PMK 136 of 2024: A Transformational Leap Towards the Era of Global Minimum Tax

The Indonesian government introduced Minister of Finance Regulation No. 136 of 2024 (PMK-136/2024) through the Ministry of Finance as a strategic step in implementing the Global Minimum Tax or Global Anti-Base Erosion (GloBE) rules. 

This regulation is part of a global effort initiated by the OECD/G20 Inclusive Framework (IF) on Base Erosion and Profit Shifting (BEPS) to prevent tax avoidance practices, particularly among multinational enterprise groups (MNE Groups).

Background

In recent years, G20 and OECD member countries have collaborated to prevent Base Erosion and Profit Shifting (BEPS), a practice where profits are shifted to jurisdictions with low or zero tax rates. One of the most significant initiatives in this effort is developing the GloBE model under Pillar Two.

Previously, to address BEPS, the OECD introduced 15 actions known as BEPS Action 1-15, or BEPS 1.0. However, some BEPS-related issues remained unresolved, prompting the Inclusive Framework (IF) to develop BEPS 2.0, which consists of two pillars:

• Pillar One: Focuses on reallocating a portion of profits from the largest and most profitable multinational enterprises (MNEs) to market countries—where their products or services are consumed.
• Pillar Two: Establishes a global minimum tax rate of 15%, ensuring that MNEs pay at least this minimum tax rate in every jurisdiction where they operate.

With the issuance of PMK-136/2024, Indonesia reinforces its participation in the Inclusive Framework and demonstrates its commitment to implementing GloBE (Pillar Two) starting January 1, 2025.

This regulation applies to constituent entities of multinational enterprise groups with an annual gross revenue of at least €750 million. The implementation aims to reduce harmful tax rate competition and ensure that MNEs pay a fair share of taxes.

PMK-136/2024 outlines how Indonesia will adopt and implement GloBE. Chapter I of the regulation contains 63 strategic definitions, clarifying various terms and concepts related to GloBE, including the definitions of MNE Groups, Effective Tax Rate (ETR), and Domestic Minimum Top-up Tax (DMTT).

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

Scope and Strategic Definitions in PMK 136/2024

In Chapter I: General Provisions, Article 1 of PMK 136/2024, the general provisions are explained, particularly the definitions that form the basis of regulation. Below are some key points:

1. GloBE

• A global additional tax provision developed by the OECD/G20 IF on BEPS.
• Serves as an umbrella for other rules, such as Income Inclusion Rules (IIR), Undertaxed Payment Rules (UTPR), and DMTT.

2. MNE Group (Grup PMN)

• A group that has at least one entity or Permanent Establishment (PE) outside the jurisdiction of the Ultimate Parent Entity (UPE).
• The main focus of GloBE implementation is to prevent the misuse of tax rate differences across countries by multinational groups.

3. Consolidated Financial Statements

• Reports that present the financial position and business performance of multiple entities within a group.
• This definition is important because GloBE calculates GloBE income based on consolidated financial statements with certain adjustments.

4. Entities, Constituent Entities, and Parent Entities

• Entity refers to a body or arrangement that presents financial accounts separately, such as a partnership or trust.
• Constituent Entity includes any entity within the group, including PEs located in other countries.
• Ultimate Parent Entity (UPE) is an entity that directly or indirectly controls other entities within the group and is not controlled by another entity above it.

5. Low-Taxed Constituent Entity

• Refers to an entity within an MNE Group that operates in a low-tax jurisdiction or is not subject to taxation.
• This concept is key in determining whether the ETR is lower than the 15% minimum rate set by GloBE.

6. ETR (Effective Tax Rate)

• The ratio of the adjusted covered taxes divided by the net GloBE income of a country or jurisdiction for a tax year.
• If the ETR is lower than the minimum rate (15%), GloBE provisions will apply an additional tax.

7. IIR, UTPR, and DMTT Provisions

• IIR (Income Inclusion Rule): A top-up tax imposed on the domestic parent entity if other constituent entities within the group are taxed below the minimum rate (15%) in their respective jurisdictions.
• UTPR (Undertaxed Payment Rule): A top-up tax imposed on the domestic constituent entity if the IIR is not applied and/or does not sufficiently compensate for the tax rate difference.
• DMTT (Domestic Minimum Top-up Tax): A top-up tax imposed on a domestic constituent entity if its effective tax rate (ETR) falls below the minimum rate (15%).

