MUCTaxMinimagz. Register Now MUC Training Schedule Asset Revaluation: Accounting Vs Taxation

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1 MUCTaxMinimagz May 2016 Edition Updating Your Knowledge 2 Fixed Asset Revaluation: Accounting Vs Taxation 4 Tax Planning: Fixed Asset Revaluation to Comply with DER HOT NEWS Register Now MUC Training Schedule Managing the Foreign Debt

2 2 Article Fixed Asset Revaluation: Accounting Vs Taxation In mid-october 2015, the Government officially released the Fifth Economic Policy Package, one of which is related to asset revaluation. The idea is to give incentives to companies willing to improve their financial statements through reduced tax rate applied on gain from any revaluation proposed during year 2015 and 2016 stated on the Minister of Finance Regulation Number 191/ PMK.010/2015 as lastly amended with the Minister of FInance Regulation PMK Number 29/PMK.03/2016 ( PMK 191 ). The Provision of SAK and PMK 191 The issuance of PMK 191 has raised many questions not only from the Taxpayers as the target of this policy, but also from the professional organizations such as the accountants. The implementation of PMK 191 is highly related to the Financial Accounting Standard (SAK) on fixed asset revaluation (PSAK 16 - Fixed Asset) and on Income Tax (PSAK 46 Income Tax). As to respond to the questions arising, particularly to the accounting treatment, on 23 February 2016, Indonesian Institute of Accountant (IAI) published the Technical Bulletin 11 (Buletin Teknis 11) regarding the guidance to conduct the Fixed Asset Revaluation. In general, it covers explanation of the relation between accounting and tax treatments on fixed asset revaluation, approvals of the tax authority on fixed asset revaluation, accounting treatment of Final Income Tax on gain from fixed asset revaluation, potential risks of current and deferred taxes on fixed asset revaluation, and the tax rate used to measure the effect of deferred tax due to fixed asset revaluation for tax purpose or for both accounting and tax purposes. In a nutshell, the Technical Bulletin 11 is the most reliable source of reference for companies in performing fixed asset revaluation under PMK 191 for tax purpose only, for accounting purpose only or for both accounting and tax purposes. When a company wants to do it only for the tax purpose, the company is able to select which assets to be revalued. This simplicity is endorsed by the Technical Bulletin 11 It is inevitable that SAK is potential to cause difficulties for companies in the current time and in the future time. It is important to take a Contributor: Ulil Ambri Auditor of KAP RazikunTarkoSunaryo

