144 Lembaga National Single Window. 2020. “Indonesia National Single Window.” Government of Indonesia. Ministry of Finance. National Single Window Agency. https://www.insw.go.id/index.php. 145 Direktorat Jenderal Bea dan Cukai. 2020 “Customs-Excise Information System and Automation.” DJBC website. Government of Indonesia. Ministry of Finance. Directorate General of Customs and Excise. https://customer.beacukai.go.id/.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 47 IN INDONESIA’S PULP EXPORTS SECTION VI: CONCLUSION

23. Summary of findings

This report documents profit shifting practices apparently used by Toba Pulp and the APRIL Group to move substantial profits generated by the production of dissolving pulp in Indonesia to affiliated companies in other countries, including at least one offshore tax haven. Through analysis of gaps in trade data and statements released by the enterprises and their affiliates, the report shows that both companies’ dissolving pulp exports from Indonesia were apparently misclassified as paper-grade pulp, and exported at prices significantly below the market values for dissolving pulp. During the period 2007–2016, Toba Pulp’s apparent use of profit shifting practices is estimated to have had the effect of under-stating the company’s revenues in Indonesia by US$ 426 million (Rp. 4.23 trillion). Similarly, during the period 2016–2018, APRIL’s apparent use of profit shifting practices is estimated to have resulted in the under-statement of the group’s revenues in Indonesia by US$ 242 million (Rp. 3.35 trillion).

In hypothetical terms, if it is assumed that these full amounts were taxed at the statutory corporate income tax rate, Indonesia’s fiscal authority could potentially have collected as much as US$ 108 million (Rp. 1.07 trillion) and US$ 60 million (Rp. 838 billion), respectively, from the understated revenues estimated in this report. Again, it must be emphasized that the authors do not know the particular tax situation or the effective tax rate of either Toba Pulp or the APRIL Group and its operating companies, and often companies’ effective tax rates are significantly below the statutory corporate tax rates.146 A more specific estimation of the amount of tax that these entities might have been required to pay to the Government of Indonesia had they not engaged in the profit shifting practices described in this report would require more detailed analyses of the companies’ profit and loss statements and the companies’ particular tax status under the Government’s fiscal policy.

As noted earlier, companies often have legitimate business-related reasons for shifting profits between affiliated entities and for booking profits in offshore jurisdictions with low corporate tax rates. In many cases, the use of such practices is entirely legal under national laws and international agreements. It is, therefore, important for government tax and regulatory authorities to scrutinize such practices carefully to ensure they are in compliance with prevailing laws and regulations.

The findings presented in this report come at a time when the Government of Indonesia is facing both a widening trade deficit and budget shortfalls and is aggressively pursuing revenues to fund ambitious infrastructure and social welfare programs. If the Directorate General of Taxation were to determine

146 Indonesia’s effective average tax rate has been estimated to be 23.9% for a domestic investment without incentives and 11.4% for investments eligble for tax incentives, according to a 2015 study of selected countries in the Asia-Pacific region. Wiedemann, Verena and Katharina Finke. 2015. “Taxing investments in the Asia-Pacific region: The importance of cross-border taxation and tax incentives.” ZEW Discussion Papers No. 15-014. Leibniz Centre for European Economic Research (ZEW). https://www.econstor. eu/bitstream/10419/107420/1/818760338.pdf.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 48 IN INDONESIA’S PULP EXPORTS that Toba Pulp and/or APRIL had understated taxable revenues, collection of these could represent a significant boost to tax collection and send a powerful signal to Indonesia’s corporate sector.147 These cases may also encourage tax authorities and civil society to scrutinize other companies deploying profit shifting practices to minimize tax liability. Greater scrutiny of these types of arrangements could significantly enhance the effectiveness of Indonesia’s tax collection efforts and reduce the flow of profits generated within Indonesia to low-tax jurisdictions offshore.

In the case of Toba Pulp, it must be noted that the firm is listed on the Indonesia Stock Exchange. Under regulations issued by the Financial Services Authority (Otoritas Jasa Keuangan, OJK), publicly owned companies are required to disclose any information and facts concerning their operations and activities that may be material to investors and shareholders.148 Presumably, these standards require listed companies to disclose accurately and in sufficient detail the type of product they produce and sell, and to report accurately the value of their products both on the bills of lading when these are shipped to buyers and on the company’s balance sheet when it is audited. The findings presented in this report warrant careful scrutiny by OJK to determine whether Toba Pulp adequately disclosed all information and material facts concerning its production and sale of dissolving pulp during the period analyzed.

More generally, the apparent use of profit shifting practices by Indonesia’s dissolving pulp producers raises fundamental questions about how the benefits of natural resource exploitation are shared within Indonesia. Indonesia’s Constitution, under Article 33, stipulates that the country’s natural resources must be managed for the maximum benefit of its citizens. It is difficult to see how Indonesia is achieving this goal if the practices documented in this report are allowed to persist.

147 From fiscal year 2008 onwards, the statute of limitations for Indonesia’s tax authority to issue an underpayment tax assessment has been five years, or 10 years for criminal acts. (See Deloitte. 2018. “Indonesia Tax Guide 2018.” August 31, 2018. https://www2. deloitte.com/content/dam/Deloitte/cn/Documents/international-business-support/deloitte-cn-ibs-indonesia-tax-guide-2018- en-190227.pdf.) 148 Otoritas Jasa Keuangan (OJK). 2015. “Peraturan Otoritas Jasa Keuangan Nomor 31 /POJK.04/2015 tentang Keterbukaan Atas Informasi atau Fakta Material Oleh Emiten atau Perusahaan Publik.” [OJK Regulation No. 31/POJK.04/2015 on Disclosure of Information and Material Facts by Issuers and Public Companies]. Government of Indonesia. Financial Services Authority. December 16, 2015. https://www.ojk.go.id/id/kanal/pasar-modal/regulasi/peraturan-ojk/Documents/Pages/pojk-31- keterbukaan-atas-informasi-fakta-material-oleh-emiten-perusahaan-publik/SALINAN-POJK%20Keterbukaan%20Informasi%20 Emiten.pdf.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 49 IN INDONESIA’S PULP EXPORTS SECTION VII: RECOMMENDATIONS

24. Recommendations for the Government of Indonesia

The coalition of civil society organizations publishing this report calls on the Government of Indonesia to implement the following recommendations:

4. The Customs Authority should investigate whether PT Toba Pulp Lestari Tbk and the APRIL Group (and its operating, marketing, and holding companies) are in compliance with all laws and regulations that govern the classification of pulp exports according to the correct HS code and the reporting of prices that legitimately reflect the value of the products being shipped.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 50 IN INDONESIA’S PULP EXPORTS SOURCES CITED Accounting and Corporate Regulatory Authority (ACRA). 2020. “Pinnacle Company Pte. Ltd.” Business Profile. Government of Singapore. February 17, 2020.

Akbar, Sofyan. 2019. “Walhi Sumut: Konflik agraria jadikan masyarakat sebagai korban.” Tribun Medan, November 28, 2019. https://medan.tribunnews.com/2019/11/28/walhi-sumut-konflik-agraria-jadikan- masyarakat-sebagai-korban.

Akhlas, Adrian Wail. 2020. “World Bank calls for stronger tax collection to bring 115 million Indonesians into middle class.” Jakarta Post, January 31, 2020. https://www.thejakartapost.com/news/2020/01/31/ world-bank-calls-for-stronger-tax-collection-to-bring-115-million-indonesians-into-middle-class.html.

Akitoby, Bernardin, Anja Baum, Clay Hackney, Olamide Harrison, Keyra Primus and Veronique Salins. 2019. “Tax Revenue Mobilization Episodes in Developing Countries.” Policy Design and Practice 3 (1): 1–29. https://www.tandfonline.com/doi/full/10.1080/25741292.2019.1685729.

Alecci, Scilla. 2017. “Leaked records reveal offshore’s role in forest destruction.” International Consortium of Investigative Journalists. November 8, 2017. https://www.icij.org/investigations/paradise-papers/ leaked-records-reveal-offshores-role-in-forest-destruction/.

Antara. 2017. “4 perusahaan APRIL raih sertifikasi AEO dari Bea Cukai.” Antarnews.com. February 21, 2017. https://riau.antaranews.com/berita/86322/4-perusahaan-april-raih-sertifikasi-aeo-dari-bea-cukai.

APRIL. 2018. Sustainability Report 2017. Singapore: Asia Pacific Resources International Holdings Ltd. https://www.aprilasia.com/images/pdf_files/sr/APRIL%20SR%202017_Interactive.pdf.

APRIL Group. 1998. “APRIL switches part of production to dissolving pulp and increases paper pulp price.” Press Release. PR Newswire, March 26, 1998.

Badan Pusat Statistik. 2019a. “Export data 2007–2018 for HS Code 4703290000 (Chemical wood pulp, soda, other than dissolving grades, bleached, non con).” Government of Indonesia. Central Statistics Bureau.

Badan Pusat Statistik. 2019b. “Export data 2007–2018 for HS Code 4702000000 (Chemical wood pulp, dissolving grades).” Government of Indonesia. Central Statistics Bureau.

Borsuk, Richard. 2002. “Toba Pulp to dismantle Indonesian rayon plant.” Wall Street Journal, July 5, 2020.

Bracell Limited. 2016. “(1) Proposed privatisation of Bracell Limited by BHL Limited by way of a scheme of arrangement under Section 99 of the Companies Act of Bermuda and (2) Proposed withdrawal of listing of Bracell Limited.” Document jointly issued by Bracell Limited and BHL Limited. August 30, 2016. https:// www1.hkexnews.hk/listedco/listconews/sehk/2016/0829/ltn20160829301.pdf.

Changing Markets Foundation, WALHI Jawa Barat, Ecologistas en Acción, and Ethical Consumer. 2017. “Dirty Fashion: How Pollution in the Global Textiles Supply Chain is Making Viscose Toxic.” June. http:// changingmarkets.org/wp-content/uploads/2017/06/CHANGING_MARKETS_DIRTY_FASHION_REPORT_ SPREAD_WEB.pdf.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 51 IN INDONESIA’S PULP EXPORTS CNN Indonesia. 2019. “Pemerintah ubah pengawasan di 119 kawasan berikat jadi online.” September 20, 2019. https://www.cnnindonesia.com/ekonomi/20190919173121-532-432046/pemerintah-ubah- pengawasan-di-119-kawasanberikat-jadi-online.

Cobham, Alex. 2005. “Taxation Policy and Development.” OCGG Economy Analysis Number 2. Oxford: The Oxford Council on Good Governance. http://taxjustice.net/cms/upload/pdf/OCGG_-_Alex_Cobham_-_ Taxation_Policy_and_Development.pdf.

Crivelli, Ernesto, Ruud de Mooij, and Michael Keen. 2015. “Base Erosion, Profit Shifting, and Developing Countries.” IMF Working Paper WP/15/118 (May). Washington, DC: International Monetary Fund. https:// www.imf.org/external/pubs/ft/wp/2015/wp15118.pdf.

Cuddy, Alice. 2017. “‘Give us back our land’: Paper giants struggle to resolve conflicts with communities in Sumatra.” Mongabay, June 9, 2017. https://news.mongabay.com/2017/06/give-us-back-our-land-paper- giants-struggle-to-resolve-conflicts-withcommunities-in-sumatra/.

Deloitte. 2017. “Transfer Pricing Alert January 2017: Minister of Finance Regulation No. 213/ PMK.03/2016.” Jakarta: Deloitte Tax Solutions. January 11, 2017. https://www2.deloitte.com/content/ dam/Deloitte/id/Documents/tax/id-tax-alert-en-jan2017.pdf.

Deloitte. 2018. “Indonesia Tax Guide 2018.” August 31, 2018. https://www2.deloitte.com/content/dam/ Deloitte/cn/Documents/international-business-support/deloitte-cn-ibs- indonesia-tax-guide-2018- en-190227.pdf.

Detik. 2007. “Pinnacle Company incar saham Toba Pulp Lestari.” October 19, 2007. https://finance.detik. com/bursa-danvalas/d-842647/pinnacle-company-incar-saham-toba-pulp-lestari.

Dharmasaputra, Metta. 2007. Saksi Kunci [Key Witness]. Jakarta: Tempo Publishing.

Direktorat Jenderal Administrasi Hukum Umum (Ditjen AHU). 2020. “Profil Perusahaan PT Toba Pulp Lestari Tbk.” Company Profile. Government of Indonesia. Ministry of Law and Human Rights. Directorate General of General Law Administration. February 17, 2020.

Direktorat Jenderal Bea dan Cukai. 2020 “Customs-Excise Information System and Automation.” DJBC website. Government of Indonesia. Ministry of Finance. Directorate General of Customs and Excise. https://customer.beacukai.go.id/.

Direktorat Jenderal Bea dan Cukai. 2020. “AEO.” DJBC website. Government of Indonesia. Ministry of Finance. Directorate General of Customs and Excise. Accessed on February 20, 2020. http://kwbckepri. beacukai.go.id/aeo/.

Direktorat Jenderal Pajak. 2011. “Peraturan Direktur Jenderal Pajak Nomor PER-32/PJ/2011 tentang Perubahan atas Peraturan Dirketur Jenderal Pajak Nomor PER-43/PJ/2010 tentang Penerapan prinsip kewajaran dan kelaziman usaha dalam trasaksi antara wajib pajak dengan pihak yang mempuyai hubungan istimewa.” Government of Indonesia. Ministry of Finance. Directorate General of Taxation. November 11, 2011. https://www.pajak.go.id/sites/default/files/2019-04/PER%20-%2032.PJ_.2011%20 tg%20Perubahan%20PER-43.PJ_.2010%20tg%20Penerapan%20Prinsip%20Kewajaran%20dan%20 Kelaziman%20Usaha%20.pdf.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 52 IN INDONESIA’S PULP EXPORTS ETCN. 2020. “China HS Code Search.” https://hs.e-to-china.com/ks-470200.html.

Fastmarkets RISI. 2019. “World Pulp Annual Historical Data 2018.” Burlington, Massachusetts.

Gaworecki, Mike. 2014. “Dissolving pulp: the threat to Indonesia’s forests you’ve probably never heard of.” Mongabay, September 23, 2014. https://news.mongabay.com/2014/09/dissolving-pulp-the-threat-to- indonesias-forestsyouve-probably-never-heard-of/.

Global Financial Integrity. 2020. “Trade Misinvoicing.” Washington, DC. Accessed on February 20, 2020. https://www.gfintegrity.org/issue/trademisinvoicing/.

Global Financial Integrity. 2019. “Indonesia: Potential Revenue Losses Associated with Trade Misinvoicing.” Washington, DC. https://gfintegrity.org/report/indonesia-potential-revenue-losses-associated-with- trade-misinvoicing/.

Government of Indonesia. 2018. “Peraturan Presiden Republik Indonesia, Nomor 13 Tahun 2018 tentang Penerapan Prinsip Mengenali Pemilik Manfaat dari Korporasi dalam Rangka Pencegahan dan Pemberantasan Tindak Pidana Pencucian Uang dan Tindak Pidana Pendanaan Terorisme.” March 5, 2018.

Government of Indonesia. 2008. “Undang-Undang Republik Indonesia Nomor 36 Tahun 2008 tentang Perubahan Keempat atas Undang-Undang Nomor 7 Tahun 1983 tentang Pajak Penghasilan.” September 23, 2008.

Gunawan, Apriadi. 2012. “Paper mill deploys force in land conflict.” Jakarta Post, September 22, 2020. https://www.thejakartapost.com/news/2012/09/22/paper-mill-deploys-force-land-conflict.html.

Harahap, Rizal. 2020. Jokowi officiates Asia Pacific Rayon plant in Riau. Jakarta Post. February 22, 2020. https://www.thejakartapost.com/news/2020/02/22/jokowi-officiates-asia-pacific-rayon-plant-in-riau- islands.html.

International Accounting Standards Board. 2019. “IAS 24 Related Party Disclosures.” IFRS Foundation website. https://www.ifrs.org/issued-standards/list-of-standards/ias-24-related-party-disclosures/.

Jakarta Post. 2014. “Tax Court rejects Asian Agri’s appeal.” November 6, 2014. https://www.thejakartapost. com/news/2014/11/06/taxcourt-rejects-asian-agri-s-appeal.html.

Karokaro, Ayat S. 2017. “Berkonflik lahan dengan Toba Pulp Lestari, Ketua Adat Tungko Ni Solu terjerat hukum.” Mongabay, May 10, 2017. https://www.mongabay.co.id/2017/05/10/berkonflik-lahan-dengan- toba-pulp-lestari-ketua-adat-tungko-ni-solu-terjerat-hukum/.

Katadata. 2020. “Investigasi: Akal-akalan Toba Pulp melipat untung ekspor bubur kayu.” February 7. 2020. https://katadata.co.id/telaah/2020/02/07/investigasi-akal-akalan-toba-pulp-melipat-untung-ekspor- bubur-kayu/0.

KBR. 2020. “Dugaan manipulasi dokumen ekspor Toba Pulp Lestari.” February 5, 2020. https://kbr.id/ berita/02-2020/dugaan_manipulasi_dokumen_ekspor_toba_pulp_lestari_/102174.html.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 53 IN INDONESIA’S PULP EXPORTS Kementerian Keuangan. 2016. “Peraturan Menteri Keuangan Republik Indonesia Nomor 213/ PMK.03/2016 tentang Jenis Dokumen dan/atau Informasi Tambahan yang Wajib Disimpan oleh Wajib Pajak yang Melakukan Transaksi dengan Para Pihak yang Mempunyai Hubungan Istimewa, dan Tata Cara Pengelolaannya.” Government of Indonesia. Ministry of Finance. December 30, 2016. https:// peraturanpajak.com/2017/01/06/pmk-213pmk-032016/.

Kementerian Lingkungan Hidup dan Kehutanan. 2015. Indonesia’s Timber Legality Information System (Sistem Informasi Legalitas Kayu, or SILK). Government of Indonesia. Ministry of Environment and Forestry. http://silk.dephut.go.id/.

Kementerian Lingkungan Hidup dan Kehutanan. 2019. “Basis Data Geospasial Linkungan Hidup dan Kehutanan Tahun 2019.” Government of Indonesia. Ministry of Environment and Forestry. http://appgis. dephut.go.id/appgis/download/1.5.%20Buku%20BASIS%20DATA%20SPASIAL%20KEHUTANAN/ BUKU%20BASIS%20DATA%20GEOSPASIAL%202019.pdf.

Kementerian Lingkungan Hidup dan Kehutanan. 2019. “PT Toba Pulp Lestari Tbk – Laporan Rencana dan Realisasi Pemenuhan Bahan Baku Industri Primer Hasil Hutan Kayu.” Government of Indonesia. Ministry of Environment and Forestry.

Kementerian Lingkungan Hidup dan Kehutanan. 2018. “PT Toba Pulp Lestari Tbk – Laporan Rencana dan Realisasi Pemenuhan Bahan Baku Industri Primer Hasil Hutan Kayu.” Government of Indonesia. Ministry of Environment and Forestry.

Kementerian Lingkungan Hidup dan Kehutanan. 2017. “PT Toba Pulp Lestari Tbk – Laporan Rencana dan Realisasi Pemenuhan Bahan Baku Industri Primer Hasil Hutan Kayu.” Government of Indonesia. Ministry of Environment and Forestry.

Kontan Harian. 2015. Riau Andalan Bikin Produk Pulp Larut. February 25, 2015. https://kemenperin.go.id/ artikel/11218/Riau-Andalan-Bikin-Produk-Pulp-Larut.

KPMG. 2019. “Corporate tax rates table.” KPMG International website. https://home.kpmg/xx/en/home/ services/tax/tax-tools-and-resources/tax-rates-online/corporate-tax-rates-table.html.

