The dynamics of global business competition increasingly compel business actors to adapt, develop, and even alter their strategies to achieve greater efficiency and optimization. One of the strategic measures frequently undertaken is the implementation of corporate actions in the form of mergers, consolidations, expansion, or acquisitions of business (collectively referred to as “Reorganization”).
In the Indonesian business landscape, Reorganization plays a significant role in driving growth, facilitating business development, and serving as a proactive response to economic challenges. It may further operate as a principal instrument in strengthening the competitive position of enterprises in the market.
A notable example occurred in 2020, during the COVID-19 pandemic and the ensuing global economic downturn, when three state-owned shariah banks in Indonesia merged to form PT Bank Syariah Indonesia Tbk (formerly PT Bank BRISyariah Tbk). This merger entailed the transfer of assets and liabilities of the merging entities into PT Bank Syariah Indonesia Tbk. According to the merger plan summary announcement, the rationale behind the merger was the relatively low penetration of Shariah banking assets in Indonesia compared to conventional banking, notwithstanding the country’s substantial Muslim population. This case illustrates how Reorganization can serve as a strategic solution to foster business expansion and sectoral development.
While Reorganization constitutes an attractive option for business growth, it must be underscored that such corporate actions are inseparable from the critical dimension of taxation. Under Indonesian law, the transfer of assets in the context of Reorganization is, as a general rule, required to be valued at fair market value for tax purposes. The application of market value ensures transparency and guarantees that transactions reflect the actual economic conditions. Nevertheless, an exception exists whereby asset transfers in certain forms of Reorganization may use book value for the valuation of each entities’ assets, provided that prior approval has been obtained from the Director General of Taxes of the Republic of Indonesia (“DGT”). This mechanism offers an alternative option for business actors undertaking Reorganization, enabling them to benefit from a lighter fiscal burden.
It should be noted, however, that not all forms of Reorganization qualify for book value treatment. Only business actors that fulfilled certain specific categories may use this alternative tax calculation. Among such requirements are the obligation to satisfy the business purpose test and the possibility of obtaining a fiscal clearance letter.
This article provides a general overview of the legal framework governing the use of book value in asset transfers within the scope of Reorganization, as regulated under Minister of Finance Regulation No. 81 of 2024 on Tax Provisions for the Implementation of the Core Tax Administration System, as most recently amended by Minister of Finance Regulation No. 1 of 2026 (“MoF Regulation 81/2024”).
Business Purpose Test
Taxpayers seeking to utilize book value for their reorganization transaction must adhere to specific requirements. One such requirement is the determination of which entities would survive a merger transaction. MoF Regulation 81/2024 stipulates that the surviving entities should be those with no fiscal loss or those with the least fiscal loss. In addition to specific requirements for utilizing book value during reorganization, there is one mandatory requirement that must be fulfilled by business entities, namely, passing the business purpose test.
To satisfy the business purpose test, the following conditions must be met:
- The principal purpose of the Reorganization must be to strengthen the capital structure of the enterprise, and not for tax avoidance.
- The business activities of the transferring taxpayer must continue to operate until the effective date of the Reorganization.
- The transferee entity must continue the business activities of the transferor for a minimum period of 4 (four) years from the effective date of the Reorganization. For your reference, the minimum operating period has been reduced by the issuance of MoF 1/2026. Prior to the issuance of MoF 1/2026, the minimum operating period was five (5) years.
- The transferee taxpayer must continue to conduct its business activities for at least 4 (four) years following the effective date of the Reorganization. Similar to point (c) mentioned earlier, the minimum operating period is also reduced under MoF 1/2026.
- Fixed assets received by the transferee taxpayer may not be transferred for a minimum period of 2 (two) years from the effective date of the Reorganization, except where such transfer is required for efficiency purpose. In such efficiency cases, the taxpayer must submit a formal request to the DGT no later than 1 (one) month after the asset transfer has occurred.
These requirements collectively ensure that the application of book value in asset transfer for Reorganization transactions is grounded in genuine business purposes, thereby maintaining the integrity of the tax system while allowing enterprises to benefit from fiscal flexibility.
