Guidelines for Adjusting GloBE Profit or Loss Under PMK 136/2024

Minister of Finance Regulation (PMK) No. 136 of 2024, which came into effect on January 1, 2024, establishes new rules for calculating GloBE profit or loss for entities in Indonesia.

Companies can optimize their tax strategies and minimize non-compliance risks by understanding these provisions.

In the context of optional adjustments in calculating GloBE profit or loss, constituent entities can adjust their net financial accounting profit or loss in a given country or jurisdiction, including:

a. Adjustments for stock-based compensation
b. Adjustments for gains and losses on assets and liabilities based on the realization principle
c. Adjustments for aggregate asset gains
d. Adjustments for group tax consolidation application

This article outlines these optional adjustments that can be applied to ensure compliance with the global minimum tax.

Adjustment of Share-Based Compensation

Below are several provisions that must be considered by the reporting constituent entity when making adjustments to share-based compensation:

• Share-based compensation expenses in financial statements may be replaced with the amount recognized as a deduction from taxable income in the calculation of GloBE profit or loss;
• If stock options expire without being exercised, the previously deducted amount must be recalculated in the tax year of expiration;
• The selected method applies for five years and must be consistently applied to all entities within the same country or jurisdiction;
• If the method is chosen after some transactions have been recorded, the excess recognition of previous expenses must be adjusted in the current tax year; and
• If the selection is revoked, the excess expenses previously deducted must be recalculated in the computation of GloBE Profit or Loss in the year of revocation.

Read: Deferred Tax Adjustments in Tax Calculations Under GloBE Rules

Adjustment of Gains and Losses on Assets and Liabilities Based on the Realization Principle

If the reporting constituent entity chooses this method, several provisions must be considered, as follows:

First, the entity may opt to determine gains and losses based on the realization principle for calculating GloBE income, concerning assets and liabilities recorded at fair value or impairment in the consolidated financial statements.

This provision applies to all assets and liabilities of the entity, except where the reporting constituent entity chooses to limit the election to the entity’s tangible assets or if it qualifies as an investment entity. Based on the application of this provision, the following rules apply:

• All gains and losses attributable to fair value adjustments, asset impairment, or liability adjustments must be excluded from the calculation of GloBE profit or loss;
• The carrying amount of assets or liabilities for the purpose of determining gains or losses is based on the recorded amount as of the latest date between the start of the election year or the date the asset was acquired or the liability incurred; and
• If the election to apply this provision is revoked, GloBE profit or loss must be adjusted to reflect the difference between the fair value and the carrying amount of the asset or liability at the beginning of the revocation year.

Second, the selection of this determination method is made every five years and applies to all entities within the country or jurisdiction where the election is in effect.

Read: Constituent Entities Exempted from GloBE Rules under PMK 136/2024

Adjustment of Aggregate Asset Gains

The provisions for adjusting aggregate asset gains, as determined by the election of the reporting constituent entity, include the following:

First, if in a given tax year there is an aggregate asset gain from domestic tangible assets, the reporting constituent entity may choose to adjust GloBE profit or loss within a specific period (Look Back Period), subject to the following conditions:

• Covered Taxes related to net asset gains or losses in the election year are excluded from the calculation of the adjusted covered tax.
• The aggregate asset gain is reallocated to the initial loss year and proportionally distributed against the net asset losses of each constituent entity in the respective country or jurisdiction.
• If the adjusted asset gain exceeds the total net asset losses, the excess is carried forward to subsequent loss years proportionally.
• The remaining asset gain, after applying points 2 and 3 above, is evenly allocated to each Tax Year within the Five-Year Election Period.
• The allocated asset gain, as per point 4, is included in the calculation of the GloBE Profit or Loss of the Constituent Entities in the respective country or jurisdiction.
• The remaining asset gain for each Tax Year is determined based on the proportion of the net asset gain of a specific Constituent Entity relative to the total net asset gain of all Constituent Entities.
• A specific Constituent Entity has a net asset gain in the election year and is located in the respective country or jurisdiction.
• If no specific Constituent Entity exists, the allocated asset gain is evenly distributed among all Constituent Entities in the respective country or jurisdiction.

Second, net asset gains or losses result from the transfer of domestic tangible assets by entities within the country or jurisdiction making the annual election, excluding transfers to other group members.

Third, net asset losses refer to losses from the transfer of domestic tangible assets by an entity in the country or jurisdiction of the annual election, excluding transfers to other group members.

Fourth, domestic tangible assets refer to immovable assets located in the same country or jurisdiction as the entity.

Fifth, adjusted asset gains are the amount of aggregate asset gains in the election year, reduced by the amount already used to offset net asset losses before the loss year.

Sixth, the loss year is the tax year within the Look Back Period in which the net asset losses of all Constituent Entities in the elected country or jurisdiction exceed the net asset gains.

Adjustment for the Application of Group Tax Consolidation

If the Ultimate Parent Entity (UPE) elects this method, the following provisions apply. First, the UPE may apply its consolidated accounting treatment to eliminate income, expenses, gains, and losses from inter-entity transactions within a tax-consolidated group in the same country or jurisdiction when calculating the net GloBE Profit or Loss for each entity.

Second, this election applies for a Five-Year Election Period. Lastly, if the UPE makes or revokes this election, adjustments to GloBE Profit or Loss items must be made to reflect the effects of such election or revocation.

By understanding and applying the provisions of PMK 136/2024, entities can optimize the calculation of GloBE Profit or Loss more accurately and in compliance with applicable regulations. (ASP/KEN)