Kravchenko, Alexey. 2018. “Where and How to Dodge Taxes and Shift Money Abroad Using Trade Misinvoicing: A Beginner’s Guide.” Trade, Investment, and Innovation Working Paper Series No. 1. Bangkok: United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). Trade, Investment, and Innovation Division. https://www.unescap.org/sites/default/files/publications/ Where_and_how_to_dodge_taxes_and_shift_money_abroad_using_trade_misinvoicing_A_ beginner%E2%80%99s_guide_0.pdf.

Lansdell, O. 2017. The outlook for dissolving wood pulp supply and demand. Hawkins Wright Ltd. May 2017. https://cellulosefibres.eu/wp-content/uploads/2019/04/LansdellOliver_Abstract.pdf.

Lembaga National Single Window. 2020. “Indonesia National Single Window.” Government of Indonesia. Ministry of Finance. National Single Window Agency. https://www.insw.go.id/index.php.

Lomas, Ulrika. 2019. “BVI, Seychelles to automatically exchange CbC reports.” Tax-News, September 13, 2019. https://www.tax-news.com/news/BVI_Seychelles_To_Automatically_Exchange_CbC_ Reports____97313.html.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 54 IN INDONESIA’S PULP EXPORTS Mahkamah Agung Republik Indonesia. 2012. No. 2239 K/PID.SUS/2012. Supreme Court of the Republic of Indonesia. https://putusan3.mahkamahagung.go.id/direktori/ putusan/2dec38361ab4193b649785cf9c668f52.html.

Marini, Marco, Robert Dipplesman and Michael Stanger. 2018. “New Estimates for Direction of Trade Statistics.” IMF Working Paper WP/18/16 (January). Washington, DC: International Monetary Fund. https:// www.imf.org/~/media/Files/Publications/WP/2018/wp1816.ashx.

Miao, Guannan and Fabienne Fortanier. 2017. “Estimating Transport and Insurance Costs of International Trade.” OECD Statistics Working Papers 2017/04. Paris: Organisation for Economic Co-operation and Development. https://www.oecd-ilibrary.org/docserver/8267bb0f-en.pdf.

Nugroho, Adrianto Dwi. 2014. “The Asian Agri Case (2012): The Giant Goes Berserk.” Bulletin for International Taxation. 68 (8): 445-450. August. https://www.ibfd.org/IBFD-Products/Journal-Articles/ Bulletin-for-International-Taxation/collections/bit/html/bit_2014_08_id_1.html.

Organisation of Economic Development and Co-operation (OECD). 2020. “Country-by-Country exchange relationships.” OECD website. Accessed on January 24, 2020. https://www.oecd.org/tax/beps/country-by- country-exchange-relationships.htm.

Organisation of Economic Development and Co-operation (OECD). 2019. “Base erosion and profit shifting.” OECD website. Accessed on May 16, 2019. https://www.oecd.org/tax/beps/.

Otoritas Jasa Keuangan (OJK). 2015. “Peraturan Otoritas Jasa Keuangan Nomor 31 /POJK.04/2015 tentang Keterbukaan Atas Informasi atau Fakta Material Oleh Emiten atau Perusahaan Publik.” [OJK Regulation No. 31/POJK.04/2015 on Disclosure of Information and Material Facts by Issuers and Public Companies]. Government of Indonesia. Financial Services Authority. December 16, 2015. https://www.ojk.go.id/id/ kanal/pasar-modal/regulasi/peraturan-ojk/Documents/Pages/pojk-31-keterbukaan-atas-informasi-fakta- material-oleh-emiten-perusahaan-publik/SALINAN-POJK%20Keterbukaan%20Informasi%20Emiten.pdf.

Prakarsa. 2019. “Highlighting Illicit Financial Flow of Indonesia’s Top Six Export Commodities.” Policy Brief No. 17 (November). Jakarta: Prakarsa.

Programme for the Endorsement of Forest Certification (PEFC). 2015. “PT Riau Andalan Pulp and Paper.” PEFC Certification – Chain of Custody. AJAEU/PEFC/15/00068. Original Registration Date. Expiring Date May 4, 2020.

PT Toba Pulp Lestari Tbk. 2020a. “Response – PT Toba Pulp Lestari Tbk.” Medan, Indonesia. Company announcement. February 3, 2020. https://www.tobapulp.com/wp-content/uploads/2020/02/Respose- TPL-3-Feb-2020.pdf.

PT Toba Pulp Lestari Tbk. 2020b. “Laporan Bulanan Registrasi Pemegang Efek.” Medan, Indonesia. Corporate filing number 003/TPL/MDN/I/20(EReport). January 8, 2020. https://www.idx.co.id/StaticData/ NewsAndAnnouncement/ANNOUNCEMENTSTOCK/From_EREP/202001/445253b404_fe51cb1b20.pdf.

PT Toba Pulp Lestari Tbk. 2020c. “Penjelasan atas Pemberitaan Media Massa.” February 5, 2020. https://www.idx.co.id/StaticData/NewsAndAnnouncement/ANNOUNCEMENTSTOCK/From_ EREP/202002/43d7216f94_a75786ea1f.pdf.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 55 IN INDONESIA’S PULP EXPORTS PT Toba Pulp Lestari Tbk. 2019a. Annual Report 2018 [including Financial Statements as of December 31, 2018 and 2017 and Independent Auditors’ Report]. Medan, Indonesia. https://www.tobapulp.com/wp- content/uploads/2019/05/LAPORAN-TAHUNAN-INRU-2018.pdf.

PT Toba Pulp Lestari Tbk. 2019b. “Announcement – PT Toba Pulp Lestari switched to producing pulp- dissolving grade.” Company announcement. Medan, Indonesia. April 24, 2019. https://www.tobapulp. com/wp-content/uploads/2019/04/Announcement-24-April-2019.pdf.

PT Toba Pulp Lestari Tbk. 2018a. Annual Report 2017 [including Financial Statements as of December 31, 2017 and 2016 and Independent Auditors’ Report]. Medan, Indonesia. https://www.idx.co.id/StaticData/ NewsAndAnnouncement/ANNOUNCEMENTSTOCK/From_EREP/201804/72dd0fc290_9817598229.pdf.

PT Toba Pulp Lestari Tbk. 2018b. “Announcement – PT Toba Pulp Lestari switched to producing paper pulp.” Company announcement. Medan, Indonesia. May 10, 2018. https://www.tobapulp.com/wp- content/uploads/2018/05/Announcement.pdf.

PT Toba Pulp Lestari Tbk. 2018c. Letter to Director of Indonesia Stock Exchange from Anwar Lawden, S.H. Company announcement. Medan, Indonesia. May 11, 2018. https://www.idx.co.id/StaticData/ NewsAndAnnouncement/ANNOUNCEMENTSTOCK/From_EREP/201805/e4f56b8448_e1aa3b29b1.pdf.

PT Toba Pulp Lestari Tbk. 2017a. Annual Report 2016 [including Financial Statements as of December 31, 2016 and 2015 and Independent Auditors’ Report]. Medan, Indonesia. https://www.tobapulp.com/wp- content/uploads/2017/07/TPL-AR-2016-Report-s.pdf.

PT Toba Pulp Lestari Tbk. 2017b. “Keterbukaan informasi kepada pemegang saham mengenai rencana transaksi material dan transaksi afiliasi PT Toba Pulp Lestari Tbk.” [Disclosure of information to shareholders about material and affiliated transaction of PT Toba Pulp Lestari Tbk.] Medan, Indonesia. Company announcement. November 22, 2017. https://www.tobapulp.com/wp-content/ uploads/2019/01/Keterbukaan-Information-Transaksi-Material-dan-Afiliasi-Perjanjian-Pinjam- Meminjam-22-November-2017.pdf.

PT Toba Pulp Lestari Tbk. 2017c. “Letter to Director of Indonesia Stock Exchange from Vinod Kesavan.” Medan, Indonesia. March 3, 2017. https://www.idx.co.id/StaticData/NewsAndAnnouncement/ ANNOUNCEMENTSTOCK/From_EREP/201703/c623e30904_dd00a72ac7.pdf.

PT Toba Pulp Lestari Tbk. 2016. Annual Report 2015 [including Financial Statements as of December 31, 2015 and 2014 and Independent Auditors’ Report]. Medan, Indonesia. https://www.tobapulp.com/wp- content/uploads/2017/05/INRU_Annual-Report_2015.pdf.

PT Toba Pulp Lestari Tbk. 2015. Annual Report 2014 [including Financial Statements as of December 31, 2014 and 2013 and Independent Auditors’ Report]. Medan, Indonesia. https://www.tobapulp.com/wp- content/uploads/2017/05/INRU_Annual-Report_2014.pdf.

PT Toba Pulp Lestari Tbk. 2014. Annual Report 2013 [including Financial Statements as of December 31, 2013 and 2012 and Independent Auditors’ Report]. Medan, Indonesia. https://www.tobapulp.com/wp- content/uploads/2017/05/INRU_Annual-Report_2013.pdf.

PT Toba Pulp Lestari Tbk. 2013. Annual Report 2012 [including Financial Statements as of December 31, 2012 and 2011 and Independent Auditors’ Report]. Medan, Indonesia. https://www.tobapulp.com/wp- content/uploads/2017/05/INRU_Annual_Report_2012.pdf.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 56 IN INDONESIA’S PULP EXPORTS PT Toba Pulp Lestari Tbk. 2012. Annual Report 2011 [including Financial Statements as of December 31, 2011 and 2010 and Independent Auditors’ Report]. Medan, Indonesia. https://www.tobapulp.com/wp- content/uploads/2017/05/INRU_Annual-Report_2011.pdf.

PT Toba Pulp Lestari Tbk. 2011. Annual Report 2010 [including Financial Statements as of December 31, 2010 and 2009 and Independent Auditors’ Report]. Medan, Indonesia. https://www.tobapulp.com/wp- content/uploads/2017/05/INRU_Annual-Report_2010.pdf.

PT Toba Pulp Lestari Tbk. 2010. Annual Report 2009 [including Financial Statements as of December 31, 2009 and 2008 and Independent Auditors’ Report]. Medan, Indonesia. https://www.tobapulp.com/wp- content/uploads/2017/05/INRU_Annual-Report_2009.pdf.

PT Toba Pulp Lestari Tbk. 2009. Annual Report 2008 [including Financial Statements as of December 31, 2008 and 2007 and Independent Auditors’ Report]. Medan, Indonesia. https://www.tobapulp.com/wp- content/uploads/2017/03/INRU_Annual-Report_2008.pdf.

PT Toba Pulp Lestari Tbk. 2008. Annual Report 2007 [including Financial Statements as of December 31, 2007 and 2006 and Independent Auditors’ Report]. Medan, Indonesia.

Pulp & Paper International. 2003. “Toba Pulp Lestari prepares to roll again.” 45:3 (April).

Purba, Arnaldo. 2018. Base Erosion and Profit Shifting in Indonesia. PhD thesis submitted to the Australian National University. July, 20, 2018. https://openresearch-repository.anu.edu.au/handle/1885/148758.

Rainforest Alliance. 2018. “CanopyStyle Verification and Guidelines Evaluation Report for: Sateri Corporate Office and Manufacturing Mills In China.” Richmond, Vermont. May 16, 2018. https://www.rainforestalliance.org/business/wp-content/uploads/2018/10/Canopy-Verification-Report_Sateri_Final-Draft- 16MAY2018.pdf.

Reuters. 2009. “Indonesia’s Toba Pulp to invest $150 mln in capacity.” November 10, 2009. https:// www.reuters.com/article/tobapulpindonesia/indonesias-toba-pulp-to-invest-150-mln-in-capacity- idUSJAK35424420091110.

Reuters. 1993. “Factory gas leak sparks mob frenzy.” Herald Sun. November 9, 1993.

Sateri Holdings Limited. 2014a. Annual Report 2013 [including Financial Statements for the Year Ended 31 December 2013 and Independent Auditor’s Report]. Hong Kong. https://www1.hkexnews.hk/listedco/ listconews/sehk/2014/0410/ltn20140410829.pdf.

Sateri Holdings Limited. 2013. Annual Report 2012 [including Financial Statements for the Year Ended 31 December 2012 and Independent Auditor’s Report]. Hong Kong. https://www1.hkexnews.hk/listedco/ listconews/sehk/2013/0411/ltn20130411190.pdf.

Sateri Holdings Limited. 2012. Annual Report 2011 [including Financial Statements for the Year Ended 31 December 2011 and Independent Auditor’s Report]. Hong Kong. https://www1.hkexnews.hk/listedco/ listconews/sehk/2012/0423/ltn20120423008.pdf.

Sateri Holdings Limited. 2011. Annual Report 2010 including Financial Statements for the Year Ended 31 December 2010 and Independent Auditor’s Report]. Hong Kong.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 57 IN INDONESIA’S PULP EXPORTS Sateri Holdings Limited. 2010. “Sateri Holdings Limited Global Offering.” Company prospectus. Hong Kong. November 26, 2010. http://www3.hkexnews.hk/listedco/listconews/sehk/2010/1126/ ltn20101126025.pdf.

Setiajati, Hidayat. 2017. “Late rush to join Indonesia tax amnesty after $360 billion declared.” Reuters, March 31, 2017. https://www.reuters.com/article/us-indonesia-economy-tax-idUSKBN1720VJ.

Silka, Tyagita. 2000. “Indonesia’s Toba Pulp to invest $150 mln in capacity.” Reuters. November 10, 2009, accessed on May 1, 2020. https://www.reuters.com/article/tobapulp-indonesia/indonesias-toba-pulp-to- invest-150-mln-in-capacity-idUSJAK35424420091110.

Solomon, Jay and Puspa Madani. 2000. “Jakarta shuts down rayon plant because of environmental worries.” Wall Street Journal, May 11, 2000.

Suara. 2020. “Dari Porsea ke China, dugaan patgulipat di balik ekspor bubur kayu.” February 3, 2020. https://www.suara.com/bisnis/2020/02/03/071000/patgulipat-di-balik-ekspor-bubur-kayu-porsea-ke- china.

Suroyo, Gayatri and Eveline Danubrata. 2015. “Indonesia to crack down on corporate tax avoidance.” Reuters, February 23, 2015. https://www.reuters.com/article/us-indonesia-tax-taxavoidance- idUSKBN0LS05320150224.

Suroyo, Gayatri and Hidayat Setiajati. 2017. “Indonesia tax amnesty nets $330 billion – now for reform.” Reuters, March 21, 2017. https://www.reuters.com/article/us-indonesia-economy-tax/indonesia-tax- amnesty-nets-330-billion-now-for-reform-idUSKBN16S0AS.

Suwiknyo, Edi. 2017. “Penghindaran pajak: Ruang transfer pricing dipersempit.” Bisnis, May 3, 2017. https://finansial.bisnis.com/read/20170503/9/650250/penghindaran-pajak-ruang-transfer-pricing- dipersempit.

Swan, Collin. 2010. “$20,000 for a Refrigerator? Abusive Transfer Pricing Explained.” Boston: Financial Transparency Coalition. August 2, 2015. https://financialtransparency.org/20000-for-a-refrigerator- abusive-transfer-pricing-explained/.

Tax Justice Network (TJN). 2020. “Financial Secrecy Index.” TJN website. Accessed on February 24, 2020]. https://fsi.taxjustice.net/en/introduction/fsi-results.

Tempo. 2020. “Jurus sulap ekspor kayu.” February 1, 2020. https://majalah.tempo.co/read/hukum/159598/ jurus-sulap-ekspor-kayu.

Tempo English. 2020. “Wood export conjuring tricks.” February 4–10, 2020. https://magz.tempo.co/ read/36360/wood-export-conjuring-tricks.

Tempo English. 2020. “The profit margins are nearly the same.” February 4–10, 2020. https://magz.tempo. co/read/36361/toba-pulp-lestari-head-of-public-relations-norma-patty-handini-hutajulu-the-profit- margins-are-nearly-the-same.

Tempo English. 2020. “Step siblings from a tax haven.” February 4–10, 2020. https://magz.tempo.co/ read/36362/step-siblings-from-a-tax-haven.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 58 IN INDONESIA’S PULP EXPORTS Tempo English. 2020. “Suspicious exports: Toba Pulp Lestari is suspected of falsifying export documentation to reduce its tax liabilities.” February 4–10, 2020. https://magz.tempo.co/read/36356/ suspicious-exports.

Thoenes, Sander. 1998. “A nation is let loose to protest, but to what end? In Indonesia, a mill accused of ecocide is closed but reopened after protesters waver.” Christian Science Monitor, November 2, 1998.

United Nations Commodity Trade Statistics Database (UN Comtrade). Various years. New York: United Nations Statistics Division. Trade Statistics Branch. https://comtrade.un.org.

United Nations University. 2020. “Government Revenue Dataset.” Accessed on February 24, 2020. https:// www.wider.unu.edu/project/government-revenue-dataset.

Vidal, John. 2014. “Vast hidden profits: from Asia palm oil giants to a tiny British tax haven.” Guardian, May 10, 2014. https://www.theguardian.com/world/2014/may/10/asian-logging-giant-tax-labyrinth-british- virgin-islands.

Wiedemann, Verena dan Katharina Finke. 2015. “Taxing investments in the Asia-Pacific region: The importance of cross-border taxation and tax incentives.” ZEW Discussion Papers No. 15-014. Leibniz Centre for European Economic Research (ZEW). https://www.econstor.eu/ bitstream/10419/107420/1/818760338.pdf.

World Bank. 2019. “Aspiring Indonesia: Expanding the Middle Class”. Washington, DC: World Bank and Australian Government. January 30, 2019. https://www.worldbank.org/en/country/indonesia/ publication/aspiring-indonesia-expanding-the-middle-class.

World Customs Organization. 2019. “List of Members with Membership Date.” August 19, 2019. http:// www.wcoomd.org/-/media/wco/public/global/pdf/about-us/wco-members/list-of-members-with- membership-date.pdf.

WWF Indonesia, Greenpeace International, and Rainforest Action Network. 2013. Letter to the Forest Stewardship Council with complaint against APRIL Group. May 13, 2013. http://ic.fsc.org/download.april- group-complaing.1163.htm.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 59 IN INDONESIA’S PULP EXPORTS APPENDIX A: PT TOBA PULP LESTARI TBK’S RESPONSE TO TEMPO MAGAZINE ARTICLES OF FEBRUARY 3–9, 2020

PT. Toba Pulp Lestari Tbk. Office : Uniplaza, East Tower, 3th Floor Jl. Letjend Haryono MT No. A-1 Medan 20231 Tel : +62 61 453 2088 Fax : +62 61 453 0967 Mill : Desa Pangombusan, Kecamatan Parmaksian, Kabupaten Toba Samosir Tel : +62 632 734 6000, +62 632 734 6001 Fax : +62 632 734 6006 Sumatera Utara - Indonesia

RESPONSE PT TOBA PULP LESTARI TBK

PT Toba Pulp Lestari Tbk (“Company”) refers to the Tempo Magazine edition 3-9 Februari 2020, which alleges product HS code manipulation. The Company would like to clarify that the HS code used is in accordance with the product classification and legal jurisdictions.

Due to customer demand, the Company produced kraft pulp from mid 2010 to mid 2017. Prior to that, Company produced two kinds of pulp. The appropriate HS codes have been declared at the times these products were exported.

As an entity listed in in Indonesia Stock Exchange since 1990, the Company upholds a high level of Good Corporate Governance and is committed to corporate compliance with prevailing laws and regulations.

3 February 2020

PT Toba Pulp Lestari Tbk. Board of Directors

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 60 IN INDONESIA’S PULP EXPORTS APPENDIX B. RESPONSE OF PT TOBA PULP LESTARI TBK TO THE MAIN FINDINGS OF THIS REPORT

Kepada Yth: Ibu Mouna Wasef Lead Researcher “Pulp and Paper Industry in Indonesia” Di- Tempat

Dengan hormat,

Menindaklanjuti surat Ibu No. 2010.16/Auriga-IV/PRO/2020 Perihal Surat Klarifikasi tanggal 20 Oktober 2020, maka melalui email ini, PT Toba Pulp Lestari Tbk (“Perseroan”) ingin menyampaikan tanggapan atas draft laporan riset sebagai berikut:

1. Mengenai tuduhan misklasifikasi produk melalui Berita Majalah Tempo, sudah dilakukan tanggapan melalui situs web Perseroan tanggal 3 Februari 2020.

