Introduction
Over the past two decades, economic globalization and digitalization have expanded the cross-border activities of multinational corporations. However, this has also created new challenges for tax authorities worldwide. Many large corporations exploit legal loopholes to shift profits to low-tax jurisdictions or even tax havens. This practice is known as Base Erosion and Profit Shifting (BEPS).
In response, the OECD, along with G20 member countries, formulated the Inclusive Framework on BEPS, which includes two main pillars. Pillar One regulates the redistribution of taxation rights between countries where markets and consumers are located. Pillar Two, better known as the Global Minimum Tax (GloBE Rules), aims to ensure that every multinational company pays an effective tax rate of at least 15% in every jurisdiction where it operates.
Through the implementation of this Second Pillar, it is hoped that there will no longer be a “race to lower tax rates” between countries to attract foreign investment. Instead, this policy is expected to promote fiscal fairness and stability of state revenues.
Background and Legal Basis
The Global Minimum Tax Agreement resulted from a consensus of more than 140 jurisdictions within the OECD/G20 framework. This regulation primarily applies to multinational companies with annual consolidated global revenues of at least €750 million in two of the last four tax years. This means the policy targets large entities and does not directly apply to small and medium-sized businesses.
Indonesia is one of the countries actively supporting the implementation of this policy. In mid-2024, the government issued Minister of Finance Regulation No. 136 of 2024 concerning Tax Treatment of the Global Minimum Tax, which serves as the legal basis for implementing the Second Pillar in Indonesia. This regulation came into effect on January 1, 2025, and marks Indonesia’s commitment to implementing internationally agreed global tax standards.
According to the EY Global (2025) and KPMG Indonesia (2025) reports, the regulations include provisions regarding the calculation of additional taxes (top-up tax), global information reporting (GloBE Information Return), and coordination mechanisms between countries to avoid double taxation.
Global Minimum Tax Implementation Mechanism
The implementation of GMT is carried out through three main mechanisms, namely:
- Income Inclusion Rule (IIR)
This mechanism gives the country where the parent company is located the right to impose additional taxes if the subsidiary in another jurisdiction pays taxes at an effective rate below 15%. - Domestic Minimum Top-Up Tax (DMTT)
A country where a company operates can impose additional taxes at the domestic level if its effective tax rate is below the 15% threshold. This step is essential to ensure the country continues to receive tax revenue without having to cede taxation rights to another country. - Undertaxed Payments Rule (UTPR)
If the previous two mechanisms cannot be fully implemented, other countries where the corporate group operates may impose additional taxes on cross-border transactions that have not been subject to minimum tax.
In addition to the three mechanisms mentioned above, the OECD also established the Substance-Based Income Exclusion (SBIE), which excludes a portion of profits based on labor costs and tangible assets in each country. The goal is to prevent real economic activity from being negatively impacted by the implementation of the global minimum tariff.
Impact and Implications for Multinational Corporations
For multinational companies, this policy has a significant impact, both in terms of administrative compliance and business strategy.
First, companies must calculate the Effective Tax Rate (ETR) in each jurisdiction where they operate. The ETR is calculated by comparing the total tax paid to the adjusted profit according to GloBE standards. If a country’s ETR is below 15%, it will be subject to a top-up tax.
Second, companies are required to prepare a new report called the GloBE Information Return (GIR), containing detailed information on constituent entities, ownership structure, revenue, taxes paid, and ETR calculations. This reporting requirement increases transparency but also increases the administrative compliance burden.
Third, corporate structures and investment strategies need to be re-evaluated. Tax incentives such as tax holidays or tax allowances currently enjoyed may be less effective because they are still calculated in the global ETR comparison. Therefore, companies must balance the benefits of domestic incentives with the potential additional tax burden from other countries.
Fourth, from a financial perspective, this policy can impact cash flow and fiscal planning. Additional taxes may be due after the annual accounting period, making cash management a critical issue.
Impact on Indonesia
For Indonesia, the implementation of the Global Minimum Tax has two sides. On the positive side, this policy can increase state revenue and strengthen fiscal equity, as multinational companies can no longer freely shift profits to low-tariff countries. Furthermore, Indonesia can utilize the Domestic Minimum Top-Up Tax (DMTT) to ensure that additional taxes are paid domestically, not in other countries.
However, on the other hand, this policy also poses challenges. The complexity of regulations and cross-border reporting requirements can create additional administrative burdens for both tax authorities and companies. Furthermore, Indonesia’s competitiveness in attracting new investment could be impacted if it is not balanced with targeted and transparent incentive policies.
According to the OECD (2025) and Bisnis Indonesia (2025) reports, Indonesia has been granted “qualified” status for the IIR and DMTT mechanisms by the OECD, meaning domestic regulations are recognized as meeting international standards. This status is crucial for Indonesia to maintain its taxation rights on profits generated within its borders.
Implementation Challenges
Some of the main challenges that need to be anticipated include:
- Data Infrastructure and Reporting System Readiness.
The Directorate General of Taxes needs to strengthen its digital reporting system to efficiently receive and verify cross-border data. - Human Resources Capacity and International Coordination.
Training and capacity building are needed for tax officials to understand the complexities of the Global BE regulations. Coordination with other countries’ tax authorities is also key to avoiding overlapping taxation. - Impact on Incentive Policies.
The government needs to evaluate fiscal incentive policies such as special economic zones, tax holidays, or super deductions to ensure they remain relevant within the global minimum tax framework. - Tax Dispute Risk.
With multiple jurisdictions involved, the potential for cross-border tax disputes increases. A swift and transparent resolution mechanism is required.
Conclusion
The Global Minimum Tax represents a monumental step in international tax reform. This policy encourages the creation of a fairer and more transparent global tax system, while simultaneously reducing tax avoidance practices. With the enactment of Minister of Finance Regulation No. 136 of 2024, Indonesia demonstrates its strong commitment to aligning its tax system with global standards.
For multinational companies, implementing this regulation requires a high level of preparedness, both in terms of reporting, accounting, and fiscal strategy. Meanwhile, the challenge for the government is ensuring that this policy can be implemented effectively without compromising the competitiveness of national investment.
With careful implementation, the Global Minimum Tax will not only strengthen government revenues but also create a fairer and more sustainable economic order for all stakeholders.