Procedures for Adopting Book Value in Corporate Reorganization
If the Reorganization meets the prescribed requirements, business entities involved, whether receiving asset transfers (in mergers, consolidations, or acquisitions) or transferring assets (in spin-offs), that intend to adopt book value as the tax calculation method must follow the procedures below:
- Taxpayers are required to submit an application to the DGT no later than 6 (six) months after the effective date of the Reorganization. The application must be accompanied by statement letter explaining the reasons for the Reorganization, statement letter confirming that the reorganization satisfies the business purpose test, the deed of establishment of the newly formed taxpayer (for spin-offs), evidence of realization of additional capital contributions (for spin-offs) and other supporting documents.
- The DGT may issue a request for supplementary documents. Taxpayers must provide the requested documents within 15 (fifteen) days of receiving the request. Failure to comply will result in the application not being considered, and no decision letter will be issued. In such cases, taxpayers may resubmit a complete application after the initial request has been disregarded.
- The Director General of Taxes will issue either an approval or rejection decision within one month of receiving a complete application. If the DGT fails to issue a decision within this timeframe, the application is deemed approved by default.
Recalculation Using Market Value
Asset transfers carried out in the context of a Reorganization that have received approval from the DGT to use book value may be recalculated using market value if the DGT issues a revocation of such approval. In such cases, the asset transfer must be reassessed at market value to determine the income tax payable. Importantly, this revocation does not automatically apply to all taxpayers using book value in Reorganizations, it only occurs if the DGT finds that the taxpayer no longer meets the conditions and criteria required to adopt book value.
Article 405 of the MoF Regulation 81/2024 stipulates that asset transfers in Reorganization approved to use book value must be recalculated at market value on the effective date of the reorganization if:
- The Reorganization fails to meet the business purpose test;
- Fixed assets received by the transferee taxpayer are transferred within 2 (two) years of the effective date of the Reorganization without filing an application for asset disposal with the DGT;
- The transferee taxpayer transfers fixed assets within 2 (two) years of the effective date of the Reorganization and receives a rejection of the asset disposal application from the DGT;
- A taxpayer conducting a spin-off with the intention of IPO fails to submit a registration statement to the OJK in connection with the IPO, or the registration statement does not become effective within 2 (two) years of DGT approval to use book value;
- The taxpayer’s request for an extension of the IPO period is rejected;
- A banking taxpayer undertaking an acquisition fails to dissolve its permanent establishment within 2 (two) years of the effective date of the asset transfer; and/or
- A banking taxpayer undertaking an acquisition receives a rejection of its request to extend the dissolution period of the permanent establishment.
The requirement to recalculate using market value does not apply to taxpayers who:
- Obtained approval to use book value in a reorganization prior to the enactment of MoF Regulation 81/2024;
- Have satisfied the business purpose test; or
- Undertake a new reorganization after the enactment of MoF Regulation 81/2024.
MoF 1/2026 introduces a new provision that empowers the Minister of Finance to reevaluate the regulations governing the utilization of book value for reorganization purposes within a three-year timeframe, commencing from the issuance of MoF 1/2026.
Conclusion
In principle, asset transfers in Indonesia are subject to taxation based on market value. However, when such transfers occur within the framework of a Reorganization that meets specific criteria, taxpayers may adopt book value as the basis for calculating income tax, provided they obtain prior approval from the DGT. This exception applies to mergers, consolidations, expansions, and acquisitions that comply with the requirements set forth under MoF Regulation 81/2024, including the obligation to satisfy the business purpose test.
Nevertheless, approval to use book value is not absolute. Even after granting approval, the DGT retains the authority to revoke it if evidence emerges that the taxpayer fails to meet the prescribed conditions. This underscores the importance of strict compliance, transparent documentation, and adherence to regulatory standards to maintain the privilege of book value treatment in corporate reorganizations.
For Further Information, Please Contact:
MetaLAW, Legal Consultant, Jakarta, Indonesia
general@metalaw.id
- Bank BSI, Rancangan Penggabungan, https://ir.bankbsi.co.id/newsroom/BRI_Mandiri_BNI_-_Rancangan_Penggabungan_-_Okt_2020_(Bisnis_Indonesia).pdf, accessed on 6 February 2026.
- Article 392 of MoF Regulation 81/2024.
- Article 393 (1) of MoF Regulation 81/2024.
- Article 393(2) of MoF Regulation 81/2024.
- Article 393 (1) jo. 394 of MoF Regulation 81/2024.
- Article 394 (8) jo. (9) of MoF Regulation 81/2024.
- Article 395 of MoF Regulation 81/2024.
- Article 405 of MoF Regulation 81/2024.