2. Mengenai tuduhan pengalihan keuntungan, Perseroan telah memproduksi dan menjual produk sesuai dengan harga kewajaran dan setiap tahun dilakukan penilaian kewajaran atas harga produk oleh konsultan independen.

3. Perseroan tidak dapat memberikan penilaian atas dokumen perusahaan lain pada draft laporan riset tersebut.

4. Sebagai perusahaan terbuka yang sahamnya dicatatkan di Bursa Efek Indonesia sejak tahun 1990, Perseroan selalu menjunjung tinggi Good Corporate Governance serta tetap berkomitmen untuk menjalankan kegiatan operasional sesuai dengan peraturan dan perundangan-undangan yang berlaku.

Demikian hal ini kami sampaikan, atas perhatiannya kami haturkan terima kasih.

Medan, 29 Oktober 2020

Hormat kami, PT Toba Pulp Lestari Tbk. Direktur

Note: This response was received in an email on October 29, 2020. A detailed 5-page summary of findings from the present report was sent to Toba Pulp on October 21, 2020 with a request to provide a response within five days. The response submission date was extended to October 29, 2020 at the request of Toba Pulp.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 61 IN INDONESIA’S PULP EXPORTS APPENDIX C. RESPONSE OF THE APRIL GROUP TO THE MAIN FINDINGS OF THIS REPORT

YTH Ibu Mouna Wasef Lead Researcher Pulp and Paper Industry in Indonesia Forum Pajak Berkeadilan

Dengan hormat,

Terima kasih atas surat yang dikirimkan kepada kami perihal riset tentang industry pulp and paper Indonesia. Bersama ini kami sampaikan tanggapan atas pertanyaan yang disampaikan kepada kami.

Sebagai latar belakang, kami jelaskan bahwa PT Riau Andalan Pulp & Paper (RAPP) memproduksi Kraft Pulp sejak tahun 1995 dan pada bulan Februari 2016, RAPP telah mendapatkan izin untuk memproduksi Dissolving Pulp dari BKPM. Setelah mendapatkan izin tersebut, RAPP melakukan serangkaian uji coba produksi jenis pulp baru yang kami namakan Acacia Eucalyptus (AE) Pulp yang merupakan modified kraft pulp. Jenis pulp ini menggunakan teknologi baru dengan campuran kayu Acacia Crassicarpa dan Eucaliptus.

Pada tahun 2016, RAPP telah melakukan kerjasama 2 tahun untuk percobaan (trial) pemanfaatan serta peningkatan mutu AE Pulp dengan Sateri di China dengan harapan agar AE Pulp bisa dipakai sebagai bahan baku industri viscose staple fiber. Selama masa percobaan ini, Sateri akan mencampurkan pulp AE dari RAPP dalam proses produksinya dengan komposisi pencampuran tertentu dengan Dissolving Pulp hingga mencapai kualitas yang mereka inginkan. Proses percobaan dan modifikasi komposisi campuran yang bersifat trial and error berlangsung secara intensif dalam periode dua tahun tersebut.

Berhubung produk AE Pulp masih dalam tahap uji coba pengembangan, maka RAPP masih menggunakan HSCode Kraft atau HSCode 4703.290000 hingga spesifikasi produk AE Pulp ini memenuhi standar ekspektasi pembeli. Dan setelah 2 tahun masa uji coba, Sateri memberikan konfirmasi bahwa AE Pulp RAPP bisa mencapai kualitas yang sama atau subsitusi Dissolving Pulp bagi proses produksi mereka. Sebagai realisasi kerjasama, RAPP sudah mengekspor sesuai dengan kebutuhan Sateri dengan HS HSCode Dissolving Pulp atau HSCode 4702.000000.

Demikian penjelasan yang bisa kami berikan semoga membantu penulisan riset laporan tentang Industri Pulp and Papernya.

Salam hormat,

Note: This response was received in an email from the APRIL Group’s Director of Corporate Affairs, Agung Laksmana, on October 27, 2020. A detailed 4-page summary of findings from the present report was sent to the APRIL Group on October 21, 2020 with a request to provide a response within five days. The response submission date was extended one day to October 27, 2020 at the request of the APRIL Group.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 62 IN INDONESIA’S PULP EXPORTS APPENDIX D: DOCUMENTATION OF SUKANTO TANOTO’S ROLE AS THE ULTIMATE CONTROLLING SHAREHOLDER OF PT TOBA PULP LESTARI TBK, DP MACAO, AND SATERI Sukanto Tanoto is widely reported to hold a controlling interest in PT Toba Pulp Lestari Tbk, DP Macao, and Sateri (which later changed its name to Bracell), as well as other companies named in this report. His control over these companies is structured through a complex network of corporate entities, which extend across numerous jurisdictions and which have changed over time both in name and ownership.

Sateri Holdings Limited’s listing prospectus, released in November 2010, identifies Sukanto Tanoto as the ultimate controlling shareholder of Toba Pulp Lestari, DP Macao, SC International Macao, and Sateri Holdings Limited (see Figure 23).149 At that time, Mr. Tanoto controlled 90.6% of Toba Pulp’s shares through Pinnacle Company Limited, a limited liability company incorporated in the Republic of Seychelles.150 Since June 2019, Pinnacle Company Pte Ltd, incorporated in Singapore, has owned 92.4% of shares in PT Toba Pulp Lestari Tbk.151 The sole shareholder of Pinnacle Company Pte Ltd is Eden Hall Ltd, incorporated in the Seychelles.152

Toba Pulp disclosed in a public announcement in November 2017 that DP Macao was owned in whole by Eden Hall Ltd (see Figure 24).153 Bracell Limited (formerly Sateri Holdings Limited) also disclosed in August 2016 that Sukanto Tanoto was the ultimate controlling shareholder of DP Macao (see Figure 24).154 Toba Pulp’s Annual Report in 2018 lists the following entities as related parties “under common control”: DP Marketing International (MCO) Limited [i.e. DP Macao], PT Riau Andalan Pulp & Paper, RGE Pte Ltd, PT RGE Indonesia, and Sateri (Fujian) Fibre Co., Ltd (see Figure 25).155 Previously, a 2014 Circular from Sateri Holdings Limited indicated that Sukanto Tanoto controlled Toba Pulp and DP Macao (see Figure 27).156

In November 2019 and January 2020, Toba Pulp spokesperson Norma Patty Handini Hutajulu responded to questions from Indonesian magazine Tempo about Sukanto Tanoto’s current ownership of Toba Pulp by stating, “At this time TPL does not have that stockholder in question. Regarding stock ownership in other companies, we do not know.”157

149 Sateri Holdings Limited. 2010. Op. cit. 150 Sateri Holdings Limited. 2010. Op. cit. 151 Directorate General AHU. 2020. “PT Toba Pulp Lestari Tbk.” Company Profile. February 17. 152 Accounting and Corporate Regulatory Authority (ACRA) of Singapore. 2020. “Pinnacle Company Pte. Ltd.” Business Profile. February 17. 153 PT Toba Pulp Lestari Tbk. 2017. “Keterbukaan informasi kepada pemegang saham mengenai rencana transaksi material dan transaksi afiliasi PT Toba Pulp Lestari Tbk.” [Disclosure of information to shareholders about material and affiliated transaction of PT Toba Pulp Lestari Tbk.] November 22. https://www.tobapulp.com/wp-content/uploads/2019/01/Keterbukaan-Information- Transaksi-Material-dan-Afiliasi-Perjanjian-Pinjam-Meminjam-22-November-2017.pdf. 154 Bracell Limited. 2016. “(1) Proposed privatisation of Bracell Limited by BHL Limited by way of a scheme of arrangement under Section 99 of the Companies Act of Bermuda and (2) Proposed withdrawal of listing of Bracell Limited.” August 30. https:// www1.hkexnews.hk/listedco/listconews/sehk/2016/0829/ltn20160829301.pdf. 155 PT Toba Pulp Lestari. 2019. Op. cit. 156 Sateri Holdings Limited. 2014. “1) Major Transaction and Related Transaction in Relation to the Disposal of the Viscose Staple Fiber Business in the PRC. . .” Circular. November 19. https://www1.hkexnews.hk/listedco/listconews/sehk/2014/1029/ ltn20141029952.pdf. 157 Tempo Magazine. 2020. “The profit margins are nearly the same.” February 4. https://magz.tempo.co/read/36361/toba-pulp- lestari-head-of-public-relations-norma-patty-handini-hutajulu-the-profit-margins-are-nearly-the-same.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 63 IN INDONESIA’S PULP EXPORTS DEFINITIONS

“Shares” ordinary shares in the capital of our Company with a nominal A1A 23(1) value of US$0.05 each

“Share Option Scheme” the share option scheme conditionally approved and adopted by our Company on November 8, 2010 for the grant of options to eligible participants, the principal terms of which are summarized in the section headed “Statutory and General Information — Share Option Scheme” in Appendix IX to this Figure 23. Excerpts from Sateri Holdings Limited’sprospectus listing prospectus on the Hong Kong Stock Exchange in 2010 IMPORTANT “SISA” Sateri International SA, a limited liability company If you are in any doubt about the contentsincorporated of this prospectus, you in should Switzerland seek independent professional on November advice. S.342 11, 2004 and From cover page: formerly one of our subsidiaries

“sq.m.” square meter

“Stabilizing Manager” Credit Suisse

(Incorporated in Bermuda with limited liability) LR8.02 “Stock Borrowing Agreement” the stock borrowing agreement expected to be entered into on orGLOBAL about OFFERING the Price Determination Date betweenLR11.07 the Stabilizing Number of Offer Shares under the : 505,330,000 Shares (subject to the GlobalManager Offering Over-allotment and Gold Option) Silk Number of Hong Kong Offer Shares : 50,533,000 Shares (subject to reallocation) Number of International Offer Shares : 454,797,000 Shares (subject to reallocation and A1A 15(1), (2)(a), (2)(c) “Stock Exchange” The Stockthe Exchange Over-allotment of Option) Hong Kong Limited3rd Sch 9 MaximumDEFINITIONS Offer Price : HK$9.20 per Offer Share plus brokerage of 3rd Sch 2 1.0%, SFC transaction levy of 0.003% and Stock Exchange trading fee of 0.005% (payable “SUDENE Report” the reportin full on provided application in Hong by Kong dollars the andSuperintendência do DEFINITIONSDesenvolvimentosubject to refund) do Nordeste (Superintendency for the “Sales Framework Agreement” Nominalthevalue sales : frameworkUS$0.05 per Share agreement entered intoA1A 15(2)(c) by Sateri Jiangxi, DevelopmentStock code : 1768 of the Northeast) Sateri Fujian and DP Macao on November 3, 2010 to govern Joint Global Coordinators and Joint Sponsors “SUDIC”“Company”, “our”, “we” or “us” salesSuperintendênciaSateri(in alphabetical of Holdings dissolving order) Limited, de wood Desenvolvimento pulp, a company details incorporatedof Industrial which are e described in Comercial Bermuda in, theanon June autonomous section 8, 2010 headed as governmental an “Connected exempted entity company Transactions of withthe —State limited Non-Exempt of liability Bahia, ContinuingBraziland, except Connectedwhere the context Transactions otherwise — requires, Sales Framework all of its Agreement with DP Macao” in this prospectus Joint BookrunnersDEFINITIONSsubsidiaries, and Joint or Lead where Managers the context refers to the period before “TAC” Termothe completion de Ajustamento of the Reorganization, de Conduta Sateri(Conduct International Adjustment and “Sateri Fujian” SateriAgreement)its subsidiaries (Fujian) entered Fibre Co., into Ltd., by Bahia a limited Specialty liability Cellulose, company incorporatedCopener and thein the State PRC Public on Prosecutor’s June 4, 2010 Office and oneon July of our 14, “Trustee” Hong Kong Exchanges and Clearing Limited, The Stock ExchangeFiduco of Hong KongTrust Limited and Hong Management Kong Securities Clearing Company AG, Limited take the no responsibility trustee for LR10.06(1)(b)(xi) of a discretionary the contents of this prospectus, make no representation as tosubsidiaries its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising LR11.20 “Controlling Shareholders”from or in reliance upon the whole or any part of the contents2009trustGold of this prospectus. established Silk, the Trustee by our and Ultimate Mr. Sukanto Controlling Tanoto Shareholder as A copy of this prospectus, having attached thereto the documents specified in the section headed “Documents Delivered to the Registrar of Companies and Available for S.342C Inspection” in Appendix X to this prospectus, has been registered by the Registrar of Companies in Hong Kong as required by Section 342C of the Companies Ordinance From page 33: (Chapter 32 of the Laws of Hong Kong). The Securities andsettlor Futures Commission and of Hong whoseKong and the Registrar beneficiaries of Companies in Hong Kong take include no responsibility for the Tanoto Family “Sateri“Tangshan“Copener” International” Sanyou” the contents of this prospectus or any of the other documentsSateriTangshanCopener referred to above. International Sanyou Florestal Chemical Co. Ltda., Ltd, Industries a a limited limited Co., Ltdliability liability (唐山三友化工 company The Offer Price is expected to be determined by agreement between the Joint Bookrunners (on behalf of the Underwriters) and our Company on or about Thursday, December 2, 2010 and, in any event, not later than Monday, Decemberincorporated 6, 2010. The Offer Price will be not in more than the HK$9.20 BVI per Offer Share on andAugust is currently expected to9, be not 2001 and one of our less than HK$6.60 per Offer Share, unless otherwise announced.股份有限公司incorporated Investors applying for the Hong in Kong), Brazil Offer a Shares must company on pay, on September application, the maximum which Offer 12, Price 1980specializes and one in of our the “Ultimate Controllingof Shareholder” HK$9.20 per Offer Share, together with brokerage of 1.0%, Mr. SFC transaction Sukanto levy of 0.003% Tanoto, and Stock Exchange the trading feeultimate of 0.005%, subject tocontrolling refund if the Offer shareholder of our Price is less than HK$9.20 per Offer Share. subsidiariesmanufacture of, among other things, soda ash, viscose staple The Joint Bookrunners (on behalf of the Underwriters), with theCompany consent of our Company, may reduce the indicative Offer Price range stated in this prospectus and/or reduce the number of Offer Shares being offered pursuant to the Global Offering at any time on or prior to the morning of the last day for lodging applications under the Hong Kong Public Offering. In such a case, notices of the reductionfibers, of the indicative caustic Offer Price range and/or soda the number and of Offer Sharescalcium will be published chloride in the South China in China Morning Post (in English) and the Hong Kong Economic Times (in Chinese) not later than the morning of the last day for lodging applications under the Hong Kong Public “Sateri“CRA” Jiangxi” Offering. Such notice will also be available at the website ofSateriCentro the Hong Kong(Jiangxi) Stock de Exchange Recursos at www.hkexnews.hk Chemical Ambientaisand at our Company’s Fibre website(theCo., at www.sateri.com Center Ltd.,. fora limited Environmental liability “UN Comtrade” Further details are set out in the sections headed “Structure ofUnited the Global Offering” and Nations “How to Apply for the HongCommodity Kong Offer Shares” in this prospectus. Trade If, for any reason, Statistics Database, a the Offer Price is not agreed between our Company and the Joint Bookrunners (on behalf of the Underwriters) on or before Monday, December 6, 2010 (Hong Kong time), “TanotoFrom page Family” 31: the Global Offering (including the Hong Kong Public Offering)companyMr.databaseResources) will not Sukanto proceed and ofincorporated will lapse. internationalof Tanoto Brazil and in commoditycertain the PRC members on trade August statistics of 23, his 2002 family maintained and one The Offer Shares have not been and will not be registered under the US Securities Act or any state securities law in the United States and may not be offered, sold, pledged or transferred within the United States, except that Offer Sharesof may our be offered, subsidiaries sold or delivered to QIBs in reliance on Rule 144A. The Offer Shares may be offered, sold or delivered outside the United States in offshore transactionsby in accordance the with United Regulation S. Nations Statistics Division “Credit Suisse” Prior to making an investment decision, prospective investorsCredit should consider carefullySuisse all of the (Honginformation set out Kong) in this prospectus, Limited including the risk factors set out “TPL” in the section headed “Risk Factors” in this prospectus. ThePT obligations Toba of the Hong Kong Pulp Underwriters Lestari, under the Hong Kong UnderwritingTbk, Agreement a limited are subject to liability company “Sateri Marketing International”termination by the Joint Bookrunners (on behalf of the Underwriters)Sateri if certain grounds Marketing arise prior to 8:00 a.m. onInternational the Listing Date. Such grounds are setLimited, out in the section a limited liability “Underwriters” headed “Underwriting — Underwriting Arrangements and Expensesincorporatedthe — Hong Hong Kong Public Offering in Kong — Grounds Indonesia for Termination” Underwriters in and this prospectus. listed and on the the Indonesia International Stock “Deed of Indemnity” companyExchange.Underwritersthe deed ofincorporated As indemnity of the in Latest dated the CaymanNovember November Practicable 26, Islands 2010 19,S.342 Date, 2010 on May our entered 20,Ultimate 2010 into andControllingby Gold one Silkof our Shareholder and subsidiaries our Company controlled (for ourselves approximately and as trustee 90.6% for of “Underwriting Agreements” TPL’stheeach Hong of issued our Kong subsidiaries) share Underwriting capital relating Agreement to certain and indemnities the International given “Sateri Shanghai” SateriUnderwritingby Gold (Shanghai) Silk inAgreement favor Management of the Group Limited, a limited liability “Track Record Period” companythe financial incorporated years of our in the Company PRC on ended April December 28, 2004 and 31, one 2007, of “US”“Director(s)”From page or “United 24: States” our2008thedirector(s) Unitedsubsidiaries and 2009of States our and ofCompany the America six months ended June 30, 2010

“Sateri“US“DP Macao”Exchange Singapore” Act” SateritheDP United Marketing International States International Securities (Singapore) Exchange Limited Pte Act Ltd, — of Macao a 1934, limited Commercial as amended liability companyOffshore, incorporateda limited liability in Singapore company incorporatedon August 15, in Macau2001 and on “US Securities Act” onetheFebruary United of our 15, subsidiariesStates 2007 Securities and one of Act our of subsidiaries 1933, as amended until its disposal effective as of September 30, 2010 “Sateri“US$” or Specialty “US dollars” Cellulose” SateriUnited Specialty States dollars, Cellulose the lawful Limited, currency a limited of liability the United company States “DPMI” incorporatedDP—31— Marketing in the International Cayman Islands Limited, on December a limited 29, 2009 liability and “USDAFrom page FAS” 30: oneUnitedcompany of our States incorporated subsidiaries Department in the of Agriculture BVI on November Foreign 6,Agricultural 2003 and Service,one of our a Unitedsubsidiaries States government department responsible “SC International Macao” SCfor the International collection Macao and analysis Commercial of statistics Offshore and Limited market “EBITDA” (formerlyinformationearnings before known for agriculturalinterest, as Alloy tax, commodities depreciation Universal and and Trading products amortization (Macao Commercial Offshore) Limited), a limited liability company “VAT”“EIT” incorporatedvalueenterprise added income tax in Macau tax on November 22, 2007 and one of our subsidiaries “WestLB”“EUR” or “Euro” WestLBEuro, the AG, single New currency York Branch of the participating member states of “SC Marketing” SCthe European Marketing Union Limited, a limited liability company “WhiteTHE MACAO Form MONEY eIPO” MACHINE: PROFIT SHIFTING ANDincorporatedthe TAX applicationLEAKAGE in for the Hong BVI Kong on July Offer 22, Shares 2010 to and be issued one of in our the64 “FCFC”IN INDONESIA’S PULP EXPORTS subsidiariesapplicant’sFormosa Chemicals own name & Fibre by Corporation submitting (applications台灣化學纖維有限 online through公司), a the company designated which website specializes of Whitein the manufactureForm eIPO of at “SFC” thewww.eipo.com.hkviscose Securities staple and fibers Futures in Taiwan Commission of Hong Kong

“SFO”“White“FGV” Form eIPO Service Provider”theFundação Computershare Securities Getúlio and Hong Futures Vargas Kong Ordinance(Getúlio Investor Vargas (Chapter Services Foundation) 571 Limited of the Laws of Hong Kong), as amended or supplemented from time to time “Xinxiang“Finland” Bailu” Xinxiangthe Republic Bailu of ChemicalFinland Fiber Co., Ltd (新鄉白鷺化纖集團 “Shandong Helon” Shandong有限責任公司 Helon), a Co., company Ltd (山東海龍股份有限公司 which specializes in), the a “Fujian mill” companymanufacturea greenfield which viscose of viscose specializes staple staple fiber in fibers millthe in manufacturewith China an expected of viscose design stapleannual fibers production and viscose capacity filament of 200,000 yarn in metric China tons which we “YNFX” Yarnplan to and build Fibers in Putian, Exchange Fujian province, China “Shareholder(s)” holder(s) of Shares

In this prospectus, the terms “associate”, “connected person”, “connected transaction”, “controlling shareholder”, “subsidiary” and “substantial shareholder” shall have the meanings given to such terms in the —30— Listing Rules, unless the context otherwise requires.

