The digital transformation has brought new challenges to the global taxation system. Many countries have lost their taxing rights, as multinational companies can operate without a physical presence in their jurisdictions. In this context, the 15 percent Global Minimum Tax policy serves as a strategic step to uphold fiscal justice amid increasingly complex tax avoidance practices.
This issue featured in the National Seminar on GloBE Rules: 15% Global Minimum Tax: Theoretical and Practical Perspectives in Indonesia’, organised by the Faculty of Economics and Business at Gadjah Mada University (FEB UGM), through the Public Sector Studies and Taxation Unit and the Research and Development Unit for Societal Impact, on Friday, October 3.
Aviandi Okta Maulana, S.E., M.Acc., Ph.D., Ak., CA., ACPA., APCIT., a lecturer at the Department of Accounting FEB UGM, emphasized that taxation is a concrete manifestation of state sovereignty.
“Taxation is closely tied to a country’s legal status and taxing rights because every government has the right to collect taxes from its citizens and economic activities within its territory,” he stated.
“Every government has the right to levy taxes on economic activities in its jurisdiction. However, the international tax system based on physical presence is no longer relevant in the digital era,” Aviandi explained.
He elaborated that traditional international taxation relies on physical presence, such as branch offices or factories, and the concept known as Permanent Establishment (PE). In the context of the digital economy, this leads to many market countries losing their taxing rights since companies can operate virtually across borders without meeting the required physical presence criteria.
Furthermore, Aviandi explained that international taxation generally operates according to two principles: the residence-based principle and the source-based principle. However, digital transformation has changed the way companies operate across borders, ensuring that they are no longer solely concentrated in low-tax jurisdictions (‘tax havens’).
“Global Minimum Tax is the result of a long historical process, including the BEPS (Base Erosion and Profit Shifting) project. It did not emerge overnight. This regulation is crucial in the digital era to ensure that the profits of multinational companies are taxed fairly,” he added.
Aviandi also introduced BEPS 1.0, which consists of 15 Action Plans designed to close gaps in the international tax system and prevent profit shifting to tax haven countries. As a continuation, the OECD and G20 developed BEPS 2.0, which aims to promote fiscal fairness (a fair share) and end the race to the bottom a harmful competition among countries to lower tax rates to attract investment.
“BEPS 2.0 is divided into two pillars. Pillar One focuses on reallocating taxing rights to market jurisdictions. At the same time, Pillar Two introduces the 15 percent global minimum tax policy (Global Anti-Base Erosion/GloBE Rules) for multinational enterprises,” he explained.
Djohan Pinnarwan Jusuf, S.E., Ak., CPA, from PwC Indonesia, presented the development and impact of implementing the 15 percent Global Minimum Tax policy in various countries on the tax reporting practices of multinational companies. This policy applies to global business groups with consolidated revenues of at least €750 million and takes effect in Indonesia on January 1, 2025, through PMK No. 136 of 2024. Countries that have adopted similar policies include the United Kingdom, Ireland, Germany, Australia, Singapore, and Malaysia.
Djohan also outlined three main mechanisms for implementing the Global Minimum Tax, also known as the GloBE Rules: the Qualified Domestic Minimum Top-up Tax (QDMTT), the Income Inclusion Rule (IIR), and the Undertaxed Payment Rule (UTPR). These mechanisms determine the order of collecting top-up taxes so that each entity within a multinational group pays at least a 15 percent minimum tax.
Gayatri Permatasari, S.E., from PwC, highlighted the accounting implications of implementing Pillar Two. According to the standards set out in IAS 12, income taxes arising from the Global Minimum Tax policy are required to be recognized in interim or periodic financial statements. Companies are also required to disclose the application of deferred tax exemptions related to Pillar Two and separately report tax expenses or income derived from the implementation of the policy. It aims to ensure transparency and accuracy of fiscal information in multinational companies’ financial reporting.
Reporter: Shofi Hawa Anjani
Editor: Kurnia Ekaptiningrum
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