3 note to the provision of PSAK 16 regarding consistency principle. Once a company chooses to apply a revaluation method for its fixed assets after the initial appraisal, the company shall apply the same revaluation model to all of assets in the list in the same group. In addition, the company shall conduct the revaluation in relatively regular consistency to ensure that the booked value is not materially different to the value determined under fair value at the end of reporting period. Particularly for listed companies, based on the Regulation of BAPEPAM (Capital Market and Financial Institutions Supervisory Agency) VIII.G.7, it is mandatory to conduct revaluation annually for the assets having its fair value changed significantly, and minimum of once in 3 (three) years for the fixed assets with insignificant changing fair value. Meanwhile, Article 3 paragraph (1) and (2) of PMK 191 state that the revaluation can be conducted partially or entirely to tangible fixed assets and it cannot be conducted in less than a 5-year period calculated since the last revaluation in accordance with PMK 191. In light of that, SAK requires extra effort and cost. Specifically for tax purpose, PMK 191 offers simplicity and eficiency. Revaluation, Yes or No? For some companies, there will be no difficulties in making the decision. It probably ends up only as another discussion topic in regular meetings for companies whose operational activities are running well, having the positive trend in profit or at least suffering no losses, and applying non-aggressive management style used for financial statement. Yet, it is undeniable that revaluation under PMK 191 offers a tax benefit in the form of additional acquisition value on the assets to be depreciated that will increase the depreciation cost from the tax perspective. This tax benefit particularly applies to companies not subject to Final Income Tax or not using deemed profit method. By contrast, such a decision is crucial for companies with so poor financial performance that makes their equity down to its lowest level and also with such a high dependence on third party s funding, mainly from banks. PMK 191 gives additional benefit in fulfilling the debt to equity ratio (DER) of 4:1 under the Minister of Finance Regulation No. 169/PMK.010/2015 (PMK 169). Any additional acquisition value generated from the revaluation will increase the equity. Of course, the financial statements distributed to the third party providing the funding shall be based on the SAK, as well as the bookkeeping used to record the DER. In general, below are several points need to consider in making the decision to conduct the fixed assets revaluation either for the tax purpose only, or for both the taxation and accounting purpose. 1. Potential Final Income Tax on gain from the initial remaining book value. The Final Income Tax Rates varies according to the application submission date (4% if submitted on 1 January 2016 until 30 June 2016 and 6% if submitted on 1 July 2016 until 31 December 2016). 2. Potential fee cost for hiring Public Appraisal Office or appraiser. For fixed asset revaluation for the tax and accounting purpose, the potential cost will be borne by company each year. 3. The effect to DER. The significance of gain from revaluation to improve DER shall be carefully calculated, particularly to Q PMK 191 gives additional benefit in fulfilling the debt to equity ratio (DER) of 4:1 under the Minister of Finance Regulation No. 169/ PMK.010/2015 (PMK 169) fulfill the DER under PMK 169 and increase the leverage to acquire additional fund through loans. 4. Tax benefit from increase of book value of depreciable fixed assets. With the increasing book value, the depreciation cost of the asset recognized for tax calculation is also increased. 5. Other considerations related with the presentation of financial statements. Ideally, the more efforts are performed in preparing financial statements due to the revaluation model applied, the more benefits should be generated. Of course, any effort performed should be supported by adequate resources such as competence and readiness to do so. 3

4 4 Tax Planning: Fixed Asset Revaluation to Comply with DER Every Taxpayer needs tax planning to perform good tax compliance. The tax planning will be diverse according to the type of business, the business condition and the related tax treatment arising under the prevailing regulations. In general, tax planning is defined as a process of organizing the business of a Taxpayer or a group of Taxpayers in a certain way to reach the minimum of tax debt (income tax or other taxes) that is in line with both tax and commercial regulations. According to Muhammad Zain in his book Manajemen Perpajakan, it is an action to legally decrease tax burden but not to decrease the ability to settle the tax debts. This article will discuss tax planning in the form of fixed asset revaluation in relation to the Debt to Equity Ratio (DER) by considering the relevant Government s policies in tax perspective. Contributor: Ikhwan Arif Wicaksono, Muhammad Noor Amrizal Rifa i Tax Consultant of MUC Consulting Group Tax Regulation on Fixed Asset Revaluation Fixed asset revaluation is taken as a means of tax planning particularly when the fair value of fixed asset has undergone a significant change. Without fixed asset revaluation, unconformity between the book value and the Taxpayer s intrinsic value will occur. In certain cases, fixed asset revaluation is done merely for benefiting from the prevailing tax regulations. For example, in October 2015, the Government issued lower final income tax rates for any gain from fixed asset revaluation compared to the final income tax rate in the preceding years. The lower final income tax rates as tax incentives are applied on Fixed Asset Revaluation for Tax Purposes for Application Submitted in 2015 and 2016 under the Minister of Finance Regulation (PMK) No. 191/PMK.010/2015 as lastly amended with PMK No. 29/ PMK.03/2016 (PMK 191). Normally, the Final Income Tax rate on the fixed asset revaluation is at 10% under PMK No. 79/PMK.03/2008. The smaller tax incentives under the current PMK are divided into 3 (three) groups based on the time of the revaluation request submitted, as listed below: Rate Submission Date Revaluation Due Date 3% 20 Oct - 31 Dec Dec % 1 Jan - 30 Jun Jun % 1 Jul - 31 Dec Dec 2017

