Technological advancements have transformed the global economic landscape. Today, entrepreneurs can conduct business anywhere and anytime, without the constraints of space and time. Companies established abroad can operate in Indonesia without local representatives, and Indonesian consumers can enjoy services from foreign companies without a physical presence in the country.
However, existing tax provisions cannot prevent profit shifting caused by borderless transactions. Differences in tax regulations between countries and the lack of an international agreement on digital economy taxation contribute to economic inequality between developed and developing nations.
To address these issues, the OECD and 135 other tax jurisdictions signed the Global Anti-Base Erosion Rules (GloBE) agreement in 2021. GloBE is a key component of the international tax system, ensuring that multinational companies pay a minimum income tax earned in each jurisdiction where they operate (OECD, 2021).
Specifically, GloBE provisions guide tax jurisdictions to impose top-up taxes on multinational company profits when the effective tax rate in that jurisdiction is lower than the agreed minimum rate (OECD, 2021). The OECD's report, "Tax Challenges Arising from Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two)," anticipated GloBE's implementation in 2022 (OECD, 2021).
In Indonesia, GloBE was effectively implemented in domestic regulations starting in 2025. Through Minister of Finance Regulation (Peraturan Menteri Keuangan / PMK) Number 136 of 2024, the government mandates that from January 2025, GloBE will be imposed as a top-up tax. This regulation is based on the OECD/G20 Intensive Framework (IF) on Base Erosion and Profit Shifting (BEPS), including commentary, examples, agreed administrative guidance, GloBE information return, safe harbors, and penalty relief.
PMK 136 of 2024 stipulates that the global minimum tax applies to multinational corporate groups with a gross turnover exceeding EUR 750,000,000 or IDR 12,675,750,000,000 annually (assuming an exchange rate of IDR 16,901/EUR). If the tax year with gross turnover is less than twelve months, the value is annualized. Moreover, if a member of a new multinational corporate group is established in 2025, the global minimum tax will only be imposed in the third year.
While PMK 136 of 2024 requires a consolidated gross turnover of EUR 750 million as the minimum limit for imposing the global minimum tax, it also regulates the aggregate value arising from differences in accounting principles or procedures, known as material competitive distortion. The value of material competitive distortion applied by PMK 136 of 2024 is EUR 75 million.
Six constituent entities are exempt from the global minimum tax, including governmental entities, international organizations, non-profit organizations, pension funds, investment funds that are ultimate parent entities, and real estate investment vehicles that are ultimate parent entities.
Governmental entities exempt from the global minimum tax are those established by statutory regulations, primarily fulfilling government functions, responsible to the government, and whose assets are transferred to the government upon dissolution.
Meanwhile, international organizations exempt from the global minimum tax are those primarily government-based, have agreements with other countries or jurisdictions, and ensure that income does not benefit parties other than the government as stated in their formation documents. Pension fund entities exempt from the global minimum tax are those established and operated exclusively to invest funds for the benefit of the pension fund entity and to carry out additional business activities.
Real estate investment fund entities (real estate investment vehicles) are those taxed once at the entity or stakeholder level with a maximum delay of one year, provided they primarily own immovable property and are widely owned. Additionally, global minimum tax provisions are exempted for entities at least 95% owned by exempt entities or at least 85% owned by exempt entities if dividends received are exempt from the consolidated profit and loss calculation of the business group.
This article briefly overviews the global minimum tax in Indonesian domestic provisions. In the next article, we will discuss the technical provisions of the global minimum tax implementation. If you have further questions, Ideatax is here to help.
References
- OECDGlobal Anti-Base Erosion Model Rules (Pillar Two)
- OECD2021Tax Challenges Arising from Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two)Paris OECD
