An Overview of Covered Tax Calculation Under PMK 136/2024

With the issuance of the Minister of Finance Regulation (PMK) Number 136 of 2024, every covered multinational enterprise (MNE) is required to comply with the global minimum tax rate of 15% following the Global Anti-Base Erosion (GloBE) Rules.

To implement this regulation, it is crucial to understand how to determine the effective tax rate by calculating the covered tax from the MNE’s total tax expenses.

This article will explain how to determine the covered tax, including how to distinguish between covered and non-covered taxes.

Read: Indonesia to Officially Implement Global Minimum Tax Starting 1 January 2025

The Definition of Covered Tax in the GloBE Rules

Covered tax is a key component for calculating the effective tax rate on the global minimum tax. To determine Covered Tax, taxpayers must first review the entire breakdown of their tax expenses and then identify the taxes related to income or equity.

Categories of Covered Tax

Under the GloBE Rules, covered tax includes:

1. Taxes on income/profits
2. Taxes on distributed profits deemed legitimate profit distributions, and non-business expenses imposed under an eligible distribution system
3. Taxes imposed as a substitute for the generally applicable corporate income tax
4. Taxes on retained earnings and equity

Categories of Non-Covered Tax

Non-covered taxes must be excluded from the effective tax rate calculation under the global minimum tax provisions. These include:

1. Indirect taxes
2. Payroll tax
3. Property tax
4. Digital services tax
5. Qualified IIR top-up tax, QDMTT, and Qualified UTPR top-up tax

Read: PMK 136/2024: Safe Harbour Provisions in the Transitional Period of GloBE Rules

Examples of Covered Tax Application

Below are some examples of how covered tax is applied according to PMK 136/2024:

Example 1

B Co is a Constituent Entity located in Country B. In the 2025 fiscal year, B Co recorded total tax expenses of EUR 500.00 in its financial statements. The breakdown is as follows:

Income Tax	280
Value Added Tax	50
Sales Tax on Luxury Goods (STLG)	50
Stamp Duty	1
Property Tax	30
Digital Service Tax	50
Payroll and Other Employment-Based Taxes, Social Security Contributions	19
Other Taxes (not representing income increment)   20	20
Total Tax Expenses	500

From the breakdown, only the Income Tax of EUR 280.00 qualifies as covered tax.

VAT, STLG, stamp duty, property tax, digital services tax, payroll tax, and other taxes are not related to income or equity and thus are not considered covered taxes under the income tax or substitute tax categories.

Example 2

CP Corp, a taxpayer in Country X, is a Constituent Entity of a multinational enterprise (MNE) group subject to global tax rules.

CP Corp recorded a gain of EUR 30,000,000 in its other comprehensive income from the revaluation of property, plant, and equipment. A tax of EUR 1,500,000 was imposed on this gain.

In this case, the EUR 1,500,000 tax on CP Corp’s gain is included as an additional covered tax according to Article 30(1)(c) of PMK 136/2024.

Allocation of Covered Tax Among Constituent Entities

Covered tax can be allocated among constituent entities or from one constituent entity to another in accordance with Article 33 of PMK 136/2024. The allocation details are as follows:

a. Controlled Foreign Company (CFC) Tax

For constituent entities whose owners are subject to controlled foreign company (CFC) rules, the amount of covered tax recorded in the owner’s financial accounts is allocated to the controlled foreign company.

The allocation is made based on the proportion of the controlled foreign company's income. This rule applies to both direct and indirect ownership of the constituent entity.

b. Dividend Withholding Tax (Dividend WHT)

The amount of covered tax recorded in the direct owner’s financial accounts related to dividends and other profit distributions during a tax year is allocated to the constituent entity distributing the dividends.

c. Permanent Establishment (PE) Tax

Covered tax recorded in a constituent entity’s financial accounts related to GloBE income or loss derived from a Permanent Establishment (PE) is allocated to that PE.

d. Tax Related to Transparent Entities

The amount of tax recorded in the financial accounts of a tax transparent entity, related to GloBE income or loss allocated to the constituent entity’s owners, is allocated to those owners.

e. Tax Related to Hybrid Entities

If a constituent entity is a hybrid entity, the amount of covered tax recorded in the owner’s financial accounts, related to the hybrid entity’s income, is allocated to that hybrid entity.

Adjusted Covered Tax

Taxpayers must consider several adjustments when calculating covered tax. According to Article 30(1) of PMK 136/2024, Adjusted Covered Tax refers to the current tax expenses recognized in the net profit or loss for the current year. However, these expenses from the financial statements cannot be directly used as the covered tax amount; certain adjustments must be made.

The current tax expenses must first be adjusted with the net additions or reductions to covered tax for the tax year, deferred tax adjustments, and any increase or decrease in covered tax recorded in equity or other comprehensive income that is included in the GloBE profit or loss calculation and is taxable under domestic laws.

Additions and Reductions to Covered Tax

According to the provisions of Article 30 paragraphs (2) and (3) PMK 236/2024, the first adjustment made to the covered tax amount is identifying the net amount of additions or reductions to covered tax for the relevant tax year.

Additions to covered tax may arise from the sum of the following transactions:

1. Covered tax is recognized in the financial accounts as an expense in the calculation of pre-tax profit,
2. Deferred tax assets related to GloBE losses,
3. Covered tax paid in a tax year on uncertain tax positions treated as covered tax in the previous tax year, and
4. QRTC credits or refunds are recorded as a reduction to current tax expenses.

Reductions to covered tax come from the sum of the following transactions:

1. Current tax expenses related to income excluded from the GloBE profit or loss calculation,
2. NQRTC credits or refunds not recorded as a reduction to current tax expenses,
3. Covered tax that is refunded or credited,
4. Current tax expenses on uncertain tax positions, and

Current tax expenses are estimated not to be paid within three years after the end of the tax year.

In addition to current tax expenses, adjustments are also made for temporary differences, which will be discussed in another article. 

For more information, please contact the Transfer Pricing Division of MUC Consulting at ask_muc@muc.co.id. The Transfer Pricing Division of MUC Consulting is supported by professionals with extensive experience in handling transfer pricing disputes and has received recognition from various professional organizations, including the Certificate of Professional Training in Fundamentals of GloBE Rules - Pillar Two. This certificate was awarded for participation in training related to GloBE rules from IBFD.