PMK 136: Implementing Global Minimum Tax Rules Under International Agreements

On December 31, 2024, the Ministry of Finance of the Republic of Indonesia issued a new regulation regarding the global minimum tax imposition based on international agreements.

The Global Minimum Tax (“GloBE”) is a top-up tax developed by the OECD/G20 Inclusive Framework (“IF”) on Base Erosion and Profit Shifting (“BEPS”). This framework includes commentary, examples, agreed administrative guidance, GloBE information return, and provisions for safe harbors and penalty relief. In simple terms, these rules are designed to ensure that multinational enterprises (“MNEs”) pay a minimum of 15% tax in each country where they operate. Top-up taxes will be imposed if a company pays less than this amount in a particular country.

With this new provision, Indonesia officially adopts the GloBE rules, ensuring that MNEs operating in Indonesia pay at least a 15% tax rate. If a parent entity in Indonesia has a subsidiary abroad that pays below 15%, Indonesia can impose top-up taxes. Additionally, if the foreign parent entity does not apply the minimum tax, Indonesia can impose top-up taxes on business entities within the country under the Under-Taxed Payments Rule (“UTPR”).

According to Article 2 Paragraph (1), GloBE applies to Constituent Entities (or members of a business group) of a Multinational Enterprise Group (“MNE Group”) with an annual gross turnover of at least EUR 750,000,000. This turnover must be met in at least two of the four Fiscal Years before the GloBE Fiscal Year.

For example, Company X, a member of the MNE Group (Constituent Entity), has a gross turnover of EUR 780,000,000 in 2023 and EUR 900,000,000 in 2024. In 2025, the third year, the gross turnover meets the GloBE provisions, so the MNE Group company implements GloBE.

Constituent Entities exempt from the GloBE Rules include:

1. Governmental entities;
2. International organizations;
3. Non-profit organizations;
4. Pension funds;
5. Investment funds which are the ultimate parent entity ("UPE"); and
6. Real estate investment vehicles which are UPE.

The minimum tax rate set in GloBE is 15%. The Effective Tax Rate (“ETR”) is calculated with the following formula:

Notes:

• Total Covered Tax = the current tax expense recognized in the financial accounting net profit or loss for the current Fiscal Year after adjustments
• Total GloBE Net Profit= the positive amount obtained by subtracting the GloBE profit of all Constituent Entities from the GloBE loss of all Constituent Entities

According to PMK 136, companies with an ETR below 15% will be subject to top-up taxes through the following schemes:

• Income Inclusion Rule (“IIR”): If a subsidiary in another country pays less than 15% tax, the country where the parent entity is located will impose a top-up tax to cover the difference. This ensures that the parent country collects any underpaid taxes by the subsidiary, bringing the total tax to at least 15%.
• Under-Taxed Payments Rule (“UTPR”): If the parent company is not subject to IIR in its home country, the country where the subsidiary is located can impose top-up taxes through the UTPR mechanism. This rule ensures that profits earned by MNEs are still subject to a minimum tax of 15%, even if the parent entity's home country does not impose top-up taxes.
• Domestic Minimum Top-up Tax (“DMTT”): If a company pays less than 15% tax in the country where the profit is generated, that country can immediately impose a top-up tax to bring the total tax to 15%. With DMTT, top-up taxes can be levied locally without waiting for the parent country to impose top-up taxes, thereby preventing potential tax revenue loss to other countries through the IIR and UTPR mechanisms.

Top-up tax imposition example:

Consider MNE Group A, which has a UPE, PT ABC, in Indonesia. The MNE Group has Constituent Entities: A Co in Country A, B Co in Country B, and C Co in Country C.

If Countries A, B, and C do not implement DMTT, and the Substance-based Income Exclusion (“SBIE”), an exception to the imposition of top-up tax on GloBE Net Profit calculated using a certain formula, is 0 (zero), the GloBE income and Covered Tax in a million Euros are as follows:

• A Co has an income of EUR 3,000 and a Covered Tax of EUR 360
• B Co has an income of EUR 2,000 and a Covered Tax of EUR 100
• C Co has an income of EUR 5,000 and a Covered Tax of EUR 500

If Indonesia applies IIR provisions, the top-up tax imposed on PT ABC is calculated as follows:

SBIE regulates the basic provisions for certain profit exceptions, which are based on salary costs and tangible assets. These exceptions protect companies engaged in substantive activities from top-up tax regulations, recognizing their significant contribution to the economy. Examples of such business sectors include manufacturing, energy, and infrastructure .

According to the de minimis provision, the top-up tax imposed on Constituent Entities can also be 0 if the following requirements are met:

1. The average GloBE revenue in the country where the Constituent Entity is located is less than EUR 10,000,000 in the current Fiscal Year and the two previous Fiscal Years; and
2. The average GloBE net profit is less than EUR 1,000,000 or there is a GloBE net loss in the country where the Constituent Entity is located in the current Fiscal Year and the two previous Fiscal Years.

In implementing GloBE reporting, the UPE of the MNE Group must submit a Tax Return for income earned in the year of GloBE imposition. The Tax Return used in implementing GloBE consists of:

1. GloBE Annual Income Tax Return;
2. DMTT Annual Income Tax Return; and/or
3. UTPR Annual Income Tax Return.

This Tax Return must be submitted to the Directorate General of Taxes (“DGT”) within four months after the end of the Fiscal Year. The top-up tax payable must be paid in Rupiah no later than the following Fiscal Year after GloBE is imposed . The calculation of GloBE Profit or Loss in the GloBE Annual Income Tax Return must meet these requirements:

1. Use the financial accounting net profit or loss before consolidation adjustments, based on Financial Accounting Standards (“SAK”) applied in the Consolidated Financial Statements of the UPE.
2. If this requirement cannot be met, Acceptable SAK or Recognized SAK may be used if the following conditions apply:

• The financial accounts of the Constituent Entities are maintained under Acceptable SAK or Recognized SAK;
• The financial account information is reliable; and
• If permanent differences exceed EUR 1,000,000 due to differing financial standards or principles, they must be adjusted to align with the standards used in the Consolidated Financial Statements of the UPE.

To determine GloBE's profit or loss, an entity's profit or loss must be subject to the following adjustments:

1. General Adjustment, adjustments to the net profit or loss of financial accounting which includes general financial accounts, transfer pricing, Qualified Refundable Tax Credit ("QRTC") and Non-Qualified Refundable Tax Credit ("NQRTC"), and Intra-Group Financing Arrangements.
2. Elective Adjustment, includes stock-based compensation, profits and losses on assets and liabilities based on the realization principle, aggregate asset profits, and application of group tax consolidation.
3. Specific Adjustment, includes insurance companies, banks, international shipping income, Permanent Establishments, and Flow-through Entities.

In addition to submitting the GloBE Annual Income Tax Return, the UPE must submit a Globe Information Return (“GIR”) to the DGT no later than 15 months after the end of the Fiscal Year. The GIR includes the following information:
 

• Identity of Constituent Entities
• MNE Group Structure
• Calculations: 1) ETR for each country and top-up taxes of each Constituent Entity, 2) Top-up tax on joint venture group members, dan 3) Allocation of top-up tax based on IIR and amount of top-up tax based on UTPR for each country
• Notes on the selections made under the relevant GloBE provisions

Meanwhile, constituent entities of the MNE Group in Indonesia must notify the DGT within 15 months after the Fiscal Year ends. Submission of a separate notification is not required if a GIR has already been provided.

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