5 5 Article Tax Regulation on Debt to Equity Ratio About a month before the issuance of PMK 191, in September 2015, the Government determined the limit of DER for companies through PMK No. 169/ PMK/010/2015 (PMK 169). This PMK implements the provision of Article 18 of the Income Tax Law by stipulating DER of 4:1 as the maximum ratio for any Corporate Taxpayers established or located in Indonesia having their equity divided into shares. Excluded from the application of the 4:1 DER, there are 6 (six) groups of Corporate Taxpayers, namely: a. banks, b. financial institutions, c. insurance and reinsurance companies, d. natural oil and gas companies (and other mining industries) that is adhered to a contract regulating the limit of DER, e. infrastructure companies, and f. any Corporate Taxpayers whose total income is subject to finalized Income Tax. The DER applied determines total loan expenses allowable to be treated as expense for tax calculation. Loan expenses concerned are expenses borne by Taxpayers related to loans, such as interests, discounts, and premiums. Tax Planning It is optional for Taxpayers to conduct fixed asset revaluation for tax purposes. Yet for some Taxpayers, it is important to regard it as a means to fulfill the DER under PMK 169. Any increased value of asset from the revaluation will be recognized as other comprehensive income and accumulated into equity in the account of gain from revaluation. As a tax planning, the fixed asset revaluation under PMK 191 to meet the DER under PMK 169 will have a main focus in the imposition of 25% general Corporate Income Tax rate and fiscal correction to loan expenses.this correction will further add the amount of Corporate Income Tax payable. By contrast, when a Taxpayer conducts fixed asset revaluation, any gain from the revaluation will add the equity and may reduce the risk of fiscal correction to loan expenses under PMK 169.

6 6 The illustration below provides a clear comparison of both conditions. PT ABC is a company engaging in manufacturing industry. At 20 April 2016, PT ABC submit a request for fixed asset revaluation for tax purpose. Previously at the end of 2015, PT ABC has conducted fixed asset revaluation resulting in gain to the equity of PT ABC of IDR500,000, Below are figures reported in its financial reports : a. Asset value of IDR1,064,500, (Depreciation Group I); b. Average Liability Balance of IDR4,562,500,000.00; c. Average Equity Balance of IDR760,000,000.00; d. Gross Revenue of IDR20,000,000,000.00; e. Loan Expenses (interests and other related expenses) of IDR228,000, Final Income Tax Liability on Fixed Asset Revaluation Under PMK 191, PT ABC shall settle the Final Income Tax liability of 4% from IDR500,000, or equivalent to IDR20,000, before submitting the revaluation request. Tax Liability under PMK 169 a. With the average debt balance of IDR4,562,500, and the average equity balance of IDR760,000, PT ABC s DER is 6:1 which exceeds the 4:1 DER under PMK 169. b. The allowable loan expense for income tax payable calculation shall be 4/6 x IDR228,000, (loan expense of all loans) or equivalent to IDR152,000, Thus, the positive fiscal correction made to the loan expenses shall be IDR76,000, (IDR228,000, IDR152,000,000.00). Based on the illustration, if PT ABC does not conduct the revaluation, the positive fiscal correction will be made. By contrast, if PT ABC conducts the revaluation, no fiscal correction will be made due to the increase of the average equity balance that enables PT ABC to meet the 4:1 DER under PMK 169. Besides, the depreciation expense will be higher, thus the Corporate Income Tax to be paid becomes smaller. Upon the revaluation, PT ABC should only settle the Final Income Tax of IDR20,000, The following table presents the comparison of the conditions with and without fixed asset revaluation.

