OECD´s Update on Country-by-Country Report and current prevailing law in Indonesia

In May 2024, the Organisation of Economic Co-operation and Development (OECD) issued a new publication related to Base Erosion and Profit Shifting (BEPS) Action 13, focusing on Country-by-Country Reporting (CbCR). CbCR is a report of aggregate data on the allocation of global revenues, profits, taxes paid, and economic activity among the jurisdictions in which a Multinational Enterprise (MNE) operates. This new update is essential as it reinforces and clarifies aspects that were not explicitly addressed before, such as treatment on dividend payment, permanent establishment disclosure and fiscal periods to be reported in CbCR.

Dividend Recognition

A significant update in the new guidance addresses the treatment of dividend payments in CbCR. It is now confirmed that dividend payments from constituent entities are excluded from the ‘Income’ and ‘Profit/Loss before Income Tax’ accounts in CbCR.

Dividend payments must be treated consistently across tax jurisdictions. If dividend is paid to a constituent entity, the constituent entity must exclude it from its income and profit before tax (PBT) calculation. In addition, if profits from other constituent entity are included in PBT, it should be treated as dividend and excluded accordingly.

Permanent Establishment

BEPS Action 13 also requires MNEs to list parent legal entities and constituent entities that are Permanent Establishments (PE) in the CbCR based on their tax jurisdiction.

Two Approaches of Fiscal Period

OECD provides flexibility for MNEs in customizing their CbCR to align with their internal accounting cycles. It offers two approaches to ensure consistent reporting:

First Approach: contains information for the tax year of the relevant constituent entity, which ends on the same date as the reporting MNE's fiscal year or ends within the preceding twelve-month period;
Second Approach: contains information on all relevant constituent entities reported for the tax year of the reporting MNE.

Prevailing Laws in Indonesia

In Indonesia, the latest regulation on CbCR is incorporated in the Minister of Finance (MoF) Regulation No. PMK-172. The threshold to create CbCR refers to the parent entity of a business group with a minimum consolidated gross turnover of 11 trillion Rupiah or 750 million Euro in the tax year preceding the reported tax year.

PMK-172 does not change the threshold amount of consolidated gross turnover, but amends that the threshold referred to applies to the tax year preceding the tax year of filing the CbCR.

PMK-172 does not emphasize the conversion rate used to calculate the consolidated gross turnover for the parent entity. Appendix C of PMK-172 only offers an example using the rate of 1 January 2023 for the Fiscal Year 2023. This will potentially lead to disputes between taxpayers and tax authorities.

Indonesia’s CbCR template mirrors the template provided by the OECD. In Article 31 of PMK-172, the CbCR must contain a list of business group members, main business activities of all business group members, income statement, stated capital, accumulated earnings, number of employees, and tangible assets other than cash and cash equivalents.

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