Global Minimum Tax Applies, Know the Exchange Rate Rules to Comply With

The provisions regarding currency translation or conversion in the global minimum tax regulations are substantial. Therefore, the mechanism for currency translation is regulated in the Minister of Finance Regulation (PMK) Number 136 of 2024.

The objective is to provide legal certainty in calculating additional taxes, making it easier for taxpayers to harmonize calculations across various jurisdictions with different currencies.

It is important to note that the global minimum tax rate of 15% applies to multinational enterprises (MNEs) with a certain revenue threshold. In its implementation, this policy follows the Global Anti-Base Erosion (GloBE) Rules and adopts several charging mechanisms, namely the Income Inclusion Rules (IIR) and Domestic Minimum Top-up Tax (DMTT) starting January 1, 2025, as well as the Undertaxed Payment Rules (UTPR), which will take effect on January 1, 2026.

Read: An Overview of Covered Tax Calculation Under PMK 136/2024

Use of Currency Translation

In the implementation of the 15% global minimum tax, currency translation is necessary for various purposes. For example, it is used to determine whether an MNE group falls within the scope of the GloBE Rules. Additionally, currency translation is required when calculating the top-up tax amount.

1. Ensuring Coverage Under GloBE Rules

As we know, an MNE group is subject to the GloBE Rules if its consolidated group revenue in at least two of the four fiscal years preceding the test year is at least EUR 750 million per year. In other words, this amount serves as the threshold for the GloBE Rules.

The issue arises for MNE groups that use currencies other than the Euro in their consolidated financial statements. These groups are required to translate their revenue into Euros to assess whether they meet the threshold.

The translation to Euros must be conducted using the average exchange rate for December of the preceding fiscal year, as published by the European Central Bank.

Read: Understanding DMTT, The GloBE Rules’ Additional Tax That Benefits Indonesia

Example:

PT ABC is the ultimate parent entity of a state-owned enterprise (SOE) group based in Indonesia, with a financial year aligned with the calendar year. Group ABC needs to check whether it falls under the GloBE Rules in 2025.

The following illustration shows how currency translation is applied in the process:

Fiscal Year of Assesment	Revenue Translation to Euro
2024	Average Exchange Rate of December 2023
2023	Average Exchange Rate of December 2022
2022	Average Exchange Rate of December 2021
2021	Average Exchange Rate of December 2020

2. Currency Translation in Additional Tax Calculation

For MNE groups whose consolidated financial statements are not in Indonesian Rupiah but need to pay additional taxes in Indonesia under the IIR, UTPR, and/or DMTT mechanisms, the payment must be made in Rupiah.

The translation to Rupiah must use the exchange rate determined in the Minister of Finance Decree (KMK) at the time of the additional tax payment.

Example:

In the 2025 fiscal year, Group ABC meets the criteria as an MNE group subject to the GloBE Rules. The 2025 fiscal year is the first year of GloBE Rules implementation for Group ABC.

If an additional tax arises in Indonesia for the 2025 fiscal year, it will be due in the 2026 fiscal year. The additional tax must be paid no later than December 31, 2026.

If Group ABC makes the payment on December 1, 2026, the exchange rate used will be the KMK rate applicable on that date.

Read: Implementation of IIR as a Charging Mechanism in the Global Minimum Tax under PMK 136/2024

Currency Volatility Challenges

However, the implementation of currency translation policies is not without challenges. One of the main challenges is exchange rate volatility, which can lead to fluctuations in the amount of tax payable.

Differences between the exchange rate used in financial reporting and the rate at the time of tax payment can impact a company's tax obligations.

For example, if a company calculates additional tax using a lower Euro exchange rate in its financial statements, but the Euro strengthens against the Rupiah (IDR) at the time of tax payment, the company will have to pay a higher amount in Rupiah (IDR).

Conversely, if the exchange rate weakens, the tax paid may be lower than initially estimated. Despite these challenges, the translation guidelines in PMK 136/2024 provide clarity for taxpayers.

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.