8. Qualified IIR, Qualified DMTT, and Qualified UTPR

• IIR, DMTT, and UTPR provisions in a country are considered “qualified” if they align with GloBE standards.
• If a country's domestic tax regulations meet OECD/G20 IF on BEPS standards, these top-up tax mechanisms can be applied.

9. GloBE Profit or GloBE Loss

• GloBE Profit or Loss refers to the net financial accounting profit or loss, adjusted according to GloBE rules.

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

10. Substance-Based Income Exclusion (SBIE)

• Excludes a portion of net GloBE profit from top-up tax, calculated using a specific formula.

11. GloBE-Related Tax Returns (SPT)

• Classified into three types: Annual GloBE Income Tax Return (SPT Tahunan PPh GloBE), Annual DMTT Income Tax Return (SPT Tahunan PPh DMTT), and Annual UTPR Income Tax Return (SPT Tahunan PPh UTPR). 
• Each tax return reports additional tax obligations based on GloBE mechanisms.

12. GloBE Information Return (GIR)

• A standardized form that Constituent Entities must submit to the Directorate General of Taxes (DGT).
• Contains information about: Constituent entity identity, MNE Group structure, Tax calculations, Elections made under GloBE rules, and other relevant details.

13. Flow-through Entity and Tax Transparent Structure

• Entities whose income is directly recognized by their owners, such as certain partnerships or trusts, may be subject to special treatment if located in jurisdictions with unique tax rules.
• Tax-transparent ownership structures also play a role in minimizing tax burdens at the entity level.

14. Accounting Adjustments and Deferred Tax

• Deferred Tax Expenses, Deferred Tax Assets, and Deferred Tax Liabilities are defined, considering that temporary differences between accounting profit and taxable profit can impact the effective tax rate (ETR).

Read More: Deferred Tax Adjustments in Tax Calculations Under GloBE Rules

15. Excluded Dividends

• Dividends or other distributions related to ownership interests, except for: Short-term portfolio shareholdings or Holdings related to investment entities.

16. Annual Election and 5-Year Election

• Provides certain flexibility for Reporting Constituent Entities to choose specific calculation methods or arrangements within the GloBE framework, either for short-term (1-year) elections, or long-term (5-year) elections.

17. Look-Back Period

• A 5-year tax period (Current Annual Election + 4 Previous Tax Years) for Reporting Constituent Entities to adjust GloBE profit or loss in cases where there is an aggregate asset gain in a specific country or jurisdiction.

18. Notification and CbCR

• Notification is a written declaration regarding the identity of a tax subject within an MNE Group, including the designation of the reporting entity.
• Country-by-Country Reporting (CbCR) remains a key international framework for identifying profit locations, taxes paid, and main business activities per country.

Impact of Implementing PMK 136/2024

The implementation of this regulation has a transformational impact on taxpayers. Some key effects include:

1. New Obligations for Multinational Groups

Corporations within an MNE Group, especially those with entities in Indonesia, must adjust their tax calculations under GloBE definitions. This may lead to increased administrative burdens and require alignment of accounting and tax systems.

2. Prevention of Tax Avoidance Practices

Through comprehensive definitions, the Indonesian government strengthens the legal framework to close tax loopholes. This regulation aligns with international standards, allowing Indonesia to coordinate with other countries in combating BEPS (Base Erosion and Profit Shifting) practices.

3. Tax Administration Challenges

The DGT (Directorate General of Taxes) requires advanced infrastructure and resources to handle cross-jurisdictional data, including the validation of CbCR (Country-by-Country Reporting, GIR (GloBE Information Return), Notifications, and Special Annual Tax Returns (SPT) related to the global minimum tax. Successful implementation requires close collaboration between the tax authorities, businesses, and tax consultants.

4. Role of Tax Consultants and Accountants

Given the complex technical concepts involved (e.g., deferred tax, asset valuation using fair market value or mark-to-market adjustments, and accounting adjustments), tax and accounting professionals play a critical role in ensuring compliance and tax optimization under the new rules.

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

Conclusion

The implementation of PMK 136/2024 serves as a fundamental basis for enforcing GloBE in Indonesia. With comprehensive definitions and a structured strategy, this regulation helps create fair business competition, strengthens the domestic tax base, and ensures that multinational companies pay taxes in line with their economic contributions.

For companies within an MNE Group, understanding this regulation is crucial. Businesses must adjust their tax strategies, accounting systems, and financial documentation to comply with GloBE requirements. This ensures that the global minimum tax can be effectively implemented without disrupting business stability.

As a next step, collaboration between the government and businesses is essential to ensure the smooth implementation of this policy and to maximize its benefits for the national tax system.

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.