Sign up for tax alert emails GTNU homepage Tax newsroom Email document Print document Download document
February 13, 2019
Indonesia broadens list of mergers and restructures eligible for tax-free treatment using tax book value
Indonesia’s Minister of Finance (MOF) has issued MOF Regulation No. 205/PMK.010/2018 (PMK-205), amending MOF Regulation No. 52/PMK.010/2017 (PMK-52) that allows taxpayers to use a book tax base for mergers, consolidations, spin-offs and business take-overs. PMK-205 became effective as of 31 December 2018. PMK-205 aims to increase foreign direct investments in Indonesia and support government policy to create a state-owned holding company.1 The use of tax book value enables a transferor to transfer assets and liabilities for consideration equal to the existing tax basis without triggering gain or loss. It is therefore an important consideration in some restructuring and spin-off scenarios.
Under PMK-205, the permitted use of tax book value for business restructuring has been expanded to cover two additional scenarios for a business spin-off transaction: (i) the company acquiring the spun-off business is capitalized with at least IDR500 billion (US$35 million) by a foreign investor; and (ii) a state-owned company receives additional capital from the Indonesian Government for the creation of the state-owned holding company. The administrative procedures applicable for the tax book value use on business restructuring remain the same as those under PMK-52.
This Alert summarizes the key aspects of PMK-52 as amended by PMK-205.
In general, a merger, consolidation, spin-off or business take over transaction should be at fair market value. However, taxpayers can use a tax book value if approval is obtained from the Directorate General of Tax (DGT).
Business restructuring using tax book value applies to the following types of transactions:
Similar to the above merger conditions, but the assets and liabilities are transferred to a new corporate taxpayer and the transferors are automatically dissolved.
Items (d) and (e) were added by PMK-205.
This is applicable to an Indonesian branch of a foreign bank transferring its assets and liabilities to an Indonesian corporate taxpayer and dissolving the Indonesian branch.
Application procedure for business restructuring using tax book value
The application for tax book value use in a merger, consolidation or business take-over transactions should be submitted by the taxpayer receiving the assets (transferee); whereas, for a spin-off, the taxpayer transferring the assets (transferor) is the applicant.
The application should be submitted by the taxpayers within six months after the effective date of the merger, consolidation, spin-off or business take over transaction. The application should include the following:
In addition, in the case of item 3(d) above, the transferee of the spun-off transaction must also provide the amended articles of association showing that the additional paid-in capital of at least IDR500 billion has been injected by the foreign shareholder.
If the submission is incomplete, an additional data request will be issued by the DGT. The taxpayers who failed to meet the additional data submission deadline may resubmit its completed application within the six-month time limit to be reconsidered its application.
The DGT will issue an approval or rejection notice within one month of receipt of the completed application by the DGT; however, if no notice is issued within this time period, the taxpayer’s application is deemed approved.
Except for a tax loss that cannot be transferred, any tax attributes and tax liabilities of the taxpayer transferring its assets and liabilities in connection with the merger, consolidation, spin-off or business take over transaction are transferred to the transferee
The DGT has the right to revoke the tax book value approval under any of the following conditions:
If revoked, the assets transfer price must be a market value as of the effective date of merger, consolidation, spin-off or business take over. The DGT will compute an additional tax liability which should be paid and reported on the corporate income tax return for the year in which the DGT revokes its approval of the tax-free treatment.
1. State-owned company is a legal entity which is wholly or partly owned by the Indonesian Government to undertake commercial activities.
For additional information with respect to this Alert, please contact the following:
EY Indonesia, Jakarta
Ernst & Young LLP, Indonesia Tax Desk, New York
Ernst & Young LLP, Asia Pacific Business Group, New York