7 7 Item No Revaluation Yes Details Loan interest expense Positive fiscal correction IDR76,000, Tax on Unrecognized loan interest expense: IDR76,000, x 25% - - IDR19,000, Final Income Tax Payable - Final Income Tax IDR20,000, Paid before submit the revaluation application Additional Depreciation Expense - IDR500,000, x 25% IDR125,000, Additional depreciation expense: IDR125,000, Tax Benefits Obtained (IDR19,000,000.00) IDR105,000, Difference: IDR124,000, Thus, PT ABC will have additional tax benefits of IDR124,000, and at the same time fulfill the DER provision if performing the fixed asset revaluation. The fixed asset revaluation for tax purpose surely requires Taxpayers to pay the significant amount of Final Income Tax. However, in some conditions, this revaluation offers more benefits to the Taxpayers. First, the depreciation expense becomes bigger in amount that results in smaller Corporate Income Tax debt. Second, the Taxpayers can fulfill the DER provision, thus, the positive fiscal correction to the loan expense can be avoided. Isn t it a golden moment to take?

8 8 Article Managing the Foreign Debt A survey by BI has shown that the trend for foreign debt has still been rapidly increasing with private sector taking the majority portion. This condition leads to higher risks for the private sector to settle the foreign debt compared to that of the Government. Whilst, the condition is in contrast with the fluctuation of Rupiah against Dollar recently. Contributor: Dania Sekar Wuryandari Accounting Service Consultant of MUC Consulting Group One of the endeavors taken by BI to control the trend of foreign debt from private sector is to apply the Foreign Debt Information System (SIUL). This system consists of position reporting up to foreign debt plan. Those obliged to report SIUL (reporting parties) are nonbank companies having foreign debts. The purpose of the reporting is to acquire the information of non-bank companies foreign debt projections in the future as the basis to prepare monetary policy, payment system, and macro-prudential. As stated in the BI Regulation (PBI) No. 17/23/PBI/2015 (PBI 17), issued on December 2015, as the amendment to PBI No. 16/10/PBI/2014 on the Revenue of Foreign Exchange from Export and the Withdrawal of Foreign Exchange from External/Foreign Debt, a non-bank company is obliged to inform the foreign exchange (forex) bank that the revenue transaction (incoming transfer) occuring is categorized as the revenue of foreign debt exchange (DULN) from the withdrawal of foreign debt (ULN). The obligation regarding the DULN revenue applies to ULN in the form of fund from: 1. Loan agreement in non-revolving form; 2. Debt securities; and 3. Discrepancy between the new ULN for refinancing and the previous ULN. The reporting mechanism is by online in SIUL including the supporting documents, such as swift, bank statements, etc. The due date for the reporting is as

