Indonesian tax update: regulation issued on pillar two alignment

In response to the implementation of the OECD’s pillar two framework, the Indonesian government has issued Ministry of Finance Regulation No. 136/PMK.03/2024 (PMK-136) to align with global efforts to enforce a minimum 15% effective tax rate for multinational enterprises (MNEs). The regulation aims to address profit shifting and ensure fair tax practices among MNE groups.

PMK-136 covers, among other aspects:

• The criteria for application of the global minimum tax (GMT) rules;

• The implementation of a domestic minimum top-up tax;

• The application of income inclusion rules; and

• The application of undertaxed payment rules.

The GMT rules apply to constituent entities of MNE groups that meet the following criteria:

• Annual gross turnover of at least €750 million, based on the consolidated financial statements of the ultimate parent entity; and

• The turnover threshold must be met in at least two of the four tax years preceding the fiscal year in question.

Entities exempt from the GMT rules include government bodies, international organisations, non-profit organisations, pension fund entities, and certain investment vehicles.

The GMT rules took effect on January 1 2025. For fiscal years ending December 31 2025, the filing deadline will be June 30 2027.

In an effort to further streamline and improve the regulatory framework that governs the taxation sector, the Indonesian minister of finance has issued Regulation No. 118 of 2024 (PMK-118) on Procedures for Tax Corrections, Objections, Reductions, Eliminations and Cancellations (collectively, Taxation Procedures), which has been in force since January 1 2025.

The regulation summarises the new provisions on Taxation Procedures that have been introduced under the framework of PMK-118, such as the following.

Generally, the previous rules related to procedures for correction were regulated by Ministry of Finance Regulation No. 11 of 2013. In PMK-118, the scope of the misapplication of provisions that are eligible to be corrected is expanded to include the following:

• The application of exchange rates;

• The application of the percentage of taxable sales value;

• The application of non-taxable taxable object sales value; and

• The granting of a reduction in the principal of land and building tax (PBB).

PMK-118 features several new provisions that address the authority of the Directorate General of Taxes (DGT) to investigate any errors that underlie a correction request. This authority includes the ability to request documents, data, information, and/or explanations from the taxpayer concerned and to conduct on-site reviews for the purposes of identification, measurement, mapping, and the gathering of data, information, or evidence.

PMK-118 consolidates and retains the applicable provisions on objections, as previously regulated under the now-revoked frameworks of Regulation No. 9/2013 and Regulation No. 253/2014. When requested by taxpayers for the purpose of filing objections or appeals, the DGT is now required to issue certificates that detail the basis for the imposition of tax, loss calculations, or tax withholding/collection. Said certificates must be provided to the relevant taxpayers within one month of any such request being submitted, although it should be noted that the objection filing period itself cannot be extended.

PMK-118 also clarifies that if there is to be a legal ruling on a notification letter, then the original 12-month period provided to resolve an objection will be suspended until the ruling is issued. Moreover, any taxpayer objections that are rejected or partially granted will now be subject to an administrative fine of 30% of the tax amount based on the objection decision letter, which is lower than the 50% fine that was previously stipulated under Regulation No. 9/2013.

PMK-118 retains and clarifies provisions from the now-revoked Regulation No. 8/2013 and Regulation No. 81/2017. Particularly, PMK-118 clarifies the authority of the DGT to reduce or eliminate administrative penalties on an ex officio basis (secara jabatan) in cases of taxpayer errors or circumstances beyond their control. Penalties eligible for reduction or elimination include:

• An interest penalty;

• Fines;

• Increases in PBB rates; or

• An administrative penalty related to PBB.

This clarification provides more structured guidelines for taxpayers seeking relief from administrative penalties.

Given the number and extent of the regulatory frameworks that were repealed by PMK-118, the following provisions will apply to applications and/or submissions already in progress, to ensure a smooth transition to the new framework.

Furthermore, the formats of the various letters and documents that specifically relate to Taxation Procedures, as stipulated under the now-revoked frameworks, have been comprehensively updated under the appendices to PMK-118.