The government has updated the provisions on the terms and procedures for the granting of a permit to use book value for the transfer and acquisition of assets in the context of mergers, consolidations, spin-offs, or business takeovers.

The updates are outlined in the Director General of Taxes Regulation No. PER-03/PJ/2021 concerning Procedures for the Submission and Issuance of Decisions Regarding the Use of Book Value for Transfers and Acquisition of Assets in the Context of Mergers, Consolidations, Split-offs, or Business Takeovers (PER 03/2021).

This regulation has taken effect from the stipulation date on 18 February 2021. The enactment of this regulation simultaneously revokes the Director General of Taxes Regulation No. PER-28/PJ/2008 concerning Requirements and Procedures for the Granting of Permits to Use Book Value for Transfer of Assets in the Context of Mergers, Consolidations, or Business Takeovers (PER 28/2008).

The government, through this regulation, affirms that taxpayers may use the book value for transfers of assets in the context of mergers, consolidations, spin-offs, or business takeovers. Taxpayers that may perform business spin-offs using book value include the following five categories:

i.	taxpayers that have not gone public and intend to conduct an initial public offering (IPO);
ii.	taxpayers that have gone public insofar as all the business entities resulting from the spin-offs have performed an initial public offering (IPO);
iii.	corporate taxpayers that split-off sharia business units to carry out business split-off obligations based on statutory provisions;
iv.	resident corporate taxpayers insofar as the business entities resulting from the spin-offs receive additional capital from foreign investors of a minimum of IDR500 billion; and
v.	state-owned enterprise (SOEs) taxpayers that receive additional capital participation from the Republic of Indonesia insofar as the spin-off is carried out in relation to the establishment of a SOEs holding company.

The details of taxpayers that may carry out spin-offs using book value in PER 03/2021 are broader compared to the provisions under PER 28/2008. This is due to the fact that formerly taxpayers that performed spin-offs and were able to use book value only consisted of two groups, i.e. taxpayers points (i) and (ii) in the above details.

Further, the taxpayer that may perform business takeovers using book value is the taxpayer resulting from the merger of a permanent establishment (PE) taxpayer that carries out business in the banking sector with a resident corporate taxpayer whose capital is divided into shares.

Such a takeover is carried out by transferring all or part of the assets and liabilities of the PE to a resident corporate taxpayer whose capital is divided into shares and dissolving the PE. The provisions on the use of book value for taxpayers that perform business takeovers are new provisions that have not been regulated under PER 28/2008.

Similar to the former provisions, taxpayers may use book value after obtaining the Director General of Taxes’ approval. Approval can be obtained by submitting an application to the Head of the DGT Regional Office in charge of the Tax Office (Kantor Pelayanan Pajak/KPP) where the taxpayer is registered. The application must be completed with the following three documents:

i.	a statement letter stating the reasons and objectives for undertaking a merger, consolidation, spin-off, or business takeoff. The statement letter must be attached with a photocopy of the supporting documents as referred to in Appendix B of PER 03/2021 and the requirements attached to the supporting documents. An example of the format for this statement letter is listed in Appendix C of PER 03/2021;
ii.	a statement letter stating that the business merger, consolidation, spin-off, or business takeover fulfills the business purpose test. An example of the format for this statement letter is listed in Appendix D of PER 03/2021;
iii.	a valid tax clearance certificate from the DGT, for each affiliated resident corporate taxpayer and Permanent Establishment.

In further detail, the statement letter of the fulfillment of the business purpose test must be attached with three supporting documents, as below:

i.	income and income tax payable before the effective date of the merger, consolidation, spin-off, or business takeover;
ii.	projected income and income tax after the merger, consolidation, spin-off, business takeover; and
iii.	a list of entries in the context of the business purpose test informing about losses or residual fiscal and commercial losses, main business line, products or services, market segment, number of branches or networks, composition of ownership, total assets, corporate income tax payable.

Juxtaposed with the provisions under PER 28/2008, one of the differences lies in the obligation to include a tax clearance certificate. This obligation is, however, similar to the stipulations under PER 28/2008 which require taxpayers to pay all tax payable of each affiliated business entity to be able to use book value.

In contrast to PER 28/2008, PER 03/2021 also outlines additional requirements for the transfer of assets in the context of the IPO spin-offs, split-offs of sharia business units, spin-offs of investment, i.e. for business entities resulting from spin-offs that obtain additional capital from a foreign investment of a minimum of IDR500 billion, SOEs spin-offs, and PE mergers.

The submission period for the applications for the use of book value shall not exceed 6 months after the effective date of the merger, consolidation, spin-off, or business takeover. This term remains the same as the provisions under PER 28/2008. An example of the format of the application letter for the use of book value is listed in Appendix A of PER 03/2021. The following two parties shall submit the applications complete with the required documents:

i.	taxpayers that receive assets, in the event of a merger, consolidation, or business takeover; or
ii.	taxpayers that transfer assets, in the event of a split-off.

The Head of the Regional Office (Kantor Wilayah/Kanwil), based on the results of the research, must issue a decree no later than 1 month after the application is received in full. The decree may contain approval or rejection. However, if within one month the Head of Regional Office has not issued a decree, the taxpayer's application is deemed approved. Further, the Head of Regional Office must issue an ‘Approval Decree’ within 5 working days since the period has elapsed.

Moreover, assets in the form of fixed assets originating from a merger, consolidation, spin-off, or business takeover may not be transferred by the taxpayer that receives the transfer of assets. The prohibition of transfer is valid for a short period of 2 years after the effective date. This prohibition, however, does not apply if the transfer is carried out to increase company efficiency.

In the event that an Approval Decree has been issued, but based on data and/or information, the taxpayer is found not to comply with the provisions, the transfer value of assets originally carried out based on book value is recalculated based on the market value of the asset transfer on the effective date of the merger, consolidation, spin-off, or business takeover. The unfulfilled provisions include:

i.	not meeeting the business purpose test requirement;
ii.	not submitting a statement of registration to the Financial Services Authority (Otoritas Jasa Keuangan/OJK) in the context of an IPO or the a statement of registration has not become effective within the specified period or has obtained a rejection decree as referred to in Article 14 paragraph (1) subparagraph b;
iii.	not dissolving the PE within the stipulated period/time extension or obtaining a rejection decree of the time extension as referred to in Article 17 paragraph (1) subparagraph b; and/or
iv.	performing the transfer of assets, but not applying for transfer of assets within the stipulated period or obtaining a rejection decree as referred to in Article 20 paragraph (1) subparagraph b.

For applications to use book value submitted before the enactment of PER 3/2021 that are still valid and the decree has not been issued, the applications will continue to be processed as per the procedures of PER-28/2008. The applications, however, must still be attached with tax clearance certificates.

Procedures for Applications for the Use of Book Value Related to Mergers, Spin-offs, and Business Takeovers