Mergers and acquisitions (M&A) are a widely used corporate strategy to expand operations, improve efficiency, and enhance competitiveness. According to the Institute for Mergers, Acquisitions, and Alliances (IMAA), Indonesia recorded 6,122 mergers and acquisitions between 1990 and 2026, with an aggregate transaction value of approximately USD 263 billion.
In 2022, M&A activity amounted to 152 transactions with a total value of USD 7.17 billion. Although transaction value declined by 23% from the previous year, the number of transactions increased by 2%. Historically, the highest number of M&A transactions was recorded in 2010, with 590 agreements, while the largest aggregate transaction value occurred in 2012, reaching USD 19.6 billion.
These figures indicate that M&A activity in Indonesia peaked between 2009 and 2012, both in terms of deal volume and transaction value. Since then, M&A activity has generally trended downward.
Tax Implications on Mergers and Acquisitions
From a tax perspective, mergers and acquisitions carry significant income tax implications. In particular, the transfer of assets in an M&A transaction constitutes a taxable event.
The difference between the market value and the book value of the transferred assets is treated as an additional economic benefit received by the taxpayer. This treatment is consistent with Article 4, Paragraph 1, Letter d, Number 3, of Law of the Republic of Indonesia concerning Income Tax, which classifies gains arising from asset transfers as taxable income, including those resulting from mergers, spin-offs, business expansions, or takeovers.
Tax Incentives for Mergers and Acquisitions
Although asset transfers in M&A transactions are generally assessed using market value, the government provides tax incentives by allowing the use of book value under certain conditions. This incentive is governed by Minister of Finance Regulation (Peraturan Menteri Keuangan/PMK) Number 52/PMK.010/2017 concerning the Use of Book Value in Asset Transfers and Acquisitions in Mergers, Spin-offs, Business Expansions, and Takeovers, as amended by PMK Number 81 of 2024 concerning Tax Provisions within the Coretax Administration System.
Under this framework, taxpayers may apply book value for asset transfers in merger and acquisition transactions, provided they obtain approval from the Directorate General of Taxes (DGT). The use of book value is intended to reduce the income tax burden arising from the gap between market value and book value.
Requirements for Using Book Value
Taxpayers eligible to apply for the use of book value are those transferring or receiving assets in an M&A transaction, subject to the following requirements:
- the application must be submitted to the DGT within six months of the effective date of the merger or acquisition, along with a clear explanation of the transaction’s purpose and rationale;
- the transaction must satisfy the business purpose test; and
- obtaining a tax clearance certificate from the DGT for resident corporate taxpayers and related permanent establishments.
Business Purpose Test in Mergers and Acquisitions
The business purpose test is deemed satisfied if the following conditions are met:
- the primary objective of the merger or acquisition is to generate genuine business synergies and strengthen the capital structure, rather than to obtain tax advantages;
- the business activities of the transferring taxpayer continue until the effective date of the merger or acquisition;
- the business activities carried out by the transferring taxpayer before the merger or acquisition are continued by the receiving taxpayer for at least four years following the effective date;
- the business activities of the receiving taxpayer continue for at least four years after the effective date of the merger or acquisition; and
- fixed assets acquired through a merger or acquisition are not transferred for at least 2 years after the effective date, unless the transfer is intended to improve operational efficiency.
It is important to note that only assets transferred on the effective date of the merger or acquisition may qualify for book value, and the book value applied must correspond to the value recorded on that date.
Merger and Acquisition Tax Incentive Value
According to the Ministry of Finance’s 2024 Tax Expenditure Report, tax expenditures related to the use of book value in M&A transactions fluctuated between 2021 and 2023.
In 2021, the estimated potential loss of tax revenue amounted to IDR 18 billion. This figure rose significantly to IDR 57 billion in 2022, before declining sharply to IDR 6 billion in 2023.
This overview concludes the discussion of tax incentives for mergers and acquisitions. For further assistance, Ideatax is here to help.
Also Read:
https://ideatax.id/articles/updates-to-the-05-msme-final-income-tax-and-its-business-impact
https://ideatax.id/articles/article-26-withholding-tax-on-foreign-taxpayers
https://ideatax.id/articles/pmk-1122025-updates-to-the-tax-treaty-implementation-procedures