In this prospectus, unless otherwise stated,—24— certain amounts denominated in Euros, Reais, Renminbi, HK dollars or Patacas have been translated into US dollars at an exchange rate of EUR1.00 = US$1.23, R$1.80 = US$1.00, RMB6.78 = US$1.00, US$1.00 = HK$7.79 and MOP1.00 = US$0.1246, respectively, in

—32— DEFINITIONS

“MOFCOM” the Ministry of Commerce of the PRC

“MOP” or “Pataca” Macau Pataca, the lawful currency of Macau

“Morgan Stanley” Morgan Stanley Asia Limited

“Non-Competition Deed” the non-competition deed entered into by our Company, our Controlling Shareholders and Pinnacle on November 19, 2010 to, among other things, maintain a clear delineation of the respective businesses of our Group and that of our Controlling Shareholders and Pinnacle with effect from the Listing Date

“Norcell” Norcell S.A., a corporation incorporated in Brazil on May 15, 1989 and one of our subsidiaries

“Offer Price” DEFINITIONSthe final offer price per Offer Share (exclusive of brokerage of 1.0%, SFC transaction levy of 0.003% and Stock Exchange trading fee of 0.005%) of not more than HK$9.20 and expected “Post-IPO RSU Scheme” tothe be scheme not less conditionally than HK$6.60, approved such price and to be adopted determined by our by agreementCompany on between November the Joint 8, 2010 Bookrunners for the grant (on behalf of RSUs of the to Underwriters)eligible participants and our following Company the completion on or before of the the Global Price DeterminationOffering, the principal Date terms of which are summarized in the section headed “Statutory and General Information — “Offer Shares” thePost-IPO Hong Kong RSU Scheme”Offer Shares in Appendix and the International IX to this prospectus Offer Shares

“Over-allotment“PRC EIT Law” Option” thethe PRC option Enterprise expected Income to be Tax granted Law which by our came Company into effect to the on InternationalJanuary 1, 2008 Underwriters, exercisable by the Joint Bookrunners (on behalf of the International Underwriters), “PRC GAAP” pursuantgenerally to accepted which our accounting Company principles may be required in China to issue up to 75,800,000 additional Shares (representing 15% of the number “Pre-IPO RSU Scheme” ofthe Offer scheme Shares conditionally initially being approved offered and under adopted the by Global our Offering)Company at on the November Offer Price 8, 2010 to, among for the other grant things, of RSUs cover to over-allocationseligible participants in the prior International to the Global Offering, Offering, details the ofprincipal which areterms described of which in the are section summarized headed “Structure in the section of the headedGlobal Offering“Statutory — and International General Information Offering — — Over-allotment Pre-IPO RSU Scheme” Option” inin thisAppendix prospectus IX to this prospectus

“PCI“Price Fibres” Determination Date” PCIthe date, Fibres, expected a specialist to be consultancy on or about to December the global 2, fibers 2010, and on relatedwhich the industries Offer Price will be determined and, in any event, not later than December 6, 2010 “PCI Fibres Research Report” the research report prepared by PCI Fibres on the global “QIB” specialtya qualified cellulose institutional industry buyer which within was the commissioned meaning of Rule by 144A us

“PEAML”“RAF” PacificRegistro Eagle de Atividade Asset Management Florestal (Forest Limited, Activity a limited Register) liability HISTORY ANDcompany REORGANIZATION incorporated in Hong Kong and a company controlled From“Real”, page “Reais” 28: or “R$” byReal, our the Ultimate lawful Controlling currency of Shareholder Brazil

“Pinnacle”“Regulation S” PinnacleRegulation Company S under the Limited, US Securities a limited Act liability company have complied in all material respects with applicable laws and regulations of the BVI, Bermuda, Cayman incorporated in Republic of Seychelles and controlled by our Islands and Macau, as the case may be, and have obtained the necessary regulatory approvals, if any, required “Reorganization” Ultimatethe reorganization Controlling ofShareholder the Group in preparation for the Listing, in the BVI, Bermuda, Cayman Islands or Macau,details of as which the case are set may out be, in inthe each section case headed in respect “History of and the Reorganization. Reorganization — Our Corporate Reorganization” in this From page 29: prospectus 1. Incorporation of Our Company “RGE” RGE Pte Ltd, a limited liability company incorporated in Our Company was incorporated in BermudaSingapore on June and 8, a 2010 company with an controlled authorized by share our capital Ultimate of US$10,000, divided into 10,000 ordinary sharesControlling with a nominal Shareholder value of US$1.00 each, and an issued and fully paid-up share capital of US$100, divided into 100 ordinary shares with a nominal value of US$1.00, “RMB” or “Renminbi” Renminbi,—28— the lawful currency of the PRC allFrom of page which 85: were allotted and issued to Gold Silk, a company ultimately controlled by the Tanoto Family. “RSU” a restricted share unit granted pursuant to the Pre-IPO RSU 2. Disposal of DP Macao Scheme or the Post-IPO RSU Scheme

“RSUOn Schemes” August 24, 2010, Sateri Specialty Cellulosethe Pre-IPO entered RSU into Scheme a share and transfer the Post-IPO agreement RSU Scheme(which was supplemented by a supplemental agreement dated October 1, 2010) to dispose of its entire shareholding interest“Rule 144A” in DP Macao with effectHISTORY from September ANDRule 30, 144AREORGANIZATION 2010 under to Blue the Dot, US a Securities company controlledAct by our Ultimate Controlling Shareholder, for a cash consideration of MOP13,229,521 (US$1.6 million) which represents the net“SAFE” book value of DP Macao as of SeptemberState 30, 2010.Administration of Foreign Exchange of the PRC Immediately following the Reorganization, our simplified corporate structure will be as follows: DP Macao’s principal businessHISTORY is in the AND trading REORGANIZATION of pulp, which includes paper pulp and dissolving wood pulpFrom producedpage 87: by TPL, a companyThe Tanoto controlled Family(1) by our Ultimate Controlling Shareholder. TPL does not have its own international sales,Gold marketing Silk Holdings Limitedor technical service team, international customer relationships or an Immediately following theCayman Reorganization, Islands our simplified corporate structure will be as follows: international distribution network(Investment for holding) dissolving wood pulp and it has relied on the Group’s sales, marketing and technical service resourcesThe Tanoto to market, Family(1) sell and provide technical service to its dissolving wood pulp Sateri Holdings Limited customers outside Indonesia. Bermuda Gold(Investment Silk Holdings holding) Limited Cayman Islands (Investment holding) Our strategy followingSateri the International Listing Co. is Ltd to focus—29— on producing and selling our own dissolving wood pulp BVI and viscose staple fibers andSateri not(Investment Holdings to engage Holding) Limited in the trading of paper pulp and dissolving wood pulp as principal Bermuda so as to avoid trading risks which(Investment could holding) potentially affect our overall profitability and the volatility of our earnings. DP Macao’s principalSateri International business Co. Ltd is not inSateri line Specialty with Cellulose this strategy. Limited For the foregoing reasons and in BVI Cayman Islands order to minimize operational(Investment disruption Holding) to our operations(Investment and DP holding) Macao’s existing paper pulp customers and operations and to allow us to concentrate on our strategy, we disposed of our entire shareholding interest in Sateri Specialty Cellulose Limited DP Macao but retainedSateri DP Macao’s internationalSateri salesDP Marketing team for dissolving wood pulp within the Group. Sateri Cayman Islands Specialty Cellulose Sateri China Sateri (Hong Kong) Marketing Marketing International SC Sateri International (Investment holding)Sateri Bacell Marketing Following(Hong Kong) thisManagement disposal, weSA no longer haveInternational any liabilitiesLimited in respect of DPMarketing Macao, save for anyCopener trade balances (Singapore) Limited Pte. Ltd. Limited Limited Switzerland Limited BVI Limited Limited Pte Ltd BVI Singapore relatingHong Kong to theHong Agency Kong (Marketing Agreement and the SalesCayman Framework(Marketing Agreement. BVI BVI (Provision of advisory Singapore (Investment (Sales and (Investment servicesSateri for IslandsSateri DPand Marketing sales of (Investment (Investment and administrative (InvestmentSateri holding) Specialtymarketing Cellulose of Sateriholding) China Sateri (Hong Kong) Marketingcellulose (InvestmentMarketing Internationalcellulose holding)SC holding)Sateri services) Internationalholding) Sateri Bacell specialtyMarketing cellulose) (Hong Kong) Management products)SA Internationalholding) products)Limited Marketing Copener In order to minimize any(Singapore) potential competition from TPLLimited in relation to ourPte. dissolving Ltd. wood pulp Limited Limited Switzerland Limited BVI Limited Limited Pte Ltd BVI Singapore Hong Kong Hong Kong (Marketing Cayman (Marketing BVI BVI Singapore (Investment (2) (Sales and business,(Investment SC(Provision International of advisory services forMacao, our subsidiary,SCIslands International enteredandBahia sales of Specialty into Cellulosethe Agency S.A. (Investment Agreement with(Investment DP Macao on (Investment holding) marketing of holding) and administrative cellulose (InvestmentMacao cellulose Brazil holding) holding) holding) specialty cellulose) November 3, 2010services) pursuantproducts) to which SC Internationalholding)Macau products) Macao(Manufacturing has and been sales of appointed as DP Macao’s agent for (Marketing of cellulose products) the sale of the dissolving wood pulp produceddissolving by wood TPL and acquired by DP Macao outside Indonesia and SC SC International (2) Sateri (Fujian) Sateri (Jiangxi) Sateri (Shanghai) pulp) Bahia Specialty Cellulose S.A. Norcell S.A.(3) Chemical Fibre Management Macao Brazil InternationalFibre Co., Ltd Macao has(4) the right of first refusal to sell such dissolving wood pulp as DP Macao’sBrazil agent. Co., Ltd. Limited Macau (Manufacturing and sales of PRC (Marketing of cellulose products) (Investment holding) (Manufacturing and PRC PRC (Manufacturing and (Provision of advisory dissolving wood SaterisalesPlease of (Fujian) viscose seeSateri the (Jiangxi) section headedSateri (Shanghai) “Relationshippulp) with Our Controlling Shareholders — BusinessNorcell S.A.(3) Retained staple fibers) Chemicalsales of viscose Fibre andManagement administrative Fibre Co., Ltd staple fibers)(4) services) CopenerBrazil by OurPRC ControllingCo., Ltd.Shareholders”Limited in this prospectus for further details. (Investment holding) (Manufacturing and PRC PRC Florestal Ltda. sales of viscose (Manufacturing and (Provision of advisory Brazil staple fibers) sales of viscose and administrative (Plantation in Brazil) staple fibers) services) Copener Florestal Ltda. 3. Acquisition of Sateri Marketing International Brazil (Plantation in Brazil) Notes: On September 13, 2010, Sateri Specialty Cellulose acquired the entire issued share capital of Sateri Marketing(1) The Tanoto International, Family beneficially an investment own 100% holding of Gold Silk. company The Trustee incorporated holds 100% in of the issued Cayman share Islands, capital of fromGold Silk Hibiscus on trust Notes: Bay, afor company beneficiaries controlled including by the our Tanoto Ultimate Family. Controlling Shareholder for a nominal consideration of US$1.00, (1) The Tanoto Family beneficially own 100% of Gold Silk. The Trustee holds 100% of the issued share capital of Gold Silk on trust (2) Sateri Bacell Limited holds 98.2% of the total issued common shares and 100% of the total issued preferential shares in Bahia whichfor represents beneficiaries the including net book the Tanoto value Family. of Sateri Marketing International. Prior to the Acquisition, Sateri Sateri HoldingsSpecialty Limited. Cellulose 2010. S.A.“Sateri The Holdings three directorsLimited Global whom Offering.” we have Company appointed prospectus. to the board Hong ofKong. directors November of Bahia26, 2010. Specialty http://www3. Cellulose, Marketing(2) Sateri Bacell International Limited holds acquired 98.2% of the the total entire issued issued common share shares capital and 100% of of SC the total International issued preferential Macao shares from in Bahia an hkexnews.hk/listedco/listconews/sehk/2010/1126/ltn20101126025.pdfbeing Mr. Will Hoon Wee Teng, Mr. Ivan Alves and Mr. Claudio. Laert Cotrim Passos, each hold one common share pursuant to independentSpecialty third Cellulose party S.A. for The a threecash directors consideration whom we of have MOP100,000 appointed to the (US$12,460) board of directors on September of Bahia Specialty 2, 2010. Cellulose, beingthe relevant Mr. Will Brazilian Hoon Wee statutory Teng, and Mr. legal Ivan Alves requirements. and Mr. LenzingClaudio LaertAG holds Cotrim 1.2% Passos, and Bacell each hold Handels one common GmbH holds share 0.6% pursuant of the to remaining common shares. The preferential shares carry the same rights as common shares, except that they do not carry any THE MACAOthe relevant MONEY Brazilian MACHINE: statutory PROFIT and SHIFTING legal requirements. AND TAX LEAKAGE Lenzing AG holds 1.2% and Bacell Handels GmbH holds 0.6% of the65 voting rights, they have priority in the event of a capital reimbursement and are entitled to dividends 10% higher than those IN INDONESIA’Sremaining PULP common EXPORTS shares. The preferential shares carry—85— the same rights as common shares, except that they do not carry any votingpayable rights, for common they have shares, priority and inthey the may event be of converted a capital into reimbursement common shares and by are a entitled resolution to dividends of the common 10% higher shareholders. than those (3) Sateripayable Copener for common Limited shares, holds and all theyexcept may for be three converted of the total intocommon issued common shares byshares a resolution and 74.3% of of the the common total issued shareholders. preferential (3) Saterishares Copener in Norcell Limited S.A.. The holds three all except directors for whom three ofwe the have total appointed issued common to the board shares of and directors 74.3% of of Norcell the total S.A., issued being preferential Mr. Will Hoonshares Wee in Norcell Teng, Mr. S.A.. Ivan The Alves three and directors Mr. Claudio whom weLaert have Cotrim appointed Passos, to each the board holds of one directors of the three of Norcell remaining S.A., common being Mr. shares Will pursuantHoon Wee to Teng, the relevant Mr. Ivan Brazilian Alves and statutory Mr. Claudio and legal Laert requirements. Cotrim Passos, Bahia each Specialty holds Celluloseone of the holds three the remaining remaining common 25.7% shares of the preferentialpursuant to the shares. relevant The Brazilian preferential statutory shares and carry legal the requirements. same rights as Bahia common Specialty shares, Cellulose except that holds they the do remaining not carry 25.7% any voting of the rights,preferential they have shares. priority The preferential in the event shares of a capital carry reimbursement, the same rights and as theycommon may shares, be converted except into that common they do shares not carry by a any resolution voting ofrights, thecommon they have shareholders. priority in the event of a capital reimbursement, and they may be converted into common shares by a resolution of the common shareholders. (4) Sateri Singapore holds 81.1% of the registered capital in Sateri Jiangxi while Kuitu Oy is the existing holder of the remaining (4) Sateri Singapore holds 81.1% of the registered capital in Sateri Jiangxi while Kuitu Oy is the existing holder of the remaining 18.9% of the registered capital in Sateri Jiangxi. 18.9% of the registered capital in Sateri Jiangxi.

—87— Figure 24. Excerpt from PT Toba Pulp Tbk public announcement showing common ownership of Toba Pulp, Pinnacle Company Limited, and DP Macao, as of November 22, 2017

