Page 14 - SUSTAINABILITY ISSUES & COVID-19

1.2 Choice of Divestiture Strategy Based on Tax Implication
The transfer of net assets of PT A only has implications on the income tax as constituted in Article 4 paragraph 1 section
d of Act No. 36 of 2008. However, income tax cannot be imposed on the asset transfer if PT A utilizes book value facility
by fulfilling all requirements regulated by the Minister of Finance Regulation Number 205 of 2018 in conjunction with
the Minister of Finance Regulation Number 52 of 2017. The amount of tax implications on PT A as a consequence of
divesting depends on the method chosen.

1.2.1 Sell-off Method
Sell-off method is one of divestiture methods through the sale of business unit. In this case study’s context, the
shareholders of PT A must sell the business units of PT A’s branch offices in various provinces to companies within
the same business group. Thus, the initial action to be taken is to establish new companies in order to purchase the
business units of PT A’s branch offices. In a business scope of province area, the shareholders should fully pay a capital
of at least Rp. 2.500.000.000 per company or Rp. 10.000.000.000 for 4 companies, which is in accordance to Article 4
of POJK Number 31 of 2016. In sell-off method, the capital is used to obtain the net asset of PT A’s branch offices in
provinces, so that they are owned by the new companies within the same business group. Sell-off method is also used
to transfer the assets that used by holding company which had been booked by PT A.

1.2.1.1 Tax Implications
There are several tax implications on the parties in sell-off method in transferring the assets to the new companies and
to holding company. Tax implications on transferring to the new companies in provinces are shown in Figure 2. First,
the shareholders, which are the holding company and Mr. Z, have no direct tax implications in the transaction of PT A
branch offices purchase. Second, PT A as the divesting company has a tax implication in the form of corporate income
tax on the difference between the market value and asset tax basis. It is imposed in accordance to Article 10 paragraph
4 of Act Number 36 of 2008 in conjunction with Article 1 paragraph 1 of the Minister of Finance Regulation Number
205 of 2015. PT A as the transferring the rent has a tax implication in the form of final income tax on rent transfer value
based on Article 4 paragraph 2 of Act Number 36 of 2008. Third, PT B, PT C, PT D, PT E and PT F as the new companies
will receive future tax benefits on the use of market value as the tax basis according to Article 10 paragraph 4 of Act
Number 36 of 2008.

Figure 2
Income Tax Implications on Assets Transfer to The New Companies through Sell-off

Whereas tax implications on transferring assets to the holding company are shown in Figure 3. First, PT A as the
transferor has a tax implication in the form of corporate income tax on the difference between the market value and
asset tax basis. PT A who transfers the rent has a tax implication in the form of final income tax on rent transfer value.
Second, Holding Company will receive future tax benefits on the use of market value as the tax basis.

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