Page 13 - SUSTAINABILITY ISSUES & COVID-19

Receivables are the result of the loan activities between PT A branch office as the lender and customers as the borrower,
with the customers’ gold as the collateral. The receivables period is generally 4 months, and can be paid before the due
date. In the context of asset transfer, if the right of claims is given to the new companies, no tax can be levied on both
PT A and the new companies. Whereas, Other Receivables are receivables from the employees. Interests are generally
charged from these receivables, and they are paid in installments through deducted monthly salaries. Assignment of
claims that is transferred to the new companies is not taxable both for PT A and the new companies. However, the
assignment of claims might have implications on the taxation structure of the business group in the future, that is
the change in the corporate’s income tax (Article 25 of Income Tax) allocation due to the shift of earnings from PT A to
the new companies. Recalling the facts that divestiture was carried out in early 2020 and that PT A recorded retained
earnings in 2019, the assignment of claims reduces the corporate income tax in 2020. It is because the reduce in
interest income from PT A’s receivables and other receivables also means in lower earnings. Meanwhile, the corporate
income tax has not been levied on the new companies in 2020, because it is predicted that will not make profits yet
as a consequence of the divestiture. However, without transferring the receivables and other receivables, a higher
corporate income tax will be imposed to PT A since the earnings become higher due to lower operating cost if prepaid
rent and fixed assets are transferred. Therefore, from the perspective of taxation, the policy to not transfer receivables
and other receivables to the new companies can be considered as flawed.

Prepaid rent is the outlets rent and renovation expenses for PT A’s branch offices that has not been recognized as
operating expenses. In transferring the assets, if the remaining period of outlet rent is transferred to the new companies
through an assignment of lease, a final income tax (Article 4 paragraph 2 of Income Tax) of 10% will be levied. There
is no tax implication for both PT A and the new companies if the value of assignment matches the book value. While,
PT A’s fixed asset is an asset in the forms of office equipment, furniture, and vehicles. If fixed asset is transferred to
the new companies through a sale and purchase mechanism, there is no tax expenses incurred for both PT A and the
new companies but it will have implications on the increase of the corporate income tax of PT A in the current year
(2020) due to the difference between the purchase price and book value of fixed asset. However, the outlet rent and
fixed assets that are not transferred to the new companies are not in line with the principle of matching cost againsts
revenue as stipulated under Article 6 of Act Number 36 of 2008 concerning Fourth Amendment of Act Number 7 of
1983 on Income Tax. The law states that the deductible expenses are expenses for the purpose of earning, collecting,
and securing revenue. As a consequence, PT A gains lower earnings because the amortization of outlet rent and the
depreciation of fixed assets used by the new companies is expensed to PT A. This also cause a reduce in the corporate
income tax (Article 25 of Income Tax) and tax expense for the business group. Meanwhile, the new companies will
have a lower loss than it is supposed to be because they do not record the outlet rent amortization and fixed assets
depreciation. Although it seems that such condition lowers the tax expenses for the business group, they have infringed
an accounting and tax principle, leading to a fiscal correction. Hence, the decision to not transfer outlet rent to the new
companies is an unwise decision.

Current Liabilities represent loans obtained by PT A from third parties through PT A’s affiliated parties to finance the
Receivables. While Long-Term Loans are loans obtained by PT A from related parties to finance PT A’s other operations.
So far, branch office operations have been financed by PT A’s head office so that branch offices book debts to the head
office. For PT A’s head office, the liabilities consist of Other Current Liabilities, Short-term Loans and Long-term Loans.
The transfer of the liabilities at the time of transfer and in the current year does not have implications in increasing the
tax burden both for PT A and the receiving companies. Likewise, if it is not transferred, there will be no implication for
increasing the tax burden. Even so, ideally the liabilities recorded on the branch office balance are transferred along
with the assets being transferred.

The management policy of not transferring fixed assets and prepaid rent is not in accordance with the principle of
matching costs against revenue. This resulted in PT A’s operating expenses appearing to be greater and the operating
expenses of new companies and parent companies appearing to be lower so that it caused fiscal correction. Therefore,
receivables and liabilities also need to be transferred to align the assets that must be transferred. By considering the
elements in the Scholes-Wolfson Framework, which are the implications of all taxes from all parties and all costs, the
policy adopted by PT A is an inappropriate policy in tax planning that may cause to tax liability.

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