Hal 1

1. Miduk Pakpahan SE., M.Ec.Dev, MAPPI (Cert), anggota Senior dari MAPPI No. 92- PENDAHULUAN S-00198 dan memiliki Ijin Penilai Publik untuk bidang Properti dan Bisnis dari Menteri Keterbukaan Informasi ini sebagaimana dinyatakan dalam dokumen ini dibuat sehubungan Keuangan No. PB-1.09.00168, juga memiliki Ijin Penilai Pasar Modal dari Badan rencana transaksi sebagai berikut: KETERBUKAAN INFORMASI KEPADA PEMEGANG SAHAM MENGENAI Pengawas Pasar Modal Indonesia No. 25/BL/STTD-P/AB/2007. 1. Pemberian Pinjaman baru dari PCL kepada Perseroan dengan nilai sebesar maksimal 2. Ir. Ax. Totok Wasito, MM,M.Ec.Dev, MAPPI (cert), anggota Senior dari MAPPI No. 98- US$ 150.000.000 (Seratus Lima Puluh Juta Dolar Amerika Serikat); S-01112 dan memiliki Ijin Penilai Publik untuk bidang Properti dan Bisnis dari Menteri RENCANA TRANSAKSI MATERIAL DAN TRANSAKSI AFILIASI Keuangan No. PB-1.08.00034, juga memiliki Ijin Penilai Pasar Modal dari Badan 2. Pinjaman yang telah ada sebelumnya dari PCL kepada Perseroan dengan nilai Pengawas Pasar Modal Indonesia No. 13/BL/STTD-P/AB/2006. sebesar US$ 96.655.361 (Sembilan Puluh Enam Juta Enam Ratus Lima Puluh Lima Ribu Tiga Ratus Enam Puluh Satu Dolar Amerika Serikat) dengan berbagai periode dan PT TOBA PULP LESTARI TBK 3. Trigata AD, anggota Terakreditasi dari MAPPI No. 05-T-01911. tingkat suku bunga yang selanjutnya akan digabung menjadi satu perjanjian. G. Ringkasan atas Laporan Penilaian Independen Transaksi di atas merupakan transaksi yang mengandung unsur transaksi afiliasi (“ ”) Sebagaimana diatur dalam Peraturan Bapepam-LK No. IX.E.1 dan IX.E.2, untuk sebagaimana didefinisikan dalam Peraturan Bapepam dan LK No. IX.E.1, karena PCL Perseroan memastikan Kewajaran Rencana Transaksi yang akan dilakukan oleh Perseroan, merupakan perusahaan afiliasi dari Perseroan dimana PCL sebagai pemegang saham Perseroan telah meminta Konsultan Penilai Independen, Kantor Jasa Penilai Miduk Totok utama. Di samping itu transaksi inipun merupakan transaksi material sebagaimana Keterbukaan Informasi ini memuat informasi mengenai rencana transaksi: 1) Pemberian Pinjaman baru dari Pinancle Company Limited (“PCL”) kepada PT Toba Pulp Lestari & Rekan, untuk memberikan Pendapat Kewajaran atas Rencana Transaksi sebagaimana didefinisikan dalam Peraturan Bapepam dan LK No. IX.E.2 dimana nilai dari transaksi Tbk (“Perseroan”) dengan nilai sebesar maksimal US$ 150.000.000 (Seratus Lima Puluh Juta Dolar Amerika Serikat); 2) Pinjaman yang telah ada sebelumnya dari PCL kepada disajikan dalam Laporan Opini Kewajaran No: 063PB_FO/MTR.MP-TPL/XI/2017 tertanggal 15 November 2017 Perihal Laporan Pendapat Kewajaran Atas Rencana Peminjaman Dana adalah lebih dari 50% dari jumlah ekuitas Perseroan sebesar US$160.128.000 berdasarkan Perseroan dengan nilai sebesar US$ 96.655.361 (Sembilan Puluh Enam Juta Enam Ratus Lima Puluh Lima Ribu Tiga Ratus Enam Puluh Satu Dolar Amerika Serikat) dengan laporan keuangan Perseroan untuk tahun yang berakhir pada tanggal 30 Juni 2017 yang dan Perubahan Perjanjian atas Pinjaman yang Telah Ada Sebelumnya dari PT Toba Pulp diaudit oleh Kantor Akuntan Publik Budiman, Wawan, Pamudji, dan Rekan. Sehingga berbagai periode dan tingkat suku bunga yang selanjutnya akan digabung menjadi satu perjanjian. Keterbukaan informasi ini dipersiapkan dalam rangka memenuhi Peraturan Lestari Tbk. Perseroan harus memperoleh persetujuan Rapat Umum Pemegang Saham (RUPS). Bapepam dan LK (sekarang disebut “OJK”) No. IX.E.2 tentang Transaksi Material dan Perubahan Kegiatan Usaha Utama, yang merupakan lampiran dari Keputusan Ketua Bapepam dan LK No. Kep-614/BL/2011 tanggal 28 November 2011 (“Peraturan Bapepam dan LK No. IX.E.2”) dan Peraturan Bapepam dan LK No. IX.E.1 tentang Transaksi Afiliasi Ringkasan hasil penilaian yang dilakukan oleh KJPP Miduk Totok&Rekan: Direksi dan Dewan Komisari Perseroan, baik secara sendiri-sendiri maupun bersama-sama dan Benturan Kepentingan Transaksi Tertentu, yang merupakan lampiran dari Keputusan Ketua Bapepam dan LK No. Kep-412/BL/2009 tanggal 29 November 2009 (“Peraturan Dalam melakukan evaluasi kewajaran atas Rencana Transaksi, analisis dilakukan sebagai menyatakan bahwa transaksi ini tidak mengandung benturan kepentingan sebagaimana berikut: dimaksud dalam Peraturan Bapepam dan LK No. IX.E.1. Berdasarkan Peraturan Bapepam dan LK No. IX.E.1”). Bapepam dan LK No. IX.E.1, Transaksi yang mengandung benturan kepentingan adalah DIREKSI DAN DEWAN KOMISARIS PERSEROAN BAIK SECARA SENDIRI-SENDIRI MAUPUN BERSAMA-SAMA BERTANGGUNG JAWAB SEPENUHNYA ATAS KEBENARAN a. Analisis Kualitatif berupa Analisis Industri Pulp di Indonesia, Analisis Operasional dan Prospek Perseroan, Analisis Alasan dan Latar Belakang Perseroan untuk Melakukan transaksi yang mengandung perbedaan antara kepentingan ekonomis Perseroan dengan DARI SELURUH INFORMASI ATAU FAKTA MATERIAL YANG TERDAPAT DALAM KETERBUKAAN INFORMASI INI DAN MENEGASKAN, BAHWA SETELAH MELAKUKAN Rencana Transaksi, Analisis Keuntungan dan Kerugian Atas Rencana Transaksi, kepentingan ekonomis pribadi anggota Direksi, anggota Dewan Komisaris, atau pemegang PENELITIAN SECARA SEKSAMA DAN SEPANJANG SEPENGETAHUAN DAN KEYAKINAN MEREKA, INFORMASI MATERIAL YANG TERDAPAT DALAM KETERBUKAAN saham utama yang dapat merugikan Perusahaan dimaksud. Analisis Dampak Leverage pada Keuangan Perseroan di Masa yang akan Datang INFORMASI INI ADALAH BENAR DAN TIDAK ADA FAKTA MATERIAL LAIN YANG DIHILANGKAN SEHINGGA MENYEBABKAN INFORMASI YANG TERDAPAT DALAM Dibandingkan Dengan Industri yang Sejenis dan Sebanding, Analisis Dampak Sehubungan dengan hal-hal tersebut di atas, sesuai dengan ketentuan peraturan KETERBUKAAN INFORMASI INI MENJADI TIDAK BENAR, TIDAK LENGKAP, ATAU MENYESATKAN. Likuiditas pada Keuangan Perseroan di Masa yang akan Datang untuk Memastikan perundangan yang berlaku, khususnya Peraturan Bapepam dan LK No. IX.E.1 dan No. Bahwa Pinjaman Dapat Dilunasi Pada Saat Jatuh Tempo. IX.E.2, Direksi Perseroan mengumumkan Keterbukaan Informasi ini dengan maksud untuk memberikan informasi maupun gambaran yang lebih lengkap kepada para pemegang b. Analisis Kuantitatif berupa Analisis Kinerja Historikal, Analisa Rasio Keuangan, Analisis saham Perseroan mengenai rencana transaksi yang akan dilakukan Perseroan dengan Dampak Keuangan Perseroan dari Rencana Transaksi (“Proforma”), Analisis Cash PCL. Management dari Rencana Transaksi, Analisis Kewajaran Nilai Transaksi (Analisis Perbandingan Tingkat Bunga, Analisis Inkremental (Nilai Tambah) dari Rencana Transaksi, Analisis Sensitivitas untuk Mengukur Keuntungan dan Kerugian dari PENJELASAN MENGENAI TRANSAKSI Transaksi Penerimaan Pinjaman), Analisis Kelayakan Rencana Penggunaan Dana atas I. Alasan dan Latar Belakang Transaksi PT Toba Pulp Lestari Tbk Rencana Transaksi. A. Pinjaman baru sebesar maksimal US$ 150.000.000 Kesimpulan Perseroan didirikan dan beroperasi sebagai perusahaan yang mendirikan dan menjalankan Kegiatan Usaha: Berdasarkan analisis kewajaran atas Rencana Transaksi sebagaimana diuraikan di atas, industri bubur kertas (pulp) dan serat rayon (viscose rayon), mendirikan, menjalankan, dan Industri Bubur Kertas (Pulp) dan Serat Rayon (Viscose Rayon), serta Hutan Tanaman Industri (HTI) dan industri lain dengan melihat alasan-alasan, manfaat, risiko, dan analisa kewajaran transaksi, KJPP mengadakan pembangunan hutan tanaman industri dan industri lainnya untuk mendukung untuk mendukung bahan baku dari Industri Pulp Miduk, Totok & Rekan berpendapat bahwa: bahan baku dari industri tersebut, serta mendirikan dan memproduksi semua macam Berkedudukan di: Dengan mempertimbangkan analisis atas Rencana Transaksi penerimaan pinjaman dari barang yang terbuat dari bahan-bahan tersebut, serta memasarkan hasil-hasil industri PCL maksimum sebesar US$150.000.000 dan atas pengikatan kembali pinjaman sebesar tersebut. Medan, Sumatera Utara, Indonesia US$96.655.361 ke dalam satu perjanjian pinjam meminjam yang baru antara PCL dan Perseroan akan melanjutkan usahanya secara berkesinambungan, namun sampai dengan Kantor Pusat: Mill: Perseroan, yang dilakukan meliputi analisis kualitatif, analisis kuantitatif (salah satunya 30 Juni 2017, Perseroan mengalami akumulasi kerugian bersih sebesar US$530.216.000. Uniplaza East Tower, 6th Desa Pangombusan, Kecamatan Parmaksian, Kabupaten Toba Samosir, melalui analisis inkremental), maka dari segi ekonomis dan keuangan, seperti diuraikan Menghadapi kondisi tersebut, manajemen perseroan telah menyusun rencana untuk Jalan Letnan Jenderal Haryono MT Nomor. A-1 Propinsi Sumatera Utara di atas kami menyimpulkan bahwa secara keseluruhan rencana transaksi tersebut adalah meningkatkan dan memperbaiki kinerja perusahaan, dengan melakukan langkah-langkah wajar bagi Perseroan maupun pemegang saham Perseroan. Sehubungan dengan sebagai berikut : Medan 20231 Telepon: +62 632 734 6000, +62 632 734 6001 Rencana Transaksi ini merupakan transaksi material sebagaimana didefinisikan dalam Telepon: +62 61 453 2088 Fax: +62 632 734 6006 1. Memperbaiki kualitas bubur kertas untuk meningkatkan penjualan. Peraturan No. IX.E.2 dimana nilai dari Rencana Transaksi atas penerimaan pinjaman Fax: +62 61 453 0967 dari PCL maksimum sebesar US$150.000.000 dan atas pengikatan kembali pinjaman 2. Meningkatkan efisiensi biaya operasional termasuk investasi teknologi terbaru. Website: www.tobapulp.com 3. Meningkatkan MAI (Mean Annual Increment) untuk penanaman dengan sebesar US$96.655.361 adalah lebih dari 50% dari jumlah ekuitas Perseroan sebesar memperkenalkan cara-cara terbaik. Keterbukaan Informasi ini diterbitkan di Medan pada tanggal 22 November 2017 US$160.128.000 atau mencapai sebesar 93,68% dan 60,36% berdasarkan Laporan 4. Meningkatkan volume produksi dengan investasi peralatan berkapasitas lebih besar. Keuangan Interim Perseroan untuk periode yang berakhir pada tangga 30 Juni 2017. Selain itu, adanya permintaan pengembalian pembayaran uang muka dari DP Marketing Oleh karenanya sesuai dengan Peraturan No. IX.E.2 merupakan Transaksi Material dan International Macao Commercial Offshore Limited (DPMM) melalui surat tertanggal 25 Juli Status perusahaan Perseroan selanjutnya diubah menjadi Perusahaan Penanaman c. Kegiatan Usaha DPMM atas Rencana Transaksi tersebut harus diumumkan kepada publik serta dikarenakan Modal Asing (PMA) dengan persetujuan Presiden Republik Indonesia dengan Surat 2017 dimana Perseroan diwajibkan untuk membayar kembali uang muka tersebut kepada Perusahaan telah diberikan izin oleh Macao Trade and Investment Promotion Institute Rencana Transaksi yang melebihi dari 50% terhadap jumlah ekuitas Perseroan juga Pemberitahuan Persetujuan Presiden No 07/V/1990 tanggal 11 Mei 1990 yang dikeluarkan (IPIM) pada bulan Juli 2007 untuk mengoperasikan bisnis offshore di Macao. Kegiatan diwajibkan terlebih dahulu untuk memperoleh persetujuan RUPS sebagaimana prosedur DPMM sebesar US$ 40.000.000,- paling lambat pada bulan Desember 2017. Oleh karena oleh Ketua Badan Koordinasi Penanaman Modal. pola pembayaran dari pelanggan Perseroan khusus DPMM, Perseroan telah menerima bisnis perusahaan meliputi sebagai berikut: dan persyaratan yang ditetapkan dalam dengan Peraturan No. IX.E.2. uang muka terlebih dahulu sebelum pengiriman produk dilakukan yang menyebabkan Sehubungan dengan perubahan yang disebutkan di atas dalam status perusahaan, a) Agen komersial dan layanan. Atas dasar hal-hal yang diuraikan di atas, kami berpendapat bahwa Rencana Transaksi akumulasi uang muka sebesar US$ 61.713.860 sesuai laporan keuangan per 30 Juni 2017. Anggaran Dasar Perseroan telah diubah dengan akta notaris No 113 tanggal 12 Mei 1990 b) Kegiatan jual beli overseas. berupa: dari Rachmat Santoso, SH, notaris di Jakarta. Selain itu, nilai nominal saham Perseroan c) Jasa dokumentasi. Atas dasar laporan keuangan Perseroan per 30 Juni 2017, Perseroan tidak memiliki dana diubah dari Rp 500 ribu per saham menjadi Rp 1 ribu per saham. Perubahan ini telah 1. Pemberian Pinjaman baru dari PCL kepada Perseroan dengan nilai sebesar maksimal tunai dan modal kerja yang cukup untuk memenuhi rencana peningkatan dan perbaikan disahkan oleh Menteri Kehakiman Republik Indonesia dalam Surat Keputusan No C2- d) Call center untuk dukungan pelanggan. US$ 150.000.000 (Seratus Lima Puluh Juta Dolar Amerika Serikat); kinerja Perseroan dan pengembalian uang muka tersebut di atas. 2652.HT.01.04. TH.90 tanggal 20 Mei 1990. e) Kantor Administrasi. 2. Pinjaman yang telah ada sebelumnya dari PCL kepada Perseroan dengan nilai sebesar Sehubungan dengan hal tersebut di atas, manajemen Perseroan bermaksud menarik Perubahan Anggaran Dasar Perseroan mengenai perubahan nama Perusahaan dari Saat ini, DPMM ikut serta dalam bisnis offshore di Macao yang berkaitan dengan US$ 96.655.361 (Sembilan Puluh Enam Juta Enam Ratus Lima Puluh Lima Ribu Tiga pinjaman dari perusahaan afiliasinya yaitu PCL dengan pinjaman yang jangka waktunya PT Inti Indorayon Utama Tbk menjadi PT Toba Pulp Lestari Tbk dan penurunan modal perdagangan produk pulp. Ratus Enam Puluh Satu Dolar Amerika Serikat) dengan berbagai periode dan tingkat lebih panjang dan tingkat bunga yang lebih rendah dibanding dengan rata-rata bunga dasar dari Rp 2.000.000.000,- menjadi Rp 1.688.307.072,- dituangkan dalam akta No 61 d. Susunan Pengurus DPMM suku bunga yang selanjutnya akan digabung menjadi satu perjanjian. bank secara umum, guna menghindari defisit kas. Fasilitas pinjaman yang akan diperoleh tanggal 20 Februari, 2001 dari Linda Herawati, SH, notaris di Jakarta. Perubahan ini telah Susunan Direksi DPMM (tidak memiliki Dewan Komisaris) per 30 Juni 2017 adalah adalah wajar (fair). dari PCL memiliki syarat-syarat pinjaman yang lebih baik bagi Perseroan dibanding ke disetujui oleh Menteri Hukum dan Hak Asasi Manusia Republik Indonesia dengan Surat sebagai berikut : H. Rapat Umum Pemegang Saham Luar Biasa perbankan. Keputusan No C - 06519.HT.01.04.TH.2001 tanggal 23 Agustus 2001. Dan Anggaran Direktur : Yang Yuanyuan Rencana Transaksi wajib memperoleh persetujuan RUPSLB Perseroan yang akan B. Pinjaman yang telah ada sebelumnya sebesar US$ 96.655.361 Dasar Perseroan selanjutnya diubah berdasarkan akta notaris No 61 tanggal 18 Juli 2003 Kingsway Accountancy & Secretarial Limited. dilaksanakan pada hari Jumat, tanggal 29 Desember 2017. Adapun Pinjaman yang telah ada sebelumnya yang berasal pemegang saham utama dari Linda Herawati, SH, notaris di Jakarta, mengenai penambahan modal ditempatkan dan (PCL) sebesar US$ 96.655.361 dengan berbagai periode dan tingkat suku bunga yang disetor. Perubahan tersebut telah diterima dan terdaftar di Departemen Kehakiman dan e. Gambaran Hubungan Masing-masing Pihak Dalam Transaksi Pemanggilan untuk RUPSLB Perseroan akan diumumkan pada hari Rabu, tanggal 07 selanjutnya akan digabung menjadi satu perjanjian dengan tingkat suku bunga 3M LIBOR Hak Asasi Manusia Republik Indonesia dalam Perubahan Anggaran Dasar Penerimaan Desember 2017 dalam 1 (satu) surat kabar harian berbahasa Indonesia yang berperedaran + 3,5%. Laporan Perseroan No C - 21113.HT.01.01.04.TH.2003 tanggal 5 September 2003. nasional, situs BEI, dan situs Perseroan. Berdasarkan keputusan rapat umum pemegang saham luar biasa pada tanggal 27 Juni II. Manfaat dari Transaksi Pemegang Saham Perseroan yang tidak dapat hadir, dapat diwakili oleh kuasanya dengan 2008 dan melalui akta No. 45 tanggal 14 Juli 2008 pada notaris Linda Herawati SH., seluruh membawa Surat Kuasa yang sah seperti ditetapkan oleh Direksi, dengan ketentuan A. Pinjaman baru sebesar maksimal US$ 150.000.000 anggaran dasar telah mengalami perubahan guna menyesuaikan dengan Undang-Undang bahwa anggota Komisaris, Direksi, dan karyawan Perseroan dapat bertindak selaku Dengan dilakukannya Transaksi ini, Perseroan akan memperoleh manfaat-manfaat No. 40 Tahun 2007 tentang Perseroan Terbatas Peraturan No. IX.J.1 Lampiran Keputusan kuasa pemegang saham dalam menghadiri Rapat, namun tidak diperbolehkan dalam sebagai berikut: Badan Pengawas Pasar Modal dan Lembaga Keuangan (Bapepam-LK) dan Lembaga pemungutan suara. Formulir Surat Kuasa dapat diperoleh pada setiap hari kerja di Kantor 1. Industri bubur kertas (pulp) dan serat rayon (viscose rayon) memiliki prospek ke Keuangan No. Kep-179/BL/2008 tanggal 14 Mei 2008. Perubahan tersebut kemudian telah Perseroan pada hari dan jam kerja Perseroan sebagai berikut: depan yang positif dengan pertumbuhan yang signifikan. Industri ini diproyeksikan memperoleh persetujuan dari Menteri Hukum dan Hak Asasi Manusia Republik Indonesia - PT Toba Pulp Lestari Tbk akan tumbuh seiring dengan prospek perekonomian Indonesia yang cerah. Untuk dalam surat keputusannya No. AHU-50872.AH.01.02.Tahun 2009 tanggal 21 Oktober 2009. - Gedung Uniplaza, East Tower, Lantai 6 menunjang pertumbuhan usaha Perseroan, maka Perseroan memerlukan pinjaman - Jl. Letjend. Haryono MT No. A-1, Medan baru dari pemegang saham utama (PCL) dengan plafond maksimum sampai dengan Pada tahun 2015, Perusahaan melakukan perubahan Anggaran Dasar