The development of the Global Minimum Tax (Pillar Two) brings a fundamental transformation in the way multinational enterprises manage their tax strategies, shifting from a tax planning-oriented approach toward stronger tax governance characterized by greater transparency, accountability, and sustainability. The enactment of Indonesia’s Minister of Finance Regulation (PMK) No. 136 of 2024 emphasizes that tax compliance is no longer measured solely by the ability to fulfill tax obligations, but also by data readiness, economic substance, reporting consistency, and the quality of governance supporting corporate decision-making. This development requires the involvement of various corporate functions, including finance, accounting, tax, legal, and senior management, to ensure alignment of information used in Effective Tax Rate (ETR) calculations, the GloBE Information Return, Country-by-Country Report (CbCR), and other relevant tax documentation and reporting requirements. Within an increasingly integrated global tax environment, tax governance has become a critical foundation for strengthening legal certainty, enhancing investor confidence, evaluating the economic benefits of tax incentives, and developing resilient investment structures aligned with the evolving international tax architecture.
In the previous three articles, NIHAO readers were introduced to Pillar Two through three distinct lenses: the broader concept of the Global Minimum Tax, the technical roadmap of Indonesia’s Minister of Finance Regulation (PMK) No. 136 of 2024, and its relationship with Transfer Pricing Documentation. This fourth article moves to a more strategic level: how investors should prepare. The challenge is no longer simply calculating additional tax liabilities, but building a tax governance framework that can be trusted by regulators, shareholders, creditors, and cross-border business partners.
Pillar Two represents a fundamental shift in perspective. For decades, tax planning was often viewed as the art of identifying the most efficient structure. Within reasonable boundaries, such planning remains legitimate and necessary. However, the new era of international taxation has shifted the center of gravity from tax minimization toward Tax Governance: the ability of a business to explain why its tax structure is commercially rational, supported by genuine business substance, consistent with underlying data, and aligned with evolving global tax principles.
For investors, this transformation presents an opportunity to strengthen tax governance practices. Global investors increasingly value jurisdictions and organizations that demonstrate certainty, transparency, and high-quality reporting standards. In this context, Indonesia is not closing its doors to investment. Through PMK No. 136 of 2024, Indonesia is aligning itself with the emerging global tax architecture to maintain its credibility and competitiveness within the international investment landscape.
From a technical perspective, Pillar Two applies to Multinational Enterprise Groups with consolidated annual revenues of at least EUR750 million in at least two of the four preceding fiscal years.
PMK No. 136 of 2024 establishes the framework for the Income Inclusion Rule (IIR), Domestic Minimum Top-up Tax (DMTT), and Undertaxed Profits Rule (UTPR), together with administrative obligations such as the GloBE Information Return, Annual GloBE Income Tax Return, Annual DMTT Return, and Annual UTPR Return. These provisions become effective on 1 January 2025, while the UTPR provisions will take effect on 1 January 2026.
This is where tax governance becomes critical. Pillar Two is not merely a responsibility of the tax department. Its calculations extend across consolidated financial statements, deferred taxes, covered taxes, GloBE Income, Country-by-Country Report (CbCR), Transfer Pricing policies, payroll information, tangible assets, tax incentives, and ownership structures. Data originating from finance, accounting, legal, human resources, treasury, and operational functions must ultimately speak the same language and tell a consistent story.
As a result, board accountability has become a new priority. Boards of commissioners, directors, audit committees, and investors can no longer limit their inquiries to a simple question: How much tax must be paid? The more relevant questions today are: Can the company’s tax policies be justified? Does the investment structure have sufficient economic substance? Have tax incentives been reassessed in light of potential top-up tax exposure? Are Transfer Pricing Documentation, CbCR, tax returns, and financial statements fully aligned and mutually supportive?
Adam Smith’s observations regarding tax certainty remain remarkably relevant in the modern investment environment. In practice, a predictable tax system is often more valuable than a low tax burden that lacks certainty. The OECD has similarly emphasized that tax certainty is a fundamental objective for creating stability and predictability, serving as a cornerstone for investment, job creation, and sustainable economic growth. Tax governance, therefore, is far more than an administrative requirement; it has become an essential infrastructure of trust.
Jeffrey Owens, one of the leading thinkers in global tax governance, once observed that taxation is too important to be left solely to tax directors. This message is particularly relevant for businesses within the scope of Pillar Two. Tax decisions now have the potential to influence corporate reputation, valuation, credit ratings, due diligence outcomes, IPO readiness, financing covenants, and the perceptions of institutional investors.
In practice, there are four key areas of readiness that organizations should establish. First, conduct a comprehensive Pillar Two impact assessment to identify jurisdictions where the Effective Tax Rate falls below the 15 percent minimum threshold. Second, strengthen data readiness to ensure the availability, integrity, and consistency of GloBE data, Country-by-Country Report (CbCR), Transfer Pricing Documentation, and financial reporting information. Third, review existing tax incentives to evaluate whether facilities such as tax holidays, tax allowances, or super deductions continue to provide economic value after considering potential top-up tax consequences. Fourth, establish a robust governance framework that clearly defines decision-making authority, review responsibilities, approval mechanisms, and accountability for the group’s overall tax position.
The opportunity for tax planning remains, but its nature is evolving. Tax planning must move away from aggressive approaches toward strategies that are defensible and sustainable. Effective tax planning is no longer about shifting profits to low-tax jurisdictions; rather, it involves designing investment structures that are commercially rational, supported by genuine functions and risks, backed by
relevant personnel and assets, and fully aligned with the arm’s length principle as prescribed under PMK No. 172 of 2023.
This approach is both pro-government and pro-investor. Governments benefit from a more sustainable and equitable tax base. Investors gain confidence that their business structures will remain resilient when scrutinized by tax authorities or challenged across multiple jurisdictions. In the Pillar Two era, attractive investment destinations are not merely those offering generous incentives, but those capable of providing regulatory certainty, administrative quality, and a trustworthy business ecosystem.
Through SW Tax Consulting, we assist foreign investors entering Indonesia as well as Indonesian businesses expanding internationally through Pillar Two readiness assessments, tax governance framework development, Transfer Pricing alignment, tax incentive impact assessments, APA/MAP strategies, and cross-border tax data integration. Our objective is straightforward: to help investors make decisions with greater clarity, compliance, and long-term value creation.
Ultimately, Pillar Two is not merely about a minimum tax rate of 15 percent. It is a test of corporate maturity and governance. The organizations best prepared for this environment are not those most adept at identifying loopholes, but those capable of explaining their tax positions through robust data, genuine economic substance, and clear accountability. In this new landscape, tax governance is no longer a supplementary element of compliance. Tax governance has become the new language of investment trust.
