february 2019 tax alert - ernst & young...using tax book value, mof regulation no....
TRANSCRIPT
Tax Alert: PER-02: Update on Transfer Pricing filing requirements | 1
Indonesia broadens list of mergers and restructures eligible for tax neutral treatment using tax book value
Tax AlertFebruary 2019
Executive summary
The Minister of Finance issued MOF Regulation No. 205/PMK.010/2018 (“PMK-205”), revising the previous regulation on merger, consolidation, spin-off and business take-over using tax book value, MOF Regulation No. 52/PMK.010/2017 (“PMK-52”). PMK-205 became effective as of 31 December 2018 and is intended to increase foreign direct investment in Indonesia and support government policy to create a state-owned holding company.
The use of tax book value is essentially the ability to transfer business assets for consideration equal to their existing tax cost base, so that gains and losses are not triggered. It is therefore an important consideration in some restructuring, and spin-off scenarios. This Tax Alert should be relevant to those considering restructuring or M&A activity in Indonesia.
Under PMK-205, the permitted use of tax book value on business restructuring has been expanded to cover two additional scenarios for a business spin-off transaction, where (i) the company receiving the spun-off business is capitalized with at least IDR 500 billion by a foreign investor and (ii) a state-owned company receives additional capital from the Indonesian Government, related to the creation of state-owned holding company. The administrative procedures to apply for and use tax book value on business restructuring remain the same as regulated under PMK-52.
This Alert summarizes key aspects of PMK-52 as amended by PMK-205
2 | Tax Alert: PER-02: Update on Transfer Pricing filing requirements
General overview
In a merger, consolidation, spin-off or business take over, generally the transaction should be at fair market value. However, taxpayers can use tax book value upon obtaining approval from the Directorate General of Tax (“DGT”).
Business restructuring using tax book value applies to the following types of transactions:
1. Merger
a. Integrating two or more Indonesian corporate taxpayers by way of transferring the entire assets and liabilities of one to the other, and dissolving the transferor entity. The transferee (surviving entity) must be the one with a zero, or the lesser, tax loss balance; or
b. Business integration between a non-Indonesian tax resident company with an Indonesian corporate taxpayer by transferring the entire assets and liabilities of the nonresident company to the Indonesian corporate taxpayer and dissolving the nonresident company transferring its assets and liabilities.
2. Consolidation
Similar to the above Merger conditions, however the assets and liabilities are transferred to a new corporate taxpayer and the transferring entities are automatically dissolved.
3. Spin-off
a. Indonesian corporate taxpayer which is not yet publicly listed and will pursue an Initial Public Offering (IPO);
b. Indonesian corporate taxpayer which is publicly listed provided the whole business entity resulting from spin-off will undertake an IPO;
c. Corporate taxpayer separating the sharia business unit in accordance with the regulatory requirement;
d. Indonesian corporate taxpayer receiving spun-off assets and liabilities which are capitalized with at least IDR 500 billion by foreign investor;
e. State-owned company receiving additional capital from the Indonesian Government which relates to the creation of a state-owned holding company.
Item (d) and (e) above are the additional scenarios provided under PMK-205.
4. Business Take Over
This is applicable to the Indonesian branch of a foreign bank transferring its assets and liabilities to an Indonesian corporate taxpayer and dissolving the Indonesian branch of the foreign bank.
Procedure to apply for business restructuring using tax book value
The application to apply tax book value in a merger, consolidation and business take-over transactions should be submitted by the taxpayer receiving the assets (transferee). While, in case of a spin-off, the application should be submitted by the taxpayer transferring the assets (transferor).
The application should be submitted by the taxpayers within 6 (six) months after the effective date of merger, consolidation, spin-off or business take over transaction. The application should fulfill the following requirements:
a. statement letter expressing the reasons and purposes of the business restructuring, which should be supported by relevant documents;
b. statement letter explaining that the business restructuring fulfills the business purpose test, which should be supported by relevant documents;
c. obtain a tax clearance letter from the DGT for all the taxpayers involved in the business restructuring.
In addition to the above documents, the taxpayer receiving spun-off assets and liabilities under point 3(d) above, should also provide the amended articles of association showing that the additional paid-in capital of at least IDR 500 billion has been injected by the foreign shareholder. As for the state-owned company receiving additional capital from the Government in relation to the creation of state-owned holding company, it must also provide a recommendation letter from the Minister of State Owned Companies.
In case the submitted documents are considered as incomplete, the DGT will issue an additional data request within 15 (fifteen) business days after the application is submitted and the taxpayer must complete such request within 14 (fourteen) business days. Otherwise, the DGT will not consider and process the application. If the taxpayer’s application is not considered by the DGT, the taxpayer can re-submit its completed application noting the six-month time limit to submit the application letter.
