Deferred Tax Adjustments in Tax Calculations Under GloBE Rules

Covered tax is a key component in calculating the effective tax rate under the 15% global minimum tax regulations.

The Global Minimum Tax or Global Anti-Base Erosion (GloBE) Rules have been established through Minister of Finance Regulation (PMK) Number 136 of 2024 (PMK 136/2024).

According to this regulation, taxpayers must make adjustments when determining covered tax—one of which is deferred tax adjustments.

Deferred tax adjustments are made by accounting for Deferred Tax Assets (DTA) and Deferred Tax Liabilities (DTL) to address the impact of temporary differences that arise.

This adjustment aims to prevent additional tax liabilities arising from differences in tax recognition between domestic tax reporting and financial reporting.

For example, Company A in Country X purchases an asset worth IDR 100 million and receives immediate expensing for tax purposes. However, for accounting purposes, Company A records straight-line depreciation over five years.

As a result, Company A’s taxable income under domestic tax rules is zero, while its GloBE income is IDR 80 million (IDR 100 million – IDR 20 million depreciation). This leads to an ETR (Effective Tax Rate) of 0%, triggering an additional tax of 15%.

However, under the new rules, a Deferred Tax Liability (DTL) of 12 (80 × 15%) is recognized, reflecting future taxes on this income. This DTL prevents the imposition of additional tax, even though no domestic tax is paid in the first year.

This article provides a detailed analysis of deferred tax adjustments in determining covered taxes, as regulated in PMK 136/2024, Article 34.

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

Deferred Tax Expense as a Reference

The first step in determining deferred tax adjustments is to use the value of the Deferred Tax Expense (DTE) recognized in the financial statements as a reference.

The amount of deferred tax adjustment corresponds to the DTE recognized in the financial statements if the applicable income tax rate is lower than the minimum rate under the GloBE Rules. However, if the tax rate is higher than the minimum rate, the deferred tax adjustment amount is based on the recalculated (recast) DTE using the minimum rate.

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

Deferred Tax Expense Exemptions

In calculating deferred tax adjustments, as outlined in Article 34, Paragraph (2) of PMK 136/2024, certain elements are excluded from consideration:

a. DTE Related to Items Excluded from GloBE Profit or Loss Calculation

This exclusion prevents taxpayers from overstating the Effective Tax Rate (ETR) in a jurisdiction. If taxes related to items not included in GloBE Profit or Loss are incorporated into the covered tax calculation, it could artificially inflate the ETR beyond its actual level.

b. DTE Related to Disallowed Accruals or Unclaimed Accruals

Disallowed accruals refer to any changes in DTE recognized in the financial statements of a constituent entity, and linked to uncertain tax positions and/or dividend distributions or profit-sharing.

Meanwhile, unclaimed accruals involve an increase in DTL that is not expected to be paid within five years and is recorded in the financial statements for a given tax year.

These exclusions are given due to uncertainty about whether these amounts will be paid or when the payment will occur.

c. Impact of Accounting Valuation or Recognition Adjustments Related to DTA

This exemption prevents distortions in the calculation of DTA, particularly those related to tax losses with uncertain future usability. Adjustments are only applicable if there is uncertainty regarding the ability to use domestic tax losses in the future.

d. Amount of DTE from the recalculation related to changes in the applicable domestic tax rate

DTE recognized due to changes in the domestic tax rate is not included in the calculation. This is because DTE arising from changes in the domestic tax rate is essentially only a revision of the previously recognized tax amount.

Furthermore, the DTE is not an additional tax that must be considered as tax paid in the relevant Fiscal Year.

e. Deferred Tax Expense Related to the Creation and Utilization of Tax Credits

Changes related to the creation and utilization of tax credits are excluded from covered tax calculations for GloBE purposes. This exclusion ensures that global tax payment calculations remain accurate and consistent with GloBE principles, preventing distortions in reporting.

Adjustment of Deferred Tax Expense

Furthermore, as stipulated in Article 34, paragraph (3) of PMK 136/2024, adjustments to deferred tax expenses are made as follows:

First, increased by disallowed accruals or unclaimed accruals paid during the Tax Year.

