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Indonesia's energy security and economic growth rely on investments in the oil and gas sector, with Participating Interest transfers being an integral component of contractual arrangements in Production Sharing Contracts. However, Regulation of the Government of the Republic of Indonesia Number 93 of 2021 on Income Tax Treatment for Transfers of Participating Interest in Offshore Oil and Gas Business Activities presents legal and investment challenges to legal certainty and investor confidence.

This paper examines the taxation of Participating Interest transfers, focusing on its alignment with tax justice principles, international tax standards, and the sanctity of contracts. Using a normative approach, it analyzes Indonesian tax regulations and their interplay with international frameworks such as the Organisation for Economic Co-operation and Development Model Tax Convention. The findings highlight issues, including ambiguity in determining tax subjects and objects, excessive reliance on deemed tax mechanisms, and the absence of thresholds for indirect Participating Interest transfers. These inconsistencies stray from international best practices, weakening equity, predictability, and fairness in Indonesia’s investment climate.

To enhance investor confidence and regulatory clarity, this paper recommends harmonizing domestic tax policies with global standards, ensuring the sanctity of contracts under Production Sharing Contracts, and introducing tax exemptions for specific transactions such as corporate actions in a publicly listed entities. Implementing these measures would provide legal certainty, minimize tax disputes, and strengthen Indonesia’s position as an attractive destination for foreign investment, particularly in its vital oil and gas sector.