untuk disesuaikan - Telepon: (061) 4532088 dengan Peraturan Otoritas Jasa Keuangan (OJK) Nomor 32/POJK.04/2014 tanggal 08 US$ 150.000.000,- tingkat suku bunga 3M LIBOR + 3,5% yang akan digunakan untuk Untuk saham-saham Perseroan yang belum dimasukkan ke dalam penitipan kolektif keperluan sebagai berikut : Desember 2014 serta peraturan terkait lainnya dari instansi yang berwenang, sesuai dengan Akta Pernyataan Keputusan Rapat Perubahan Anggaran Dasar No. 04 tanggal hanyalah Pemegang Saham atau kuasanya yang sah yang namanya tercatat dalam Daftar • Mill major maintenance dan penggantian sebagian mesin diperkirakan sebesar US$ 18 Juni 2015 yang dibuat di hadapan Gunawati, SH. Perubahan tersebut kemudian telah Pemegang Saham (DPS) Perseroan pada tanggal 06 Desember 2017 sampai pukul 16.00 100.000.000. diterima dan dicatat oleh Kementerian Hukum dan Hak Asasi Manusia Republik Indonesia WIB pada Biro Administrasi Efek Perseroan dan Untuk saham Perseroan yang berada • Pengembalian sebagian panjar kepada pihak afiliasi DPMM dan/atau keperluan dalam Laporan Penerimaan Akta Perubahan Anggaran Dasar Perusahaan No. AHU- dalam penitipan kolektif PT KSEI hanyalah pemegang saham yang terdaftar dalam modal kerja lainnya sebesar US$ 50.000.000. AH.01.03-0945275 tanggal 24 Juni 2015. DPS yang tercatat dan diterbitkan oleh PT KSEI pada tanggal 06 Desember 2017 pukul 2. Untuk menghindari terjadinya defisit kas dan setara kas seperti diuraikan di atas Kegiatan usaha Perseroan sesuai dengan anggaran dasar Perseroan pasal 3 Anggaran 16.00 WIB. Pemegang Saham yang terdaftar pada Tanggal DPS berhak mengeluarkan Perseroan akan menarik pinjaman dari PCL sebesar US$ 150.000.000. Apabila Dasar Perseroan adalah mendirikan dan menjalankan industri bubur kertas (pulp) dan serat satu suara untuk setiap saham yang dimilikinya untuk menyetujui atau tidak menyetujui Rencana Transaksi ini disetujui PCL. Perseroan yang selama ini bergerak dalam rayon (viscose rayon), mendirikan, menjalankan, dan mengadakan pembangunan hutan Rencana Transaksi. Berikut adalah tanggal-tanggal penting dalam kaitannya dengan bidang industri bubur kertas (pulp) dan serat rayon (viscose rayon), akan memperoleh tanaman industri dan industri lainnya untuk mendukung bahan baku dari industri tersebut, RUPSLB Perseroan: dana tunai sebesar maksimal US$ 150.000.000 yang akan digunakan untuk membayar serta mendirikan dan memproduksi semua macam barang yang terbuat dari bahan-bahan • Pengumuman RUPSLB melalui surat kabar: 22 November 2017. tujuan tersebut di atas. tersebut, serta memasarkan hasil-hasil industri tersebut. Perseroan mulai berproduksi • Pengumuman Keterbukaan Informasi mengenai Rencana Transaksi melalui surat secara komersial pada tanggal 1 April 1989. Saat ini Perseroan hanya memproduksi bubur kabar: 22 November 2017. 3. Dengan diperolehnya pinjaman dari PCL dengan grace period selama 3 tahun dan D. Transaksi Material dan Transaksi Afiliasi pembayaran pokok disertai bunga selama 9 tahun, maka pada akhir tahun 2029, kertas (pulp) dan hasil produksi Perseroan dipasarkan di dalam dan luar negeri. • Tanggal DPS: 06 Desember 2017. Perseroan diproyeksikan masih memiliki kas dan setara kas yang positif yang Perseroan berdomisili di Medan, Sumatera Utara, dengan pabrik yang berlokasi di Desa Berdasarkan Laporan Opini Kewajaran No: 063PB_FO/MTR.MP-TPL/XI/2017 tertanggal • Pemanggilan RUPSLB melalui surat kabar: 07 Desember 2017. diharapkan dapat dimanfaatkan untuk modal kerja Perseroan untuk meningkatkan Pangombusan, Kecamatan Parmaksian, Kabupaten Toba Samosir, Sumatera Utara. 15 November 2017, transaksi ini merupakan transaksi afiliasi sebagaimana didefinisikan • Pelaksanaan RUPSLB: 29 Desember 2017. pangsa pasar (market share) Perseroan dari kegiatan usaha saat ini, sehingga Kantor terdaftar Perseroan terletak di Uniplaza, East Tower, Jalan Letnan Jenderal dalam Peraturan Bapepam dan LK No. IX.E.1, karena PCL merupakan perusahaan afiliasi • Pengumuman Ringkasan Risalah RUPSLB melalui surat kabar: 03 Januari 2018. dapat mendukung pertumbuhan kinerja keuangan Perseroan untuk menghasilkan Haryono MT No. A-1, Medan. dari Perseroan dimana PCL sebagai pemegang saham utama, dan juga merupakan • Bukti pengumuman melalui surat kabar mengenai Ringkasan Risalah RUPSLB transaksi material sebagaimana didefinisikan dalam Peraturan Bapepam dan LK No. pendapatan yang terus tumbuh dan berkesinambungan bagi Perseroan di masa yang b. Susunan Para Pemegang Saham disampaikan kepada OJK: 05 Januari 2018. IX.E.2 dimana nilai transaksi ini melebihi 50% (lima puluh persen) dari ekuitas Perseroan • Penyampaian Risalah RUPSLB kepada OJK paling lambat: 28 Januari 2018. akan datang yang pada akhinya dapat memberikan nilai tambah kepada pemegang Susunan pemegang saham dan kepemillikan saham Perseroan per tanggal penilaian, 30 saham Perseroan. berdasarkan Laporan Keuangan Interim Perseroan tanggal 30 Juni 2017 yang disertai Juni 2017, adalah sebagai berikut : Laporan atas Reviu Informasi Keuangan Interim oleh Kantor Akuntan Publik Budiman, Berdasarkan ketentuan Pasal 11 Anggaran Dasar Perseroan, korum yang diperlukan untuk 4. Apabila menggunakan fasilitas kredit dari bank dalam pembiayaan untuk modal melangsungkan rapat jika RUPSLB dihadiri dan/atau diwakili oleh lebih dari ½ (satu per Jumlah Saham Persentase Jumlah Wawan, Pamudji & Rekan tanggal 21 Agustus 2017. Dengan demikian, berdasarkan kerjanya, Perseroan akan menghadapi risiko tingkat bunga dimana keuntungan Pemegang Saham Peraturan Bapepam dan LK No. IX.E.2, Perseroan diwajibkan untuk memperoleh dua) bagian dari jumlah seluruh saham dengan hak suara yang sah yang telah dikeluarkan Perseroan akan dipengaruhi oleh perubahan tingkat bunga dan jumlah pinjaman. (lembar) Kepemilikan (US$ 000) oleh Perseroan dan pengambilan keputusan yang sah dan mengikat jika disetujui oleh Pinnacle Company Limited 1.283.649.894 92,42% 304.537 persetujuan Rapat Umum Pemegang Saham (RUPS) dan harus mengumumkan informasi Perubahan kondisi perekonomian di masa depan akan mempengaruhi kemampuan terkait Transaksi kepada publik setidaknya dalam satu surat kabar harian berperedaran lebih dari ½ (satu per dua) bagian dari seluruh saham dengan hak suara yang hadir dalam Perseroan dalam memperoleh pinjaman dengan tingkat bunga yang baik, dan hal ini Masyarakat Lainnya 105.233.389 7,58% 31.548 RUPSLB. Berdasarkan Peraturan No. IX.E.2 angka 5 huruf b, jika Rencana Transaksi Jumlah 1.388.883.283 100% 336.085 nasional dan memberikan bukti atas pengumuman tersebut setidaknya 2 hari kerja setelah dapat mempengaruhi kondisi keuangan dan tingkat keuntungan Perseroan. Dengan penandatanganan perjanjian yang memuat Transaksi Material. tidak memperoleh persetujuan dari RUPSLB, maka rencana tersebut baru dapat diajukan memperoleh pinjaman dari PCL dengan bunga sebesar 3M LIBOR + 3,5% maka tingkat Susunan Pengurus Perseroan kembali 12 bulan setelah pelaksanaan RUPSLB tersebut. E. Pengaruh Transaksi pada Kondisi Keuangan Perseroan bunganya kurang lebih 4,8% per tahun. Beban bunga ini lebih kecil dibanding dengan Dewan Komisaris I. Rekomendasi Direksi Dan Dewan Komisaris Perseroan rata-rata bunga bank secara umum sebesar 5%. Komisaris Utama : Ignatius Ari Djoko Purnomo Berdasarkan Laporan Keuangan Interim Perseroan yang berakhir pada tanggal 30 Juni 2017 yang disertai Laporan atas Reviu Informasi Keuangan Interim oleh Kantor Akuntan Publik Setelah melakukan analisa yang mendalam, Direksi dan Dewan Komisaris Perseroan 5. Rencana Transaksi ini akan lebih menguntungkan dibandingkan dengan pinjaman dari Komisaris : Drs. Sabam Leo Batubara merekomendasikan kepada seluruh Pemegang Saham Perseroan untuk menyetujui perbankan. Selanjutnya perbandingan kondisi yang lain antara penarikan pinjaman dari Komisaris Independen : Lundu Panjaitan, SH, MA Budiman, Wawan, Pamudji, dan Rekan, Laporan Posisi Keuangan, Neraca, dan Laporan Arus Kas Perseroan sebelum dan setelah Transaksi diproyeksikan sebagai berikut: Rencana Transaksi dalam RUPSLB yang akan dilaksanakan pada hari Jumat, tanggal PCL dan kredit dari bank dapat dilihat dalam tabel di bawah ini : Komisaris Independen : Lennardi Anggijono 29 Desember 2017 karena Direksi dan Dewan Komisaris berkeyakinan bahwa Rencana PCL vs Bank Loan Terms: Dewan Direksi a. Proyeksi Keuangan Sebelum dan Setelah Rencana Transaksi Transaksi dilakukan untuk kepentingan terbaik Perseroan dan Pemegang Saham Dari sisi Liabilitas Perseroan sebelum Rencana Transaksi mengalami peningkatan, hal ini Perseroan. PCL Bank Direktur Utama : Vinod Kesavan Direktur : Mulia Nauli disebabkan tanpa adanya Rencana Transaksi Perseroan belum bisa membayar kewajiban J. Informasi Tambahan I. Interest rate 3M LIBOR + 3,5% 5% kepada pinjaman pemegang saham, saldo pinjaman kepada pemegang saham pada tahun Direktur : Anwar Lawden, S.H Untuk informasi lebih lanjut dapat menghubungi: II. Term 9 tahun 1. Roll-over (kredit modal kerja) Direktur : Ghanasyham Behera 2017 sebesar US$96,66 juta dan tidak mengalami perubahan sampai dengan akhir masa 2. 3 Tahun (kredit investasi) Direktur : Lina Bustam proyeksi tahun 2028. PT TOBA PULP LESTARI Tbk III. Grace Period 3 tahun 2 tahun c. Kegiatan Usaha Dengan adanya Rencana Transaksi total Aset Perseroan akan mengalami peningkatan Uniplaza Building, East Tower, Lantai 6 IV. Jadwal pembayaran Tahun 2021 Tahun 2020 Perseroan memiliki kegiatan usaha utama mendirikan dan menjalankan industri bubur hal ini disebabkan kenaikan pada Aset Tetap karena adanya investasi Perseroan yaitu Jalan Letnan Jederal Haryono M.T. No. A-1 V. Jatuh Tempo 2029 2022 kertas (pulp) dan serat rayon (viscose rayon), mendirikan, menjalankan, dan mengadakan penggantian sebagian mesin-mesin Perseroan. Total Aset Perseroan setelah transaksi Medan 20231 VI. Fee pembangunan hutan tanaman industri dan industri lain untuk mendukung bahan baku dari diproyeksikan tahun 2018 sebesar US$439,47 juta, secara perlahan diproyeksikan Telepon : (62-61) 4532088 • Upfront 0% 0,5%-1% industri tersebut, serta mendirikan dan memproduksi semua macam barang yang terbuat mengalami flukuatif kenaikan dan penurunan dikarenakan ada tahun proyeksi dimana Fax : (62-61) 4530967 Perseroan mengalami penambahan mesin sehingga meningkatkan total aset namun • Tahunan 0% 0,25%-1% dari bahan-bahan tersebut, serta memasarkan hasil-hasil industri tersebut. Medan, 22 November 2017 VII. Collateral Tidak ada Ada Pinancle Company Limited (PCL) ada saat dimana investasi penggantian mesin telah selesai total Aset Perseroan mulai mengalami penurunan. Hingga akhir tahun proyeksi tahun 2028 total aset Perseroan Hormat kami, VIII. Financial covenants Tidak ada Ada dan ditentukan a. Riwayat Singkat PCL sebesar US$350,01 juta. Direksi Perseroan Berdasarkan hal-hal yang telah diuraikan di atas, maka rencana transaksi pinjaman dari PCL merupakan sebuah perusahaan swasta yang didirikan dengan nama Pinancle Sejalan dengan pergerakan fluktuatif total Aset Perseroan, dari sisi Liabilitas setelah Company Limited berdasarkan Akta No 040517 Tanggal 13 September 2007 yang belum PCL sebesar maksimal US$ 150.000.000 dengan tingkat bunga 3M LIBOR + 3,5% per adanya Rencana Transaksi ini, pada tahun 2018 akan adanya peningkatan jumlah tahun, diharapkan dapat memberikan nilai tambah bagi Perseroan karena disamping dapat diubah sejak pendirian, dikeluarkan oleh Register of International Business Companies di memperbaiki struktur modal kerja Perseroan juga diharapkan dapat meningkatkan kinerja Seychelles. PCL beralamat kantor di Lantai 1, Victoria Mahe, Seychelles. pinjaman kepada pemegang saham sehingga total liabilitas tahun 2018 diproyeksi menjadi sebesar US$279,25 juta dan ditahun-tahun proyeksi kedepannya mulai mengalami Perseroan yang pada akhinya akan memberikan nilai tambah pula bagi para pemegang b. Susunan Pemegang Saham PCL saham Perseroan. penurunan dikarenakan Perseroan mulai melakukan pembayaran pokok pinjaman. Susunan pemegang saham PCL per tanggal 30 Juni 2017, adalah sebagai berikut : Perseroan diperkirakan mulai melakukan pembayaran pokok pinjaman kepada pemegang B. Pinjaman yang telah ada sebelumnya sebesar US$ 96.655.361 saham mulai tahun 2021. PEMBERITAHUAN Kepemilikan Modal Disetor Dengan dilakukannya Transaksi ini, Perseroan akan memperoleh manfaat-manfaat Pemegang Saham Lembar Saham Pinjaman kepada pemegang saham dengan total pinjaman baru sebesar US$150 juta RAPAT UMUM PEMEGANG SAHAM LUAR BIASA sebagai berikut: % (US$) diproyeksikan akan dicairkan dalam 3 tahap yaitu pada tahun 2017 sebesar US$50 1. Keseragaman tingkat suku bunga. Eden Hall Ltd 50.000 100% 50,000 juta, tahun 2018 sebesar US$95,5 juta dan pada tahun 2020 sebesar US$4,5 juta hal PT TOBA PULP LESTARI Tbk 2. Keseragaman periode perhitungan bunga. Total 50.000 100% 50,000 ini disesuaikan dengan rencana pembayaran kepada kontraktor dalam hal penggantian BERKEDUDUKAN DI MEDAN III. Keterangan mengenai Transaksi c. Susunan Pengurus PCL sebagian mesin pabrik dan pemeliharaan pabrik. (“PERSEROAN”) Susunan Direksi PCL (tidak memiliki Dewan Komisaris) per 30 Juni 2017 adalah sebagai Sedangkan total ekuitas Perseroan setelah adanya Rencana Transaksi, diproyeksikan A. Objek Transaksi berikut: Untuk memenuhi ketentuan dalam Pasal 10 Ayat 2 Anggaran Dasar Perseroan, Objek dari Transaksi ini adalah pinjaman uang dari PCL kepada Perseroan. akan terus mengalami peningkatan yang berasal dari adanya penambahan saldo Laba Direktur : George Thomas Dantas ditahan yang berasal dari terus meningkatnya Laba Bersih Perseroan. dengan ini diberitahukan bahwa Rapat Umum Pemegang Saham Luar Biasa B. Nilai Transaksi (“Rapat”) akan diadakan pada tanggal 29 Desember 2017. d. Kegiatan Usaha PCL b. Proyeksi Pendapatan/Laba Bersih Perseroan Sebelum dan Setelah Rencana 1. Pemberian Pinjaman baru dari PCL kepada Perseroan dengan nilai sebesar maksimal Saat ini, kegiatan usaha utama PCL adalah sebagai perusahaan induk yang bergerak di Transaksi Usulan Pemegang Saham akan dimasukkan dalam acara Rapat jika memenuhi US$ 150.000.000 (Seratus Lima Puluh Juta Dolar Amerika Serikat); bidang investasi (investment holding company). Proyeksi pendapatan bersih Perseroan setelah Rencana Transaksi diproyeksikan akan ketentuan Pasal 10 Ayat 6 Anggaran Dasar Perseroan dan Pasal 12 Peraturan 2. Pinjaman yang telah ada sebelumnya dari PCL kepada Perseroan dengan nilai sebesar DP Marketing International Macao Commercial Offshore Limited (DPMM) terus mengalami peningkatan, hal ini dikarenakan penggantian sebagian mesin pabrik Otoritas Jasa Keuangan (POJK) No. 32/POJK.04/2014 jo POJK No. 10/ US$ 96.655.361 (Sembilan Puluh Enam Juta Enam Ratus Lima Puluh Lima Ribu Tiga POJK.04/2017, dan diterima oleh Direksi Perseroan paling lambat 7 (tujuh) hari a. Riwayat Singkat DPMM dan pemeliharaan pabrik memberikan akibat peningkatan volume produksi dan perbaikan Ratus Enam Puluh Satu Dolar Amerika Serikat). harga jual pulp yang dihasilkan oleh Perseroan karena produk yang dihasilkan memiliki sebelum tanggal Panggilan. C. Para Pihak yang Terlibat dalam Transaksi DPMM adalah sebuah perusahaan terbatas yang merupakan lembaga komersial offshore yang didirikan di Macao pada tanggal 15 Februari 2007. DPMM berkantor di Avenida grade yang lebih baik jika dibandingkan dengan memakai mesin yang beroperasi sebelum Panggilan untuk Rapat dimaksud beserta acara-acaranya akan diumumkan melalui PT Toba Pulp Lestari Tbk Doutor Mario Soares, Edificio Finance dan IT Center of Macau, 10 Andar K1, Macao. Rencana Transaksi. surat kabar pada tanggal 07 Desember 2017. a. Riwayat Singkat Perseroan b. Susunan Pemegang Saham DPMM F. Pihak Independen yang Ditunjuk oleh Para Pihak dalam Transaksi Yang berhak menghadiri Rapat adalah Para Pemegang Saham yang namanya Perseroan didirikan dalam rangka Penanaman Modal Dalam Negeri No 6 tahun 1968, Susunan pemegang saham DPMM per 30 Juni 2017 adalah sebagai berikut : Pihak Independen yang terlibat dalam transaksi yang ditunjuk oleh Perseroan adalah dari tercatat dalam Daftar Pemegang Saham Perseroan 1 (satu) hari sebelum tanggal dan telah diubah dengan Undang-undang Nomor 12 tahun 1970 berdasarkan akta No Kantor Jasa Penilai Publik Miduk Totok & Rekan, penilai independen yang telah mendapat Panggilan. Kepemilikan Modal Disetor 329 tanggal 26 April 1983 Misahardi Wilamarta, SH, notaris di Jakarta. Akta pendirian ini Pemegang Saham Lembar Saham izin dari Departemen Keuangan Republik Indonesia No: 1201/KM.1/2009 tanggal 13 disahkan oleh Menteri Kehakiman Republik Indonesia dalam Surat Keputusan No C2- % (MOP) Oktober 2009 dan telah terdaftar di Bapepam-LK atau sekarang telah berubah menjadi Medan, 22 November 2017 5130.HT01-01 TH.83 tanggal 26 Juli 1983 dan diumumkan dalam Berita Negara Republik Eden Hall Ltd 1 100% 100.000 Otoritas Jasa Keuangan (OJK) berdasarkan lzin No: 13/BL/STTD-P/AB/2006 tanggal 6 Direksi Indonesia No 97 tanggal 4 Desember 1984, Tambahan No 1176. Total 1 100% 100.000 Oktober 2006 serta STTD Bapepam-LK No: 25/BL/STTD-P/AB/2007, sebagai berikut:

