PMK 136/2024: Safe Harbour Provisions in the Transitional Period of GloBE Rules
Oleh: Tasya Dinasari Salsabila dan Tasya Nuchla Mustofa
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The global minimum tax provisions outlined in Minister of Finance Regulation (PMK) Number 136 of 2024 (PMK 136/2024) also regulate the safe harbour mechanism for multinational enterprises (MNEs) covered under the regulation.
In general, PMK 136/2024 governs the imposition of a global minimum tax with a 15% GloBE rate per jurisdiction. This provision is supported by the imposition of additional tax (top-up tax) mechanisms, which consist of the Income Inclusion Rule (IIR), Undertaxed Payment Rule (UTPR), or Qualified Domestic Minimum Top-up Tax (QDMTT).
To enable certain MNEs to comply with these provisions, Chapter 12 of PMK 136/2024 introduces the safe harbour mechanism, which is a policy designed to simplify certain obligations for MNE groups. This aims to reduce the compliance and administrative burden for qualifying constituent entities.
Read: Understanding UTPR in PMK 136/2024: A Proportional Additional Tax Mechanism
Another objective of the safe harbour mechanism is to provide certainty for the constituent entities of qualifying MNE groups. This is achieved by simplifying the calculation of the information needed for reporting income and taxes under the global minimum tax provisions.
This is especially important during the initial phase of the implementation of the global minimum tax provisions. During this transitional period, MNE groups will need time to set up systems and collect the necessary data for GloBE calculations.
In addition to being applicable during the initial implementation period or for a specific time frame (transitional safe harbour), the safe harbour may also be applied indefinitely (permanent safe harbour).
Read: Indonesia to Officially Implement Global Minimum Tax Starting 1 January 2025
Transitional Safe Harbour
The transitional CbCR safe harbour is designed as a short-term option to exclude constituent entities in low-risk jurisdictions from the scope of GloBE during the initial implementation period of the global minimum tax provisions.
Under the safe harbour, the top-up tax for a jurisdiction is considered zero, provided that the constituent entity meets one of the following three tests:
- De-minimis – The jurisdiction of the constituent entity has total revenue below EUR 10,000,000 and pre-tax profit or loss below EUR 1,000,000.
- Routine profit– The jurisdiction's routine profit is equal to or less than the Substance-Based Income Exclusion (SBIE) amount.
- Simplified effective tax rate– The jurisdiction's simplified effective tax rate meets or exceeds a specified threshold.
The data used for these tests include revenue and pre-tax profit or loss from the MNE group’s CbCR report, as well as income tax expenses from the MNE group’s financial accounts. Beyond these requirements, the MNE group must still calculate SBIE to support the routine profit test.
Furthermore, according to Article 56 paragraph (11), the applicable simplified effective tax rate for each fiscal year has been established. A rate of 15% applies to fiscal years beginning in 2024, 16% for fiscal years beginning in 2025, and 17% for fiscal years beginning in 2026 up until fiscal years ending on June 30, 2028.
For constituent entities that meet the testing criteria, the transitional CbCR safe harbour applies to fiscal years beginning on or before December 31, 2026, and ending on or before June 30, 2028.
According to Article 56 paragraph (12), if an MNE group fails to meet one of the three tests during this period, the safe harbour provision cannot be applied for the following fiscal year, up until the fiscal year ending on June 30, 2028. Furthermore, Article 56 paragraph (13) states that the MNE group may apply the permanent safe harbour provision instead.
Additionally, under Article 62, the top-up tax can be reduced to zero under the transitional UTPR safe harbour UTPR mechanism if the jurisdiction of the Ultimate Parent Entity (UPE) has a corporate income tax rate of at least 20%.
This transitional UTPR safe harbour is only applicable to all fiscal years beginning on or before December 31, 2025, and ending on December 31, 2026.
Not all constituent entities can benefit from the transitional safe harbour. According to Article 61, the transitional safe harbour provision does not apply to:
- Stateless constituent entities;
- Multi-parented MNE groups where at least one qualifying CbCR does not include combined group information;
- Countries or jurisdictions where constituent entities have opted to be subject to an eligible distribution tax system; and
- Countries or jurisdictions that did not benefit from the transitional safe harbour in the previous fiscal year, in cases where the MNE group had no constituent entities in that country or jurisdiction in the prior year.
Permanent Safe Harbour
The permanent safe harbour is designed to minimize the number of calculations and adjustments required for constituent entities under the global minimum tax framework. Additionally, the permanent safe harbour allows constituent entities to choose alternative calculation methods, known as simplified calculations.
The permanent safe harbour can be applied if a constituent entity meets one of three tests: de-minimis, routine profit, or effective tax rate.