The DGT will issue the approval or rejection on the use of tax book value within one month of the application being completely received by the DGT. If the DGT has not yet issued any decision letter after the one-month period is lapsed, the taxpayer’s application is deemed approved.
Tax Alert: PER-02: Update on Transfer Pricing filing requirements | 3
Other consideration
The DGT has rights to revoke the tax book value approval under the following conditions:
a. The business purpose test could not be met during the 5-year period post restructuring;
b. The transferred assets are sold without obtaining the DGT’s approval to transfer the assets during the claw back period (i.e. two years after the restructuring is effective);
c. The transferred assets are sold but the DGT rejects the application to transfer the assets;
d. In the case of a spin-off, entities involved do not submit IPO registration to the Financial Services Authority within one year after obtaining the DGT approval;
e. IPO extension request is rejected by the DGT;
f. In the case of an Indonesian branch of a foreign bank, the branch is not dissolved within the designated timeline (i.e. two years after the business take-over transaction);
g. Application for extension to dissolve the Indonesian branch of a foreign bank is rejected by the DGT.
In the above cases, the assets transfer would need to be conducted on a market value basis. The DGT may revoke the book value approval and recalculate the basis of the transfer value.
With the exception of tax loss which is quarantined in the transferor company, any other tax attributes and tax liabilities of the taxpayer transferring its assets and liabilities in connection with the merger, consolidation, spin-off and business take over transaction are transferred to the transferee.
For further information of the above, please do not hesitate to contact any one of our Tax Partners or engagement teams.
Should tax keep pace with transformation, or help shape it?In this Transformative Age, the opportunities that emerge from disruption are ready to be seized.
ey.com/tax #BetterQuestions
EY | Assurance | Tax | Transactions | Advisory
About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.
EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.
© 2019 Purwantono, Suherman & Surja ConsultA member firm of Ernst & Young Global LimitedAll Rights Reserved.
APAC No. 00000357
ey.com/id
Sectors we serve in Indonesia• Banking & capital markets• Asset management • Insurance• Power & utilities• Mining & metal
• Oil & gas • Media & entertainment• Telecommunications• Technology• Public infrastructure
• Transportation• Real estate• Consumer products• Pharmaceuticals• Plantation
• Industrial & manufacturing• Automotive• Government & public sector • Not-for-profit organizations
Our ValuesWho we are: At EY, everything starts with our people:
• People who demonstrate integrity, respect and teaming.• People with energy, enthusiasm and the courage to lead.• People who build relationships based on doing the right thing.
What we stand for:Achieving Potential – Making A Difference
We are committed to helping our people,our clients and our wider communities achieve their potential.
Contact us
Tax Services Leader Phone Mobile E-mail
Santoso Goentoro +62 21 5289 5584 +62 816 893 648 [email protected]
Partner / Director / Senior Advisor Phone Mobile E-mail
A. Business Tax
Yudie Paimanta +62 21 5289 5585 +62 816 893 687 [email protected]
Dodi Suryadarma +62 21 5289 5236 +62 815 10000 490 [email protected]
Bambang Suprijanto +62 21 5289 5060 +62 811 326 597 [email protected]
Nathanael Albert +62 21 5289 5265 +62 811 950 926 [email protected]
Sri Rahayu +62 21 5289 5485 +62 816 883 281 [email protected]
Henry Tambingon +62 21 5289 5033 +62 816 166 1142 [email protected]
B. Transaction Tax
Ben Koesmoeljana +62 21 5289 5030 +62 819 0569 8899 [email protected]
Triadi Mukti +62 21 5289 5090 +62 816 186 0037 [email protected]
Prasetya H. Lam +62 21 5289 5022 +62 812 9900 8168 [email protected]
C. Indirect Tax
Iman Santoso +62 21 5289 5250 +62 811 884 267 [email protected]
Elly Djoenaidi +62 21 5289 5590 +62 816 893 689 [email protected]
D. People Advisory Services
Kartina Indriyani +62 21 5289 5240 +62 811 868 336 [email protected]
E. International Tax/Transfer Pricing
Peter Ng +62 21 5289 5228 +62 815 1800 790 [email protected]
Jonathon McCarthy +62 21 5289 5599 +62 815 1909 0233 [email protected]
Peter Mitchell +62 21 5289 5232 +62 813 8185 4671 [email protected]
Micky M Soeradiredja +62 21 5289 5245 +62 812 8007 510 [email protected]
F. Japanese Client Contact
Sachiko Hamada +62 21 5289 5015 +62 815 1835 404 [email protected]