Ukuran : 8 kolom x 340 mm Media : Neraca Tgl. Muat : 22 November 2017 File : D15 Source: PT Toba Pulp Lestari Tbk. 2017b. “Keterbukaan informasi kepada pemegang saham mengenai rencana transaksi material dan transaksi afiliasi PT Toba Pulp Lestari Tbk.” [Disclosure of information to shareholders about material and affiliated transaction of PT Toba Pulp Lestari Tbk.] Medan, Indonesia. Company announcement. November 22, 2017. https://www.tobapulp.com/wp-content/uploads/2019/01/Keterbukaan- Information-Transaksi-Material-dan-Afiliasi-Perjanjian-Pinjam-Meminjam-22-November-2017.pdf.

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 66 IN INDONESIA’S PULP EXPORTS

Hal 1 APPENDIX III FINANCIAL INFORMATION OF THE GROUP

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of this document or as to the action to be taken, you should consult a licensed securities dealer or registered TC Sch I (IMPT) 17 Share capitalinstitution in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Bracell Limited, you should at once hand this document and the accompanying forms of proxy to the purchaser or the transferee or to the bank, licensed securities dealer, registered institution in securities or other agent through whom the Figure 25. Excerptssale from or transfer Bracell was effected for transmissionLimited to the notice purchaser or the of transferee. privatization on August 30, 2016 This document does not constitute an offer or invitation to, nor is it intended to invite offers by, the public to subscribe for orNumber to purchase shares of or other securities of Bracell Limited and it must not be used for the purpose of offering or inviting offers for any securities.

Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limitedshares Amounts take no responsibility for the contents of this document, make no representation as to its accuracy or completeness and expressly disclaim any From cover page: liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this document. US$’000

TC Sch I para 1 Issued and fully paid: At 1 January 2015, at US$0.05 each 3,420,420,250 171,021 BHL Limited Issue of new shares(incorporated (note) in Bermuda with limited liability) (incorporated in Bermuda with limited liability)1,000,000 50 (Stock Code: 1768) At 31 December 2015 and 30 June 2016 3,421,420,250 171,071 (1) PROPOSED PRIVATISATION OF BRACELL LIMITED BY BHL LIMITED BY WAY OF A SCHEME OF ARRANGEMENT Note: On 17 DecemberUNDER 2015, SECTIONthe Company 99 issued OF THE 1,000,000 COMPANIES shares at ACT HK$0.81 OF BERMUDA per share for a total cash consideration of HK$810,000 (equivalent to approximately US$104,000).AND (2) PROPOSED WITHDRAWAL OF LISTING OF BRACELL LIMITED

18 Commitments Joint Financial Advisers to BHL Limited

30 June 31 December

Independent Financial Adviser to the 2016 2015 Financial Adviser to the Company Independent Board Committee of the CompanyUS$’000 US$’000

Contracted but not provided for A letter from the Board, a letter from the Independent Board Committee containing its recommendations to the Scheme Shareholders and the RSU Holders in respect of the Proposal and the RSU Offer, a letter from Rothschild, being the Independent Financial Adviser, containing its advice - acquisitionto the of Independent property, Board Committee plant in respect and of the Proposal equipment and the RSU Offer, and an Explanatory Statement are set out on pages 16,838 to 5, 10,669 6 and 7, 8 to 37 and 38 to 60 of this document, respectively. The actions to be taken by the Shareholders and the RSU Holders are set out on From page III-78: pages x to xiii of this document. Notices convening the Court Meeting and the SGM to be held on Friday, 30 September 2016 at 11:00 a.m. and 11:30 a.m. (or as soon thereafter as the Court Meeting shall have been concluded or adjourned), respectively, at Regus Business Centre, 35/F, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong are set out on pages N-1 to N-4 of this document. Whether or not you are able to attend the Court Meeting and/or the SGM, you are strongly encouraged to complete and sign the enclosed pink 19 Related partyform disclosures of proxy in respect of the Court Meeting and the enclosed white form of proxy in respect of the SGM in accordance with the respective instructions printed on them, and to lodge them with the Company’s Hong Kong branch share registrar, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible, but in any event not later than the times and dates specified in them respectively. The form of proxy in respect of the Court Meeting may alternatively be handed to the Chairman of the Court Meeting at the Court Meeting if it is not so lodged. Completion and return of a form of proxy in respect of the Court Meeting or the SGM will not preclude you from attending and voting in person The Group enteredat the Court Meeting into or the SGM following (as the case may be), or significant any adjournment of it, should transactions you so wish. with related parties: Overseas Shareholders, including but not limited to those in the United States, are advised to read “Overseas Shareholders and RSU Holders” in the Explanatory Statement on pages 52 and 53 of this document for further information. This document is jointly issued by BHL Limited and the Company to the Shareholders and the RSU Holders. Six months ended 30 June 30 August 2016 Name of related parties Nature of transactions 2016 2015 US$’000 US$’000

Companies under the common control of the Major Shareholder APPENDIX V DEFINITIONS DP Marketing International “Gold SilkMacao” Commercial Offshore Gold Silk Holdings Limited, a company incorporated in the Limited SalesCayman of goods Islands with limited liability,148,174 whose entire 146,492 issued share capital is held by Fiduco Averis Sdn. Bhd. Service fee expense 537 782 From“Gold page Silk V-3: Shares” the Shares held by Gold Silk East Trade Limited Rental expense 57 48 “Group” the Company and its subsidiaries from time to time

APPENDIX“HK$” V Hong Kong dollars, the lawful currency ofDEFINITIONS Hong Kong From page V-2: “HKSCC” Hong Kong Securities Clearing Company Limited, a “Company” Bracellwholly-owned Limited, subsidiary a company of incorporated Hong Kong in Exchanges Bermuda with and — III-78 — limitedClearing liability, Limited whose shares are currently listed on the Main Board (stock code: 1768) “Hong Kong” the Hong Kong Special Administration Region of the People’s “Concert Parties” partiesRepublic acting of China in concert or presumed to be acting in concert THE MACAO MONEY MACHINE: PROFIT SHIFTING ANDwith TAX any LEAKAGE of the Offeror or Gold Silk, including the Ultimate67 IN INDONESIA’S PULP EXPORTS “IFRS” ControllingInternational Shareholder Financial Reporting and Fiduco Standards

“ConditionsIndependent” Board the independent conditions of committee the Scheme, of the as Board set out established in “Conditions for the Committee” Precedentpurpose of to the making Proposal recommendations” in the Explanatory to Statement the Scheme Shareholders and the RSU Holders in relation to the Proposal “Court” theand Supreme the RSU Court Offer, of comprising Bermuda John Jeffrey YING, Jeffrey LAM Kin Fung, David YU Hon To, LIM Ah Doo, LOW Weng “Court Hearing” the hearing of the petition by the Court for the sanction of the Keong and Armin MEYER, all of whom are independent Scheme non-executive Directors “Court Meeting” the meeting of the Scheme Shareholders to be convened at the “Independent Financial Rothschild (Hong Kong) Limited, a corporation licensed direction of the Court for the purpose of considering and, if Adviser” or “Rothschild” under the SFO to conduct type 1 (dealing in securities), type thought fit, approving the Scheme 4 (advising on securities) and type 6 (advising on corporate “Credit Suisse” Creditfinance) Suisse regulated (Hong activities, Kong)Limited, which has a been corporation appointed licensed as the underindependent the SFO financial to conduct adviser type 1 to (dealing the Independent in securities), Board type 2Committee (dealing in in respect futures of the contracts), Proposal type and the 4 RSU (advising Offer on securities), type 5 (advising on futures contracts) and type 6 “Investor Participants” persons admitted to participate in CCASS as investor (advising on corporate finance) regulated activities, which participants has been appointed as one of the joint financial advisers to the “Last Trading Day” Offeror15 June in2016, respect being of the the last Proposal full trading and the day RSU prior Offer to the issue of the announcement published by the Company on 17 June “Director(s)” the director(s) of the Company 2016 pursuant to Rule 3.7 of the Takeovers Code “Effective Date” the date on which the Scheme, if approved and sanctioned by “Latest Practicable Date” 26 August 2016, being the latest practicable date prior to the the Court and filed with the Registrar of Companies in printing of this document for the purpose of ascertaining Bermuda, becomes effective in accordance with its terms, certain information contained herein which is expected to be on Tuesday, 18 October 2016 “Listing Rules” (Bermudathe Rulestime) Governing the Listing of Securities on the Stock Exchange, as amended, supplemented or otherwise modified “Executive” the Executive Director of the Corporate Finance Division of from time to time the SFC or any delegate of the Executive Director

“Explanatory Statement” the explanatory statement relating to the Proposal, the text of which is set out on pages 38 to 60 of this document — V-3 — “Fiduco” Fiduco Trust Management AG, the trustee of a discretionary trust established by the Ultimate Controlling Shareholder as settlor and whose beneficiaries include the Ultimate Controlling Shareholder and certain members of his family

“Form of Acceptance” the form of acceptance despatched to the RSU Holders in connection with the RSU Offer

— V-2 — APPENDIX V DEFINITIONS

“Company” Bracell Limited, a company incorporated in Bermuda with limited liability, whose shares are currently listed on the Main Board (stock code: 1768)

“Concert Parties” parties acting in concert or presumed to be acting in concert with any of the Offeror or Gold Silk, including the Ultimate Controlling Shareholder and Fiduco

“Conditions” the conditions of the Scheme, as set out in “Conditions Precedent to the Proposal” in the Explanatory Statement

“Court” the Supreme Court of Bermuda

“Court Hearing” the hearing of the petition by the Court for the sanction of the Scheme

“APPENDIXCourt Meeting III” theFINANCIAL meeting of the INFORMATION Scheme Shareholders OF to be THE convened GROUP at the direction of the Court for the purpose of considering and, if NOTES TO THE CONSOLIDATED FINANCIALthought fit, approving STATEMENTS the Scheme For the year ended 31 December 2015 “FromCredit page Suisse III-10:” Credit Suisse (Hong Kong) Limited, a corporation licensed under the SFO to conduct type 1 (dealing in securities), type 1 GENERAL INFORMATION APPENDIX V 2 (dealing in futures contracts), typeDEFINITIONS 4 (advising on securities), type 5 (advising on futures contracts) and type 6 Bracell Limited (the “Company”) was(advising incorporated on corporate on 8 June finance) 2010 and regulated registered activities, as an exempted which “companySFO” with limited liability in Bermudahasthe underbeen Securities appointed the Companies and as Futures one Act of theOrdinance 1981 joint of financial Bermuda (Chapter advisers (as 571 amended). of to the The Company is controlled by Gold SilkOfferorLaws Holdings of in Hong respect Limited, Kong), of a the as limited amended, Proposal liability supplemented and companythe RSU Offerincorporatedor otherwise in Cayman Islands and 100% owned andmodified controlled from by Mr. time Sukanto to time Tanoto and certain members of his “familyDirector(s) (the “Major” Shareholder”). Thethe address director(s) of the principalof the Company place of business of the Company is “SGM” the special general meeting of the Company convened to be 21/F, China Building, 29 Queen’s Road Central, Central, Hong Kong. “Effective Date” theheld date on the on which same date the Scheme, as the Court if approved Meeting, and for sanctioned the purposes by theof passing Court the and special filed resolution with the for Registrar the implementation of Companies of the in APPENDIXThe principal V activity of the CompanyBermuda,Proposal is investment becomes holding effective and in the accordance principalDEFINITIONS with activities its terms, of its From page V-3: subsidiaries are set out in note 32. which is expected to be on Tuesday, 18 October 2016 “Share(s)” (Bermudaordinary share(s) time) of US$0.05 each in the share capital of the “Gold Silk” Gold Silk Holdings Limited, a company incorporated in the The Company has its primary listingCompany on The Stock Exchange of Hong Kong Limited. “Executive” theCayman Executive Islands Director with limited of the Corporate liability, whose Finance entire Division issued of “Shareholder(s)” shareholder(s) capital of Shares is held by Fiduco These consolidated financial statementsthe SFC are or any presented delegate in of United the Executive States dollars Director (“US$” or “USD”), unless otherwise stated. These financial statements have been approved for issue by the “ExplanatoryGoldStamp Silk Duty Shares Ordinance Statement” ”” thethe explanatory StampShares Duty held statement Ordinanceby Gold Silk relating (Chapter to 117 the of Proposal, the Laws the of text Hong of Board of Directors on 14 March 2016. From page V-2: whichKong), is as set amended, out on supplementedpages 38 to 60 or of otherwise this document modified from “Group” thetime Company to time and its subsidiaries from time to time “2Fiduco SUMMARY” OF SIGNIFICANT ACCOUNTINGFiduco Trust Management POLICIES AG, the trustee of a discretionary “HK$” Hong Kong dollars, the lawful currency of Hong Kong “Stock Exchange” trustThe Stock established Exchange by the of UltimateHong Kong Controlling Limited Shareholder as settlor and whose beneficiaries include the Ultimate “HKSCCsubsidiaryThe” significant” accounting policiesHonghas applied the Kong meaning in the Securities ascribed preparation to Clearing it of under these Companythe consolidated Listing Limited, Rules financial a statements are set out below. The policieswholly-ownedControlling have been Shareholderconsistently subsidiary appliedand of certain Hong to the members Kong years presented, Exchanges of his family unless and “otherwiseTakeovers stated. Code” Clearingthe Code Limited on Takeovers and Mergers issued by the SFC, as “Form of Acceptance” the form of acceptance despatched to the RSU Holders in amended, supplemented or otherwise modified from time to “Hong Kong” theconnection Hong Kong with Special the RSU Administration Offer Region of the People’s From(a) pageBasis V-6: of preparation time Republic of China “Ultimate Controlling Mr. Sukanto Tanoto “IFRSShareholderThe” consolidated” financial statementsInternational— have V-2 been Financial— prepared Reporting in accordance Standards with all applicable International Financial Reporting Standards (“IFRS”) issued by the International Accounting “StandardsIndependentUS” Board. Board These consolidated financialthethe independentUnited statements States committee of also America comply of the with Board the applicable established disclosure for the Source:requirementsCommittee Bracell Limited.” of 2016. the “(1) Hong Proposed Kong privatisation Companies ofpurpose Bracell Limited Ordinance of by BHL making Limited and by recommendations theway of rules a scheme governing of arrangement to the under the Listing Section Scheme 99 of of“SecuritiesUS$ the Companies”or“ onUS Act The of dollar Bermuda Stock” and Exchange (2) Proposed ofwithdrawal HongShareholdersUnited of Kong listing States of Limited. Bracell and dollars, Limited.” the RSU the Document lawful Holders jointly currency in issued relation by of Bracell the to Limited United the Proposal and States BHL Limited. August 30, 2016. https://www1.hkexnews.hk/listedco/listconews/sehk/2016/0829/ltn20160829301.pdf. andof America the RSU Offer, comprising John Jeffrey YING, Jeffrey LAM Kin Fung, David YU Hon To, LIM Ah Doo, LOW Weng They have been prepared under the historical cost convention, as modified by the forestation and “%” Keongper cent. and Armin MEYER, all of whom are independent reforestation assets which are carried at fair value less estimated costs to sell and derivative financial non-executive Directors instrumentsAll references which are in this carried document at fair to value. times and dates are references to Hong Kong times and dates, “exceptIndependent as otherwise Financial specified. Rothschild (Hong Kong) Limited, a corporation licensed Adviser”The preparation or “Rothschild of consolidated” financialunder the statements SFO to conduct in conformity type 1 with (dealing IFRS in requires securities), the use type of certainAll critical percentages accounting stated estimates. in this document It4 also (advising requires are onapproximations managementsecurities) and andto type exercise certain 6 (advising its amounts, judgement on totals corporate in and the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement percentage figures included in this documentfinance) have regulated been subject activities, to rounding which has adjustments. been appointed as the or complexity, or areas where assumptionsindependent and estimates financial are significant adviser to the the consolidated Independent financial Board statements, are disclosed in note 4. Committee in respect of the Proposal and the RSU Offer For the purposes of this document, the exchange rate of US$1.00 = HK$7.75 has been used for “currencyInvestor translation, Participants where” applicable.persons Such exchange admitted rate to is for participate illustration in purposes CCASS only as and investor does not constitute representations that any amountparticipants— in III-10 US$ — or HK$ has been, could have been or may be converted at such rate. “Last Trading Day” 15 June 2016, being the last full trading day prior to the issue THE MACAO MONEY MACHINE: PROFIT SHIFTING ANDofthe TAX announcementLEAKAGE published by the Company on 17 June68 IN INDONESIA’S PULP EXPORTS 2016 pursuant to Rule 3.7 of the Takeovers Code

“Latest Practicable Date” 26 August 2016, being the latest practicable date prior to the — V-6 — printing of this document for the purpose of ascertaining certain information contained herein

“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange, as amended, supplemented or otherwise modified from time to time

— V-3 — Berinvestasi untuk Masa Depan: Peremajaan Operasional Perseroan untuk Meningkatkan Kinerja Usaha Serta Kepedulian terhadap Lingkungan dan Masyarakat

Investing for the Future: Rejuvenating Operations to Improve Business Performance and Care for the Environment and Community

Figure 26. Excerpts from PT Toba Pulp Lestari Tbk’s Annual Report 2018

From cover page:

Laporan Tahunan

2018Annual Report

PT TOBA PULP LESTARI Tbk CATATAN ATAS LAPORAN KEUANGAN NOTES TO FINANCIAL STATEMENTS UNTUK TAHUN-TAHUN YANG BERAKHIR FOR THE YEARS ENDED 31 DESEMBER 2018 DAN 2017 DECEMBER 31, 2018 AND 2017 (DinyatakanBerinvestasi dalam Ribuan Dollar untuk Amerika, Masa Kecuali Depan: Data Saham) Peremajaan Operasional (In thousands of US Dollars, except for share data) Perseroan untuk Meningkatkan Kinerja Usaha Serta Kepedulian 29. LABA PER SAHAM - Lanjutan 29. EARNINGS PER SHARE - Continued Berinvestasiterhadap Lingkungan untuk Masa dan Depan: Masyarakat Peremajaan Operasional BerikutPerseroan adalah data yang untuk digunakan Meningkatkan untuk perhitungan Kinerja laba per saham Usaha SertaThe computation Kepedulianof basic and diluted earnings per share is based on dasar danInvesting perhitungan for laba theper saham Future: dasar dan Rejuvenating dilusian; - Lanjutan Operationsthe following to Improve data and calculated basic earnings per share and diluted; terhadap Lingkungan dan Masyarakat - Continued Business Performance and Care for the Environment and InvestingCommunity for the Future: Rejuvenating2018 Operations2017 to Improve Laba bersihBusiness per saham Performance - dasar and Care for the Environment and Earnings per share- basic (dalam dollar penuh) 0,002834 0,020488 (in full amount) Community Laba bersih per saham - dilusian Earnings per share- diluted From(dalam page dollar 175: penuh) 0,002798 0,020225 (in full amount)

30. TRANSAKSI DENGAN PIHAK BERELASI 30. TRANSACTIONS WITH RELATED PARTIES

a. Sifat pihak berelasi a. Nature of relationships

Perusahaan yang berelasi/ Sifat hubungan/ Sifat transaksi/ Related parties Company Nature of relationship Nature of Transactions

Pinnacle Company Pte. Ltd. Pemegang saham mayoritas / Pinjaman/Loans Major Shareholder DP Marketing International (MCO) Limited Entitas sepengendali / Under common control Penjualan/Sales PT Pec Tech Services Indonesia Entitas sepengendali / Under common control Pemakaian jasa/Services PT Riau Andalan Pulp and Paper Entitas sepengendali / Under common control Pembelian material,jasa/ Purchases, services Forindo Private Limited Entitas sepengendali / Under common control Pembelian material,jasa/ Purchases, services PT Gunung Melayu Entitas sepengendali / Under common control Pembelian material/Purchases PT Hari Sawit Jaya Entitas sepengendali / Under common control Pembelian material/Purchases PT Indo Sepadan Jaya Entitas sepengendali / Under common control Pembelian material/Purchases PT Asianagro Lestari Entitas sepengendali / Under common control Pembelian material/Purchases PT Saudara Sejati Luhur Entitas sepengendali / Under common control Pembelian material/Purchases PT Supra Matra Abadi Entitas sepengendali / Under common control Pembelian material/Purchases PT Nusa Pusaka Kencana Entitas sepengendali / Under common control Pemakaian jasa/Services PT Esensindo Cipta Cemerlang Entitas sepengendali / Under common control Pembelian material/Purchases RGE Pte Ltd Entitas sepengendali / Under common control Pemakaian jasa/Services PT RGE Indonesia Entitas sepengendali / Under common control Pemakaian jasa/Services Sateri (Fujian) Fibre, Co., Ltd Entitas sepengendali / Under common control Pembelian material/Purchases

b. Transaksi dengan pihak berelasi b. Transaction with related parties

Source:Dalam PT Toba kegiatan Pulp Lestari usahanya, Tbk. Perusahaan2019a. Annual melakukan Report 2018 transaksi [including tertentu Financial StatementsIn the normal as of December course of 31,business, 2018 and the 2017 Company and Independent entered into dengan pihak berelasi. Berikut ini adalah saldo dan transaksi dengan certain transactions with related parties. The following are the Auditors’pihak Report]. berelasi; Medan, Indonesia. https://www.tobapulp.com/wp-content/uploads/2019/05/LAPORAN-TAHUNAN-INRU-2018.pdfaccounts involving balances and transactions. with related parties;