The key difference between the permanent and transitional CbCR safe harbour is that the de-minimis test for the permanent safe harbour is based on specific constituent entity data. First, whether the average GloBE revenue of the MNE group is less than EUR 10,000,000. Second, whether the average net GloBE income of the MNE group is less than EUR 1,000,000. Third, whether there has been a net GloBE loss in the current fiscal year and the two previous fiscal years.
Both the de-minimis and routine profit tests under the permanent safe harbour provision do not require CbCR-based conditions. Additionally, the effective tax rate threshold differs, set at a minimum of 15% for any fiscal year. If any of these three tests are met, the top-up tax is considered zero.
Meanwhile, simplified calculations consist of simplified income calculation, simplified revenue calculation, and simplified tax calculation.
Simplified Calculations for NMCE
Simplified calculations can be used by constituent entities that are not included in the consolidated financial statements of an MNE group (non-material constituent entity/NMCE). To comply with this provision, an NMCE with gross income exceeding EUR 50,000,000 must prepare financial statements in accordance with an accepted or recognized financial accounting standard.
Simplified income calculation and simplified revenue calculation apply to NMCEs if their GloBE income and GloBE profit are based on the CbCR provisions of the country or jurisdiction of the UPE.
Meanwhile, simplified tax calculation applies to NMCEs when the adjusted covered tax of the NMCE is based on the income tax charged under the CbCR provisions of the country or jurisdiction of the UPE.
Transitional CbCR Safe Harbour for Certain Entities and Groups
PMK 163/2024 also regulates the transitional CbCR safe harbour for joint ventures and certain entities and groups.
In practice, joint ventures and their subsidiaries, as referred to in Article 43, are treated as separate MNE groups when implementing the transitional CbCR safe harbour. Certain entities are not classified as joint ventures, including:
- The UPE of an MNE group is subject to the global minimum tax rules;
- Exempted entities;
- Entities whose ownership interests by the MNE group are directly held through an exempted entity;
- Entities owned by the MNE group consisting exclusively of exempted entities; or
- Subsidiaries of a joint venture subsidiary.
Additionally, the transitional CbCR safe harbour provisions do not apply to certain entities and groups, such as investment entities or insurance investment entities, if the ultimate parent entity is a flow-through entity. However, an exception is made if all ownership interests in the ultimate parent entity are held by individuals or qualifying entities.
The qualification referred to is as follows: first, the ownership interest holder is a flow-through entity. Second, the ownership interest holder is subject to a deductible dividend regime.
If these qualifications are met, the pre-tax profit or loss of the ultimate parent entity, including taxes related to that profit or loss, must be reduced by the amount that can be attributed or distributed. This is because the ownership interest is held by individuals or qualifying entities.
Furthermore, the provisions for transitional safe harbour CbCR for investment entities or insurance investment entities are regulated in Article 59. Several conditions apply if these entities are located in a country or jurisdiction based on the CbCR report, namely:
- Investment entities or insurance investment entities must calculate GloBE profit or loss separately (Articles 48, 49, and 50);
- The country or jurisdiction where the investment entity or insurance investment entity is located and the country or jurisdiction where each constituent entity owner is a resident may apply the safe harbour CbCR provisions; and
- The profit or loss before income tax and the gross income amount of the investment entity or insurance investment entity, including taxes related to such profit or loss, may only be recognized in the country or jurisdiction of the direct owner of the constituent entity proportionally based on its ownership interest.
If ownership under Articles 49 and 50 is not exercised and all constituent owners are residents of the country or jurisdiction where the investment entity or insurance investment entity is located, the aforementioned provisions do not apply.
In applying the transitional safe harbour for a certain period and for specific entities and groups, net unrealized fair value loss is excluded from profit or loss before income tax if such loss exceeds EUR 50,000,000 in a country or jurisdiction.
Net unrealized fair value loss refers to the total amount of all losses minus all gains arising from changes in the fair value of ownership interests, except for portfolio shareholdings.
Conclusion
With the regulations related to safe harbour, the compliance burden on MNE groups can be significantly reduced. This is important because companies must ensure that the data used in CbCR and other financial metrics meet the criteria allowed for safe harbour implementation.
If a constituent entity meets more than one transitional safe harbour requirement, it may choose which transitional safe harbour to utilize. However, even if the transitional safe harbour and permanent safe harbour conditions are met, constituent entities must still comply with the global minimum tax provisions at the group level, including preparing the GloBE Information Return (GIR).
Additionally, the Directorate General of Taxes (DGT) has the authority to conduct compliance tests on the implementation of safe harbour or assessments on additional tax imposition in a country or jurisdiction where Indonesia receives an additional tax allocation from a safe harbour country with an effective tax rate below the minimum rate.
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.