Page 16 - SUSTAINABILITY ISSUES & COVID-19

1.2.2.1 Tax Implications

Figure 4
Income Tax Implications on Assets Transfer through Spin-Off

There are several tax implications on the parties involved therein in transferring the assets to new companies through
spin-off. The tax implications are shown in Figure 4. First, no income tax will be levied on dividend received by Holding
Company as the majority shareholders as stipulated in Article 4 paragraph 3 of Act Number 36 of 2008. Second, final
income tax amounts 10% on dividend value will be levied to Mr Z as the minority shareholder according to Article
4 paragraph 2 of Act Number 36 of 2008. Third, 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. Beside that, PT A who transfers
the rent has a tax implication in the form of final income tax amounts 10% on rent transfer value. Second, 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.

4.2.2.2 Non-tax Implications
There are non-tax benefits that can be obtained by transaction parties that also need to be considered. First,
shareholders retain control over the transferred business unit. Second, in terms of business group, the transfer of assets
and liabilities does not need to prepare cash other than the minimum cash capital deposit. As with the sell-off method,
because the transfer is carried out in one entity under common control, there is no accounting gain that can be booked
by the transferring company.

1.2.3 Capital Reduction Mechanism
Since PT A cannot carry out spin-off method, this mechanism is almost similar to spin-off method. In spin-off method,
divestiture starts by establishing the subsidiaries through transferring business unit’s net assets. In this mechanism,
it starts by transferring business unit’s net assets to shareholders then it will be transferred to shareholders’ other
subsidiaries. Hence, the net assets are transferred twice. The business unit’s net assets that transferred to shareholders
are as PT A’s partial capital reduction that previously invested by Holding Company.

1.2.3.1 Tax Implications
With capital reduction mechanism, there are several tax implications on the parties involved therein in transferring
the assets to new companies and to Holding Company. The tax implications on the business shift from PT A’s branch
offices to the new companies are shown in Figure 5. First, no tax will be levied on PT A’s shareholders received partial
liquidating dividend as PT A’s capital reduction, as stated in Explanation of Article 4 paragraph 1 of Act Number 36 of
2008. However, PT A’s shareholders, as transferring the rent has a tax implication in the form of final income tax on rent
transfer value. Second, PT A as the divesting company will be imposed with income tax on the difference between the
market value and asset tax basis. Also, PT A as the transferring the rent has a tax implication in the form of final income
tax on rent transfer value. Third, PT B, PT C, PT D, PT E and PT F as the receiving parties will receive future tax benefits on
the use of market value as the tax basis.

International Conference on Sustainability 15
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