2018 2017 Aset Assets Piutang Lain-lain (Catatan 5) Other Receivables (Note 5) PT Riau Andalan Pulp and Paper - 114 PT Riau Andalan Pulp and Paper Forindo Private Limited 30 - Forindo Private Limited Jumlah aset 30 114 Total assets THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 69 IN INDONESIA’SPersentase terhadap PULP jumlah EXPORTS aset 0,01% 0,03% Percentage to total assets

Laporan Tahunan

Laporan Tahunan 2018Annual Report 2018 ANNUAL REPORT 175 2018Annual Report DEFINITIONS

“SGM” the special general meeting of the Company to be held on Thursday, 11 December 2014 for the purpose of considering and, if thought fit, approving (a) the Transaction and the transactions contemplated under the Transaction Documents (including the Pulp Supply Agreement and the annual caps for the three financial years ending 31 December 2017, the provision of the Guarantees and the amendments to the Deed of Non-Competition), (b) the making of a distribution by the Company to the Shareholders out of the Company’s THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION contributed surplus and (c) the Change of Company Name and If you are in doubt as to any aspect of this Circular or as to the action to be taken, you should consult your stockbroker or other registered dealerthe in securities, amendment bank manager, to solicitor, the professionalBye-laws accountant or other professional adviser. If you have sold or transferred all of your shares in Sateri Holdings Limited, you should at once hand this Figure 27. ExcerptsCircular from and Circular the accompanying of proxySateri form to Holdings the purchaser or theLimited transferee or toon the bank,November stockbroker or other4, 2014 “Shareholder(s)” agent through whom the sale or transferholder(s) was effected forof transmission Shares to the purchaser or transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no LR14.58(1) responsibility for the contents of this Circular, make no representation as to its accuracy or completeness and LR14A.70(1) “Share(s)” expressly disclaim any liability whatsoeverordinary for any loss share(s) howsoever arising in from the or in reliance capital upon the of whole the or Company with a From cover page: any part of the contents of this Circular. nominal value of US$0.05 each LR13.51A App 1, Part B 1 “SIS” Sateri International (Singapore) Pte Ltd, a limited liability companyDEFINITIONS incorporated in Singapore and a subsidiary of the Company immediately prior to Completion

(incorporated in Bermuda with limited liability) “SGM”“Stock Exchange” theThe special(Stock Stock Code: Exchange general 1768) meeting of Hong of Kong the Company Limited to be held on (1) MAJOR TRANSACTIONThursday, AND 11 CONNECTED December TRANSACTION 2014 for the purpose of considering “TPL” and,PTIN Toba if RELATION thought Pulp TO Lestarifit, approving Tbk, a (a) limited the Transaction liability company and the THE DISPOSAL OF THE VISCOSE STAPLE FIBER BUSINESS IN THE PRC transactions contemplated under the Transaction Documents (2) CONTINUING CONNECTEDincorporated TRANSACTION in Indonesia IN RELATION and listed TO on the Indonesia Stock THE(includingExchange, PULP SUPPLY the whose AGREEMENT Pulp majority Supply Agreement shareholder and is Pinnaclethe annual caps for (3) CONNECTEDthe TRANSACTION three financial IN RELATION years ending TO 31 December 2017, the THE PROVISION OF GUARANTEES “Transaction” provisionthe proposed of the sale Guarantees and purchase and of the the amendments Sale Shares and to the the Deed Sale (4) AMENDMENTS TO THE DEED OF NON-COMPETITION ofLoans Non-Competition), on the terms and (b) conditions the making set of a out distribution in the Sale by and the (5) CHANGE OF COMPANY NAME AND AMENDMENTCompanyPurchase TO Agreement THEto theBYE-LAWS Shareholders out of the Company’s (6) DISTRIBUTIONcontributed TO surplus SHAREHOLDERS and (c) the Change of Company Name and “Transaction Documents” (7) NOTICEthe(a) OF the amendment SPECIAL Sale GENERAL and to Purchase the MEETING Bye-laws Agreement, (b) the assignments of Financial Adviserthe Sale Loans,Independent (c) the Financial IP Assignments, Adviser (d) the Amendment to the Company to the Independent Board Committee “Shareholder(s)” holder(s)Deed to the ofand Shares Deed the Independent of Non-Competition, Shareholders (e) the termination agreements relating to the Agency Agreement, the Sales “Share(s)” ordinaryFrameworkDEFINITIONS share(s) Agreement in the and capital the ofCall the Option Company and with ROFR a A letter from the Board is set out on pages 6 to 34 of this Circular and a letter from the Independent Board Committee containing its recommendationnominalAgreement, is set out on value pages (f) 35 andof the 36 US$0.05 of this Pulp Circular. Supply eachA letter from Agreement, Rothschild (g) the VISIL (Hong Kong) Limited, the Independent Financial Adviser, containing its advice to the Independent Board Committee and the Independent ShareholdersAssignment is set out on pages and 37 (h) to 64 of the this Circular. agreements and documents to give “SIS”“Latest PracticableThe Date” notice convening the SGM to beSateri13 held November at Regus International Business 2014, Centre, 35/F, being(Singapore) Central Plaza,the 18latest Harbour Pte practicable Road, Ltd, a limited date liability prior to From page 5: Wanchai, Hong Kong on Thursday, 11effect December to2014 the at 2:30 Swap p.m. is set Arrangements out on pages 74 to 76 of this Circular. Whether or not you are able to attendthe the SGM, printing please complete of this and return Circular the accompanying for proxy the form purpose in of ascertaining accordance with the instructions printedcompany thereon to incorporated the Company’s Hong in Kong Singapore branch share registrar, and a subsidiary of the Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, “Ultimate ControllingWanchai, Hong Kong as soon as possibleCompanycertainMr. and Sukanto in any information event immediately not Tanoto, less than 48 contained hours the prior before ultimate the to timein Completion appointedthis controlling Circular for shareholder of holding the SGM or any adjournment thereof (as the case may be). Completion and return of the proxy form will Shareholder” not preclude you from attending andthe voting Companyat the SGM or any and adjournment Gold thereof Silk (as the case may be) should “LBITDA” you so wish. loss before interest, tax, depreciation, amortisation, changes “Stock Exchange” The Stock Exchange of Hong19 Kong November Limited 2014 in the value of forestation and reforestation assets and “US$” UnitedDEFINITIONS States dollars, the lawful currency of the United States “TPL” PTreversalof America Toba of Pulp impairment Lestari loss, Tbk, ifa any limited liability company incorporated in Indonesia and listed on the Indonesia Stock “Controlling“Listing“VSF Business” Rules” Shareholders” Exchange,thethe Group’scontrollingRules Governing whose viscose shareholders majority staple the Listingshareholder fiber of the business of Company, Securities is Pinnaclein the being on PRC The Gold Stock Silk, ExchangeFiduco Trust of Hong Management Kong Limited AG (the trustee of a discretionary “Transaction” thetrust proposed established sale and by the purchase Ultimate of the Controlling Sale Shares Shareholder and the Sale as “NAV”From Forpage the 3: purpose of this Circularnet and asset for reference value, excluding only, the non-controlling exchange rates interests of US$1.00 to Loanssettlor) on and the the terms Ultimate and conditions Controlling set Shareholder out in the Sale and HK$7.75 and RMB1.00 to HK$1.27 havePurchase been adopted. Agreement “Pinnacle” Pinnacle Company Limited, a limited liability company “Deed of Non-Competition” the Deed of Non-Competition dated 19 November 2010 incorporated in the Republic of Seychelles and controlled by “Transaction Documents” (a)entered the Sale into and between Purchase the Agreement,Controlling (b) Shareholders, the assignments Pinnacle of the Ultimate Controlling Shareholder theand Sale the—5— Company Loans, (c) the IP Assignments, (d) the Amendment Deed to the Deed of Non-Competition, (e) the termination “PRC” the People’s Republic of China “Director(s)”From page 2: agreementsthe director(s) relating of the to Company the Agency Agreement, the Sales Framework Agreement and the Call Option and ROFR “Pulp Supply Agreement” the pulp supply agreement to be entered into between “DP Macao” Agreement,DP Marketing (f) the International Pulp Supply Macao Agreement, Commercial (g) the Offshore VISIL SC International Macao and DP Macao on Completion AssignmentLimited (formerly and (h) known the agreements as DP Marketing and documents International to give effect to the Swap Arrangements “Purchaser” PacificLimited —Viscose Macao Limited, Commercial a Offshore),limited liability a limited company liability incorporatedcompany incorporated in Hong Kong in Macau and controlled and controlled by the Ultimate by the “Ultimate Controlling Mr.Ultimate Sukanto Controlling Tanoto, the Shareholder ultimate controlling shareholder of Shareholder” theControlling Company Shareholder and Gold Silk “EBITDA” earnings before interest, tax, depreciation, amortisation, “US$”“Purchaser Group” Unitedthe Purchaser, States dollars, its subsidiaries the lawful and currency parent of company the United and States any subsidiarieschanges in the of its value parent of company,forestation including and reforestation DP Macao assets ofand America reversal of impairment loss, if any “VSF“Remaining Business” Group” the Group’sGroup (excluding viscose staple the Sale fiber Group) business in the PRC “Gold Silk” Gold Silk Holdings Limited, a limited liability company THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 70 “RMB”IN INDONESIA’S PULP EXPORTS Renminbi,incorporated the in lawful the currency Cayman of Islands the PRC and the immediate For the purpose of this Circularcontrolling and for reference shareholder only, the of exchange the Company rates of and US$1.00 which to is HK$7.75“Rothschild” and RMB1.00 or “Independent to HK$1.27 haveRothschildcontrolled been adopted. by (Hong the Ultimate Kong) Limited, Controlling a corporation Shareholder licensed to Financial Adviser” conduct type 1 (dealing in securities), type 4 (advising on “Group” securities)the Company and and type its subsidiaries 6 (advising on corporate finance) regulated activities under the Securities and Futures —5— “HK$” Ordinance,Hong Kong being dollars, the the independent lawful currency financial of Hong adviser Kong to the Independent Board Committee and the Independent “Independent Board Shareholdersthe independent in committee relation of to the the Board, Transaction comprising and all of the the Committee” transactionsindependent contemplated non-executive under Directors, the Transaction which Documents has been (includingappointed the to, Pulp among Supply other Agreement things, consider and the annual and advise caps for the theIndependent three financial Shareholders years in ending relation 31 to December the Transaction 2017, the and provisionthe transactions of the Guarantees contemplated and the underamendments the to Transaction the Deed ofDocuments Non-Competition) (including the Pulp Supply Agreement and the annual caps for the three financial years ending 31 December “Sale and Purchase Agreement” the2017, Sale the and provision Purchase of the Agreement Guarantees dated and the 29amendments October 2014 to enteredthe Deed into of between Non-Competition) Sateri International and the Purchaser in relation to the Transaction “Independent Shareholders” Shareholders, other than Gold Silk and its associates, who do not have a material interest in, and who are not required to abstain from voting on, the resolutions to approve (a) the Transaction and the transactions contemplated under the Transaction—3— Documents (including the Pulp Supply Agreement and the annual caps for the three financial years ending 31 December 2017, the provision of the Guarantees and the amendments to the Deed of Non-Competition) and (b) the Change of Company Name and the amendment to the Bye-laws

—2— DEFINITIONS

In this Circular, unless the context otherwise requires, the following expressions have the meanings set out below:

“Agency Agreement” the Agency Agreement dated 16 August 2012 entered into between SC International Macao and DP Macao

“associate” has the meaning ascribed to it in the Listing Rules

“Auditor” PricewaterhouseCoopers, the auditor of the Group

“Bermuda Companies Act” the Companies Act 1981 of Bermuda DEFINITIONS “Board” the board of directors of the Company

“Latest“BSC” Practicable Date” 13Bahia November Specialty 2014, Cellulose being the S.A., latest a limited practicable liability date company prior to theincorporated printing of in this Brazil Circular and a forsubsidiary the purpose of the of Company ascertaining certain information contained in this Circular “Bye-laws” the bye-laws of the Company (as amended from time to time) “LBITDA” loss before interest, tax, depreciation, amortisation, changes “Call Option and ROFR inthe the Call value Option of and forestation Right of First and Refusal reforestation Agreement assets relating and Agreement” reversalto RGE China of impairment Investment loss, Limited if any (formerly known as Sateri China Investment Limited) dated 25 May 2012 entered into “Listing Rules” thebetween Rules RGE Governing Limited the and Listing Sateri of International Securities on The Stock ExchangeDEFINITIONS of Hong Kong Limited “Change of Company Name” the proposed change of the Company’s name, details of which “NAV” netare asset set out value, in paragraph excluding 4 non-controlling of the “Letter from interests the Board” in “Controlling Shareholders” thethis controlling Circular shareholders of the Company, being Gold Silk, “Pinnacle” PinnacleFiduco Trust Company Management Limited, AG (thea limited trustee liability of a discretionary company “Circular” incorporatedtrustthis circular established into the the by Republic Shareholders the Ultimate of Seychelles in Controlling relation and to, Shareholder controlled among other by as thesettlor)things, Ultimate (a) and the the Controlling Transaction Ultimate ShareholderControlling and the transactions Shareholder contemplated under the Transaction Documents (including the Pulp Supply “PRC”“Deed of Non-Competition” theAgreementDEFINITIONS People’s Deed of and Republic Non-Competition the annual of China caps for dated the 19three November financialyears 2010 enteredending 31 into December between the 2017, Controlling the provision Shareholders, of the Guarantees Pinnacle “Pulp Supply Agreement” theandand the pulp amendments Company supply agreement to the Deed to of be Non-Competition), entered into between (b) the “Latest Practicable Date” 13 November 2014, being the latest practicable date prior to SCmaking International of a distribution Macao and by the DP Company Macao on to Completion the Shareholders the printing of this Circular for the purpose of ascertaining “Director(s)” theout director(s) of the Company’s of the Company contributed surplus and (c) the Change certain information contained in this Circular “Purchaser”From page 1: Pacificof Company Viscose Name Limited, and the amendment a limited to liability the Bye-laws company “DP Macao” incorporatedDP Marketing inInternational Hong Kong and Macao controlled Commercial by the OffshoreUltimate “LBITDA” loss before interest, tax, depreciation, amortisation, changes “Company” ControllingLimitedSateri Holdings (formerly Shareholder Limited, known a company as DP Marketingincorporated International in Bermuda in the value of forestation and reforestation assets and Limitedas an exempted — Macao company Commercial with limited Offshore), liability, a limited the shares liability of reversal of impairment loss, if any “Purchaser Group” thecompanywhich Purchaser, are incorporated listed its on subsidiaries the inMain Macau Board and parent and of the controlled company Stock Exchange and by any the subsidiariesUltimate Controlling of its parent Shareholder company, including DP Macao “Listing Rules” the(stock Rules code: Governing 1768) the Listing of Securities on The Stock Exchange of Hong Kong Limited “Remaining“EBITDA”“Completion” Group” theearningscompletion Group before (excluding of the interest, Transaction the Sale tax, Group) depreciation, amortisation, changes in the value of forestation and reforestation assets “NAV”From page 2: net asset value, excluding non-controlling interests “RMB”“connected person” Renminbi,andhas thereversal meaning the of lawful impairment ascribed currency to loss, it ofin if the any ListingPRC Rules “Pinnacle” Pinnacle Company Limited, a limited liability company “Rothschild”“Gold“connected Silk” transaction” or “Independent RothschildGoldhas the Silk meaning (HongHoldings ascribed Kong) Limited, Limited, to it in a thelimited a corporation Listing liability Rules licensed company to Financial Adviser” conductincorporated type in 1in the (dealing the Republic Cayman in securities), of IslandsSeychellestype and and 4the controlled (advising immediate byon the Ultimate Controlling Shareholder “controlling shareholder” securities)controllinghas the meaning and shareholder typeascribed 6 of (advisingto it the in the Company on Listing corporate Rulesand which finance) is regulatedcontrolled by activities the Ultimate under Controlling the Securities Shareholder and Futures “PRC” the People’s Republic of China Ordinance, being the independent financial adviser to the “Group” Independentthe Company and Board its subsidiaries Committee and the Independent “Pulp Supply Agreement” the pulp supply agreement to be entered into between Shareholders in relation to the Transaction and the From page 3: SC International—1— Macao and DP Macao on Completion “HK$” transactionsHong Kong dollars, contemplated the lawful under currency the Transaction of Hong Documents Kong (including the Pulp Supply Agreement and the annual caps for “Purchaser” Pacific Viscose Limited, a limited liability company “Independent Board the independent three financial committee years of ending the Board, 31 December comprising 2017, all of the incorporated in Hong Kong and controlled by the Ultimate Committee” provisionindependent of the non-executive Guarantees and Directors, the amendments which to has the Deed been Controlling Shareholder ofappointed Non-Competition) to, among other things, consider and advise the Independent Shareholders in relation to the Transaction and “Purchaser Group” the Purchaser, its subsidiaries and parent company and any “Sale and Purchase Agreement” the Sale transactions and Purchase contemplated Agreement under dated 29 the October Transaction 2014 subsidiaries of its parent company, including DP Macao enteredDocuments into (includingbetween Sateri the InternationalPulp Supply and Agreement the Purchaser and the in annual caps for the three financial years ending 31 December “Remaining Group” therelation Group to (excluding the Transaction the Sale Group) 2017, the provision of the Guarantees and the amendments to the Deed of Non-Competition) “RMB”Source: Sateri Holdings Limited. 2014. “1) Major TransactionRenminbi, and Related Transaction the lawful in Relation currency to the Disposal of the of PRC the Viscose Staple Fiber Business in the PRC. . .” Circular. November 19. https://www1.hkexnews.hk/listedco/listconews/sehk/2014/1029/ltn20141029952.pdf. “Independent Shareholders” Shareholders, other than Gold Silk and its associates, who do “Rothschild” or “Independent Rothschild (Hong Kong) Limited, a corporation licensed to not have a material interest in, and who are not required to Financial Adviser” conduct—3— type 1 (dealing in securities), type 4 (advising on abstain from voting on, the resolutions to approve (a) the securities) and type 6 (advising on corporate finance) Transaction and the transactions contemplated under the regulated activities under the Securities and Futures Transaction Documents (including the Pulp Supply Ordinance, being the independent financial adviser to the Agreement and the annual caps for the three financial years Independent Board Committee and the Independent ending 31 December 2017, the provision of the Guarantees Shareholders in relation to the Transaction and the and the amendments to the Deed of Non-Competition) and (b) transactions contemplated under the Transaction Documents the Change of Company Name and the amendment to the (including the Pulp Supply Agreement and the annual caps for Bye-laws the three financial years ending 31 December 2017, the provision of the Guarantees and the amendments to the Deed of Non-Competition) —2— “Sale and Purchase Agreement” the Sale and Purchase Agreement dated 29 October 2014 entered into between Sateri International and the Purchaser in relation to the Transaction

—3—

THE MACAO MONEY MACHINE: PROFIT SHIFTING AND TAX LEAKAGE 71 IN INDONESIA’S PULP EXPORTS