Second, increase the amount of recaptured deferred tax liability from the previous tax year that has been paid in the current tax year.

Third, reduced the amount of deferred tax adjustment due to the recognition of deferred tax asset losses, specifically for current-year tax losses, as long as the deferred tax asset losses have not been recognized due to failing to meet the recognition criteria.

Adjustment of Minimum Tax Rate DTA in GloBE Loss

Referring to Article 34 of PMK-136, Deferred Tax Assets (DTA) related to GloBE Loss can be adjusted (recast) to the minimum tax rate if the domestic rate is lower. This rule prevents undue additional taxation and maintains the principle that a GloBE Loss of 1 should offset a GloBE Income of 1.

For example, if a DTA is recorded at a domestic tax rate of 5% for a GloBE Loss of 100, the DTA value is only 5. When an income of 100 is earned in the future, this DTA will be realized. However, the difference from the 15% minimum rate (i.e., 10) would be considered underpaid and subject to additional tax.

With this rule, the DTA can be adjusted to the 15% minimum tax rate, increasing its value to 15, ensuring full protection of GloBE Income without additional taxation. This rule reflects fairness in global tax calculations.

Recapture Rule Provisions for DTL

Furthermore, under Article 34, paragraphs (5) and (6), if a Deferred Tax Liability (DTL) has been accounted for but remains unpaid within the following five tax years, it must be recaptured. As a result, this DTL will reduce the covered tax in the first tax year in which the deferred tax liability was recognized.

This rule ensures that minimum tax calculations remain accurate and fair by preventing the recognition of unrealized tax benefits.

However, the recapture rule provisions do not apply to DTL which is a recapture exception accrual, namely tax expenses arising from changes in Deferred Tax Liabilities related to:

• cost recovery allowance for tangible assets;
• license fees or similar arrangements from the government for the use of immovable property or exploitation of natural resources that require significant investment in tangible assets;
• research and development costs;
• decommissioning and remediation costs;
• fair value accounting for unrealized net gains;
• net gains on foreign currency differences;
• insurance reserves and deferred acquisition costs of insurance policies;
• gains from the sale of tangible assets located in the same country or jurisdiction as the Constituent Entity reinvested in tangible assets in the same country or jurisdiction; and
• additional amounts recognized due to changes in accounting principles as referred to in items a through h.

To determine whether the recapture rule applies to DTL or not, it is important to confirm whether the DTL is included in the Adjusted Covered Tax. If the answer is yes, then please confirm whether the DTL qualifies to be excluded from the recapture accrual exception?

If the answer is no, then lastly it must be ensured whether the constituent entity can track its DTL. If so, then it means the recapture rule must apply to the DTL.

Read: Understanding UTPR in PMK 136/2024: A Proportional Additional Tax Mechanism

Option to Choose GloBE Loss in a Jurisdiction

A company actually has the option to choose a simpler rule in the GloBE loss carry forward as deemed GloBE loss DTA (minimum rate x net GloBE loss) in a country or jurisdiction.

However, if this option is applied, the provisions on handling temporary differences in accordance with Article 34 PMK 136/2024 when there is a net GloBE loss do not apply. This GloBE loss election can only be made once and is applicable if the country or jurisdiction of the constituent entity:

a. does not impose corporate income tax; 
b. has a corporate income tax rate lower than the Minimum Rate; or 
c. does not apply deferred tax accounting.

If the GloBE loss election is revoked, the deemed GloBE loss DTA becomes 0 and is effective from the first day of the tax year in question. Furthermore, the provisions of the DTAA Article 34 will apply.

Additionally, the GloBE loss election must be reported in the GIR in the first Tax Year when the PMN Group has a Constituent Entity located in the country or jurisdiction where the election was made.

However, this GloBE loss election cannot be applied in countries or jurisdictions that implement the eligible distribution tax system, as outlined in Article 32 paragraph (2) PMK/136.

If the GloBE loss election is made by the main parent entity, which is a flow-through entity, the GloBE loss DTA calculation will be done following the provisions of Article 35 paragraphs (1) – (9), with reductions referring to the applicable provisions for the relevant parent entity.

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.