BEPS (Base Erosion and Profit Shifting) Pillar 2 has become a central focus in the global effort to establish a minimum tax agreement. A national seminar organized by Tax Policy, Welfare, and National Resilience (Poltax FIA UI), in collaboration with the GAP FIA UI cluster and IFTAA, delved into the challenges and benefits of BEPS 2.0 Pillar 2. The seminar, titled “Indonesia Prepares to Embrace BEPS 2.0 Pillar 2: Bridging the Paradox of Global Minimum Tax vs. Tax Holiday Regime,” was held in a hybrid format and attended by leading tax experts and practitioners from across Indonesia.

BEPS 2.0 Pillar 2 is a critical component of the BEPS agreement developed through the collaboration of the Organisation for Economic Co-operation and Development (OECD) and the G20. This pillar focuses on the Global Minimum Tax, which aims to impose a minimum tax rate on multinational corporations. As global taxation issues become more prominent, this initiative is expected to curb tax base erosion practices by multinational companies and foster a fairer global tax environment.

“In this era of disruption, taxation issues and challenges are a logical consequence that must be addressed. It is essential to prevent a ‘race to the bottom’—where countries compete to offer extremely low tax rates or highly favorable tax policies to attract businesses and investors—and to ensure that countries and their citizens do not suffer losses,” said Prof. Dr. Haula Rosdiana, M.Si, Head of the Poltax FIA UI Cluster.

Implementing a Global Minimum Tax is crucial to ensure that countries receive their fair share of tax revenues while maintaining the ability to attract investments through effective tax instruments. Professor Gunadi, Head of the GAP Cluster, emphasized the important role of academics and practitioners in providing valuable insights for crafting sound tax policies and regulations. He also highlighted the conflict between the Tax Holiday regime and the Global Minimum Tax implementation.

“The primary objective of BEPS 2.0 is to address unhealthy tax competition between jurisdictions, mitigate the risks of previous BEPS practices, and ensure that multinational corporations pay a minimum level of tax globally. Regarding the implementation of BEPS 2.0 in Indonesia, companies with an effective tax rate below 15% will be subject to a top-up tax. This policy may also impact the effectiveness of tax incentives like the Tax Holiday,” explained Dr. Mekar Satria Utama, Director of International Tax at Indonesia’s Directorate General of Taxes (DJP).

Wahyu Hidayat, an analyst from the Fiscal Policy Agency (BKF), stressed that Indonesia has no choice but to adopt BEPS 2.0, as many partner countries have already implemented the policy. Failure to comply would mean that Indonesia must be prepared to subsidize investor countries—typically developed nations—that have already adopted BEPS 2.0.

During a discussion on synchronizing the interpretation of tax laws, Dr. Prianto Budi Saptono, a lecturer at FIA UI, highlighted the importance of aligning the implementation of the Tax Holiday policy in Indonesia.

“Pillar 2 BEPS has the potential to reduce race-to-the-bottom practices and promote a level playing field, although it may also reduce the effectiveness of tax incentives. Therefore, non-tax measures are needed to attract investments to Indonesia,” added Drs. Iman Santoso, M.Si, a lecturer at FIA UI.

The seminar, held at the FIA UI Auditorium on Tuesday, October 24, 2023, attracted 70 online participants and 30 in-person attendees, fostering a productive environment for discussing and addressing Indonesia’s evolving tax challenges.

The event provided valuable insights into Indonesia’s tax challenges and has the potential to lay a stronger foundation for the development of more balanced and effective tax policies in the future.