Taxation Aspects that Need to be Observed in Merger Activities
Ideatax, Jakarta -- The Business Competition Supervisory Commission or Komisi Pengawas Persaingan Usaha (KPPU) reports that since 2012, there has been an increase in the number of merger notifications by corporations in Indonesia. In 2012, 36 merger activities merger notifications were reported to KPPU. In 2013, the number of merger activities increased to 69. However, in 2014, the number dropped to 55. For your information, the highest number of merger reports occurred in 2020 with 195 reports. The details of the merger reporting can be seen in the following graph:
Source: KPPU, 2012 - 2021
According to the Regulation of the Commission for the Supervision of Business Competition Number 1 of 2009 concerning Pre-Notification of Mergers, Consolidations and Acquisitions; a merger is a legal act carried out by one or more companies/ business entities to merge with other existing companies/ business entities resulting in the assets and liabilities of the merging company/ business entity being legally transferred to the surviving company/ business entity.
On the other hand, a business consolidation is a legal act carried out by two or more companies to consolidate themselves by establishing a new company which by law acquires assets and liabilities from the consolidating companies and the legal status of the consolidating companies ends.
Law Number 40 of 2007 concerning Limited Liability Companies stipulates that in business mergers and consolidations, the assets and liabilities of the merging or consolidating companies are legally transferred to the company that received the merger or the company resulting from the consolidation. Furthermore, the Company Law also stipulates that the shareholders of the company which are legally merging or consolidating become the shareholders of the company which received the merger or the company resulting from the consolidation.
Based on the abovementioned stipulations, we can see that in the process of merging and consolidating business, there are potential tax objects, both Income Tax, Value Added Tax (VAT) or Acquisition Duty of Right on Land and Building.
KUP Aspects of the Merger
Law 6 of 1983 concerning General Provisions and Tax Procedures Law or Ketentuan Umum dan tata cara Perpajakan (KUP) as amended by Law Number 7 of 2022 concerning Harmonization of Tax Regulations or Harmonisasi Peraturan Perpajakan (HPP) stipulates that corporate taxpayers who are liquidated due to business termination or merger can have their Taxpayer Identification Number or Nomor Pokok Wajib Pajak (NPWP) removed by the Tax Directorate General. Thus, if a taxpayer carries out a merger activity, administratively, taxation will result in the deletion of the NPWP of the merged taxpayer.
Income Tax Aspects of Mergers
Furthermore, the HPP Law also stipulates that profits from the sale or transfer of assets, including profits due to liquidation, merger, consolidation, expansion, splitting, business acquisition, or reorganization, are tax objects payable with income tax.
There are two types of income tax imposed on merger activity. First, the profit from the transfer of assets other than land and buildings will be subject to the general Income Tax Article 17 rate of 20% for the 2022 tax year and so on. Second, if assets are transferred in the form of land or buildings, then final income tax is payable article 4(2) on the transfer of land and buildings at a rate of 2.5% or in accordance with Government Regulation Number 34 of 2016 concerning Income Tax on Transfer of Income. Land and/ or building rights, and binding sale and purchase agreements on land and/ or buildings and their amendments.
In general, the calculation of the value of assets transferred in the merger process, both in terms of accounting and taxation, is using market value. This is regulated in Indonesian Financial Accounting Standards or Pernyataan Standar Akuntansi Keuangan (PSAK) No. 22 which states that the acquirer calculates the acquired identifiable assets and taken over liabilities at fair value at the acquisition date (Martani, 2023).
From a tax perspective, it is still possible for taxpayers to use the book value of the transfer and acquisition of assets in the business merger and consolidation process. This is technically regulated in the Ministry of Finance Regulation or Peraturan Menteri Keuangan (PMK) Number 205/PMK.010/2018.
Furthermore, PMK 205/PMK.010/2018, stipulates that there are two criteria of merger that can implement book values. First, the merger and consolidation of two or more domestic Taxpayers whose capital is divided into shares by transferring all assets and liabilities to one of the corporate Taxpayers who has no remaining or lower fiscal losses. Second, the merger of a legal entity established or domiciled abroad with a domestic Taxpayer, by transferring all assets to a domestic taxpayer.
VAT Aspects of Mergers
Law number 8 of 1983 concerning Value Added Tax and Sales Tax on Luxury Goods as amended by Law Number 7 of 2022 concerning Tax Harmonization, stipulates that the transfer of Taxable Goods in the context of merger, consolidation, expansion, division and acquisition business is not included in the definition of delivery of Taxable Goods.
This provision applies under condition: the transferring and the receiving party are Taxable Entrepreneur. Thus, it is clear that if the assets transferring party and the transfer receiving party in the merger process are taxable entrepreneurs, then this merger activity is exempt from the imposition of Value Added Tax.
Regional Tax Aspects of Mergers
Besides central tax objects in the form of income tax and VAT, merger activities also include regional tax objects in the form of Land and/ or Building Rights Acquisition Fees or Bea Perolehan Hak atas Tanah dan Bangunan (BPHTB). This is regulated in Article 44 of Law Number 1 of 2022 concerning Central and Regional Financial Relations.
The regulation stipulates that the object of BPHTB is the acquisition of rights to land and/ or buildings, including business combinations and consolidations. Additionally, it also stipulates that the subject of BPHTB are individuals or entities that obtain land and/ or building rights. The basis for the imposition of BPHTB is the acquisition value of the tax object which includes the transaction price, market value and transaction price listed in the minutes of the auction.
That is the tax aspects that need to be heeded in the process of business merger or consolidation. If you need further information, Ideatax is right here for you.
KPPU. (2023, Maret 03). Review berdasarkan Peraturan KPPU Nomor 1 Tahun 2009:. Retrieved from Daftar Notifikasi Merger: https://kppu.go.id/daftar-notifikasi-merger/
Martani, D. (2023, March 5). PSAK 22 Kombinasi Bisnis (IFRS 3) 16022015. Retrieved from Dwi Martani Accounting and Finance Corner: https://staff.blog.ui.ac.id/martani/2016/04/21/materi-overview-psak-2015-dan-sak-etap/psak-22-kombinasi-bisnis-ifrs-3-16022015-2/
- Law number 6 of 19883 concerning General Provisions and Tax Procedures as amended by Law Number 7 of 2022 concerning Tax Harmonization.
- Law number 7 of 1983 concerning Income Tax as amended by Law Number 7 of 2022 concerning Tax Harmonization.
- Law number 8 of 1983 concerning Value Added Tax and Sales Tax on Luxury Goods as amended by Law Number 7 of 2022 concerning Tax Harmonization.
- Law No. 1 concerning Central and Regional Financial Relations.
- Regulation of the Commission for the Supervision of Business Competition Number 1 of 2009 concerning Pre-Notification of Mergers, Consolidations and Acquisitions.
- PMK 205/PMK.010/2018 concerning Amendment to Regulation of the Ministry of Finance Number 52/PMK.010/2017 concerning Use of Book Value for the Transfer and Acquisition of Assets in the Context of Merger, Consolidation, Expansion or Business Acquisition.
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