9 follows: 1. DULN Withdrawal Slip shall be reported at the latest on the 15th date of the following month; 2. The loss on each income shall be reported at the latest at the end of the following month after the ULN withdrawal date; and 3. The accumulated loss shall be reported at the latest before the ULN period ended. A Type KPPK Report Quarterly Financial Statements (Unaudited) Submission Due Date By the end of third month after the closing of quarterly reporting, at the end of working hours 9 If not submitting sufficient supporting documents to BI, the reporting party is subject to administrative sanction in the form of fine of 0.25% (zero point twenty five percent) from each ULN withdrawn from other than forex bank, with the maximum amount of IDR50,000,000 (fifty million Rupiah). Correction Report By the end of the fourth month of the quarterly report end, at the end of working hours Prudential Principle on Foreign Debt In SIUL, there is a reporting system under the name of Prudential Principle Implementation Activity (KPPK). Under PBI No. 16/22/PBI/2014 regarding Foreign Exchange Traffic Activity Report and Prudential Principle Implementation Activity Report in Managing Foreign Debt of Non-Bank Companies, BI persuades the companies to mitigate the risks that might arise from the foreign debt. For example, forex risks, liquidity risks, and over-leverage risks. In this regulation, a company having foreign debt in the form of foreign currency shall apply the prudential principle comprising fulfillment of minimum hedging ratio, minimum liquidity ratio, and credit rating ratio. All of the prudential principle components shall be reported to BI in the form of KPPK regulated in the provision. According to BI s Circular (SEBI) No. 17/3/DSta, the type of report to be submitted by the reporting party to BI consists of: 1. KPPK Report, covering the information and data regarding the Foreign Currency Asset and Foreign Currency Obligation that will be due in or less than 6 (six) months; 2. KPPK Report that have undergone the Attestation Procedure by the independent public accountant; 3. Information regarding the fulfillment of Credit Rating; and 4. Unaudited Quarterly Financial Statements and audited Annual Financial Statements. The due date for the submission as regulated in SEBI No. 17/3/DSta is stated in the following table. If the KPPK Report is not complete and/or inaccurate, the sanction is in the form of fine in the amount of IDR500,000 (five hundred thousand Rupiah) per report. While for any late submission of KPPK Report, Attestation KPPK Report, and Financial Statements, the fine will be IDR500,000 (five hundred thousand Rupiah) per working day, with the maximum amount B C KPPK Report that has undergone the Attestation Procedure Audited Annual Financial Statements Correction Report Information regarding the fulfillment of Credit Rating Correction Report By the end of June after the closing of reporting year, at the end of working hours By the end of July after the report year ended, at the end of working hours following month after the month when the ULN is signed or issued, at the end of working hours At the 20th after the report submission period, at the end of working hours of IDR5,000,000 (five million Rupiah). Also, sanction in the form of a written warning is sent to other authority that is the creditor company in overseas, the Ministry of State-Owned Enterprise (BUMN) for BUMNs, the Directorate General of Taxes, the Ministry of Finance, the Financial Service Authority (OJK), and the Indonesia Stock Exchange (BEI) for public companies listed in BEI. The issuance of the BI regulations should endorse the Government s attempt in controling the foreign debt. Thus, the participation from the institution or non-bank company in Indonesia in reporting and managing the foreign debt is important especially since the global economy condition is still in recovery phase that may give rise to fluctuation in currency.

10 10 Socialization of Tax E-Billing for KCU and KCP BCA Customers of Menara Bidakara Branch On 13 April 2016, represented by Meydawati (Partner), MUC spoke in the session of the priority customer gathering event of Bank BCA of Menara Bidakara (BCA Bidakara) held in ASTON Hotel Simatupang. The topic discussed was Tax Amnesty that is currently booming among the society even though the Tax Amnesty Bill is still subject to the Government s discussion. According to Meydawati, 2016 is the year of law enforcement that tax apparatus will become more aggressive compared to the previous year. The topic sparked off participants s enthusiasm for many questions were raised during the discussion. One of those was related to individual tax, especially since the month was the e-filing due date of Individual Tax Return. The event is regularly held 3 to 4 times a year in turn in different BCA branches. According to Vera Wira Utami, the Relationship Officer of BCA Bidakara, as the head of committee, this event aims to maintain good relationship with customers as well as to socialize the new product of BCA that is MPN G2. This product is a system of tax payment integrated with BCA internet banking that will facilitate the customers in doing the tax transaction.

11 Mei 11 Mei 2016 Memahami Proses Keberatan dan Banding di bidang Kepabeanan dan Cukai 12 Mei 2016 TP Series: Menghadapi Pemeriksaan dan Sengketa Transfer Pricing dengan Dokumentasi Transfer Pricing yang Handal 24 Mei 2016 Kupas Tuntas Objek PPN dan implementasi e-faktur sesuai Peraturan Terkini 31 Mei 2016 Strategi Efektif Menghadapi Pemeriksaan, Keberatan dan Banding Pajak Juli 27 Juli 2016 Transfer Pricing Vs Customs Valuation Agustus MUC Training 2016 Updating Your Knowledge 27 Juli 2016 Kupas Tuntas PPh Badan dan Pengisian SPT Berdasarkan Peraturan Terkini. 31 Juli 2016 Kupas Tuntas Free Trade Area (FTA) Berdasarkan Peraturan Menteri Keuangan 205 Tahun 2015 Disclaimer MUCTaxMinimagz is a periodic publication of MUC Consulting Group to provide our client, contact and business relations with information of tax news and latest tax regulations. The materials within are limited to the purpose of providing information and should not be treated similarly as professional advice or basis in formulating strategic business decisions. Should you have queries regarding the issues in this edition, feel free to contact our tax consultants. For free subscription of MUCTaxMinimagz, please send your request by to publishing@mucglobal.com. For more information about MUC Tax Consulting Group, please visit

12 MEET OUR TAX Partners 1 2. Karsino Before joining MUC, he served as a tax auditor for seven years. This holder of the top level of Tax Consultant Certificate (Brevet C) is an accountant from STAN, Jakarta, with an excellent understanding of progressive tax laws and regulations. He earned his Master Degree of Islamic Economics and Finance from UI. In 2011, he acquired the Transfer Pricing Certificate from the Chartered Institute of Taxation (CIOT), UK. He also holds the license of Tax Representative in the Tax Court since With his expertise in handling clients from various industries, Karsino also shares his knowledge and experience with his students at the University of Indonesia, as well as being a tax instructor for taxation workshops and inhouse training Sugianto Sugianto is a former tax auditor at the Tax Audit and Investigation Office (Karikpa) for over ten years. Due to his expertise in the area of taxation, accounting, and finance, he was appointed as a member of Economic and Financial Consultant Team to the Indonesian Parliament, in the compilation of Tax Laws 2000 and New Tax Laws He is frequently invited as a speaker for various taxation seminars and workshops. He earned his Master degree of Accounting from the University of Indonesia (MAKSI UI), majoring in Taxation, to complete his Diploma in Accounting from the State Accounting College (STAN), Jakarta. He has held the top level of Tax Consultant Certificate (Brevet C) and also owned the license of Tax Representative in the Tax Court since Imam Subekti Imam Subekti previously worked for a Public Accounting Firm before joining MUC. He is experienced in handling clients from various industries and holds the top level of Tax Consultant Certificate (Brevet C). He frequently participates as a guest speaker at various taxation seminars/workshops. He is a graduate of the Faculty of Economics, University of Indonesia, and currently serves as a guest lecturer at the same University. 3

13 4. Meydawati 4 Meydawati s professional career began at one of the Big Four Public Accounting Firms where she had served there for five years before joining an international Oil Drilling company. She is experienced in handling clients from various industries, especially in oil, mining and drilling industries. She is a graduate of Fiscal Administration at the University of Indonesia and serves as a guest lecturer at the same university. Meydawati often participates as a tax instructor in seminars or in house-training. 5. Wahyu Nuryanto 5 Wahyu Nuryanto owns in depth understanding in the area of International Taxation, including Tax Treaty and Japanese Tax system. He obtained his broad knowledge in taxation from his master education in Public Finance of the National Graduate Institute for Policy Studies, Japan, and his former bachelor in Accountant program of STAN and the University of Airlangga. He also has participated in numbers of seminars and short courses in the international taxation held by OECD throughout many countries, such as Australia, Japan, Korea and Malaysia. Before joining MUC, he was the Section Chief of Tax Treaty of Asia Pacific Regions at the Directorate General of Taxes, Jakarta. In 2011, he acquired the Transfer Pricing Certificate from the Chartered Institute of Taxation (CIOT), UK. Currently, he provides advisory for multinational companies including transfer pricing documentation, review and dispute settlement, as well as international tax planning. He also actively becomes the speaker in many seminars and inhouse trainings Ika Fithriyadi As an accountant from the Indonesian State College of Accountancy (STAN), Ika Fithriyadi had served as a tax auditor at the Tax Audit and Investigation. Office (Karikpa) until year He had also worked for multinational companies as Financial Controller and Tax Supervisor as the latest position before joining MUC. With strong accounting and taxation background, he often participates as a tax instructor in seminars for various institutions and currently serves as a guest lecturer at the University of Indonesia.