Page 12 - SUSTAINABILITY ISSUES & COVID-19

However, in the process of divesting the business, PT A implemented a policy to not transfer their assets and liabilities
to the new companies in order to avoid tax expenses that might be incurred. The policies on the assets and liabilities
management in branch and main offices of PT A are as shown in Table 1. Table 1 shows that none of PT A’s recorded
assets was transferred to the new companies, even though the assets are used and controlled by the them to continue
the operations. Asset in the form of receivables were also not transferred and remained written under PT A’s accounting
record until the due dates. If a customer wishes to do another pawn transaction after the due date, it will then be
recorded in the accounting book of the new company that operates in that particular area. Prepaid outlet rent remained
written under PT A’s accounting book even though several outlets are used by the new companies. The same also
applies to the fixed assets and liabilities.

In terms of taxation, by the end of 2019, PT A did not record any compensable loss, and they recorded retained earnings,
hence the levied corporate income tax (Article 25 Income Tax) in 2020. In addition, PT A along with its new companies
are not taxable enterprises, meaning no Value Added Tax (VAT) credit to be claimed and imposed.

4.1 Company Divestiture’s Tax Implications
The strategy undertaken by PT A in order to comply with the scope of the business area is establishing a holding
company that established new companies without transferring assets and liabilities of PT A to these new companies. By
not transferring assets and liabilities, operationally nothing happens because all PT A’s branch offices are still under the
control of PT A, which causes all revenues and expenses to remain recorded at PT A. Therefore, PT A’s operating income
and expenses looks greater than it should be. Then, for new companies, the revenue will appear lower than it should
be. Although some of new companies’ operational expenses are recorded by PT A, each new company have to record
board of directors’ salary thus it can be expected that new companies will experience large operational expenses or
even cause losses for the current year.

Although for the majority shareholder, who records the profit and loss is not a significant issue. However, if the PT
branch offices’ assets and liabilities are transferred to new companies, expectedly the new companies will generate
profit or reduce loss for the current year. If high profit or minimal loss was generated by new companies, it would
increase the confidence of any unaffiliated parties to provide financing loan to new companies rather than if there is
no transfer of assets and liabilities. This external financing can be used for business expansion so the shareholders and
affiliate parties does not have to provide financing.

The divestiture of PT A has made their branch offices in the provinces change into independent companies, which
means that every new company has their own tax liabilities albeit their status in the business group. Nevertheless, PT A
did not transfer the assets of their branch offices to the new companies and to parent company to minimize or avoid tax
expenses during and after the process. In this context, taxes that are related to asset transfer are Value Added Tax (VAT)
and Income Tax. VAT could not be levied on PT A and its new companies because they were not taxable enterprises.
Ergo, the divestiture of PT A has implications on the income tax. The income tax implications on transfer of assets in PT
A reviewed from the group’s interest is shown in Table 2.

Table 2 Tax Implications on Assets Transfer

Implications If Assets are Transferred Implications
Account If Assets are Not Transferred
During Assets Transfer Post Assets Transfer
Receivables No Yes Yes
Prepaid Rent Yes No Yes

Fixed Assets No Yes Yes
Other Receivables No Yes Yes
Other Current Liabilities No No No
Long-Term Loan No No No

International Conference on Sustainability 11
(5 Sustainability Practitioner Conference)
Th