Recently, the Indonesian government issued Minister of Finance Regulation No. 136 of 2024, concerning the imposition of a global minimum tax based on international agreements.
What is the Global Minimum Tax Rate?
The Global Minimum Tax Rate, or Global Anti-Base Erosion (“GloBE”) Model Rules, is a minimum tax rate on corporate income, internationally agreed upon and accepted by individual jurisdictions within the OECD/G20 Inclusive Framework. Each country would be eligible for a share of the revenue generated by the tax. The aim is to address the problems of base erosion and profit shifting that are not sufficiently covered by other anti-tax avoidance regulations.
The GloBE Model Rules are designed to ensure that large multinational companies pay a minimum tax of 15% on taxable profits in each jurisdiction where they operate. To the extent that countries where they operate impose a tax rate of less than 15%, companies would pay a top-up tax to the country in which they are resident.
The History of the Global Minimum Tax Rate
The development of business models that no longer require physical presence and the rise of globalization have made traditional taxation provisions inadequate for addressing the taxation of increasingly digitalized, cross-jurisdictional economic activities. This weakness ultimately creates loopholes for tax avoidance. To address this issue, in 2021, the OECD and G-20 initiated the Inclusive Framework, which includes the two-pillar solution. One part of the solution is the Global Minimum Tax Rate, or GloBE.
The Implementation
GloBE applies starting January 1st, 2025, to all entities, including permanent establishments, that are part of a multinational group of companies if the annual gross turnover of the multinational group is at least EUR 750,000,000 or more for at least two of the four tax periods prior to the tax year for which GloBE is imposed.
Multinational corporations must pay the global minimum tax within 15 months after the end of the fiscal year in which the tax report is submitted. However, taxpayers will have an extended deadline of 18 months for the inaugural year.
Exemptions from GloBE Imposition
GloBE does not apply to the following entities:
