BEPS Pillar One and Pillar Two: Their Impact on Transfer Pricing Practices in Indonesia
For years, transfer pricing practices have relied on a simple assumption: as long as transfer prices between related parties comply with the arm's length principle, the allocation of taxing rights among countries is considered relatively settled. This assumption is now shifting. Through the BEPS 2.0 project, the OECD/G20 Inclusive Framework introduces Pillar One and Pillar Two, two frameworks that simultaneously challenge and complement the traditional workings of the arm's length principle. Both are no longer merely multilateral discourse, but rather active obligations that have begun directly impacting how Indonesian taxpayers prepare their transfer pricing documentation.
Pillar One questions whether the arm's length principle alone is sufficient to allocate taxing rights, particularly for routine distribution activities and digital businesses. This pillar actually consists of two components with vastly different trajectories:
Amount A: A mechanism allocating a portion of the residual profits of giant multinational enterprises to market jurisdictions where their consumers are located, regardless of physical presence. Its implementation has slowed due to opposition from the United States and has yet to be realized through a multilateral convention.
Amount B: A much more widely accepted approach. The final OECD report was published on February 19, 2024, and directly integrated as an annex to Chapter IV of the 2022 OECD Transfer Pricing Guidelines, rather than functioning as a standalone document.
For everyday transfer pricing practitioners, Amount B is far more relevant than Amount A because it directly alters how pricing is determined for baseline marketing and distribution activities. This approach applies to distributors performing routine functions those that do not assume significant economic risks and do not own unique, valuable intangible assets. Instead of the traditional benchmarking process, Amount B utilizes a predetermined return on sales matrix based on industry groupings and cost intensity. There is no gross revenue threshold for Amount B to apply, unlike most other BEPS 2.0 provisions, and its application is optional per jurisdiction for fiscal years starting on or after January 1, 2025. Singapore has officially adopted this approach, whereas Indonesia has yet to officially adopt it to date.
In contrast to Pillar One, Pillar Two or GloBE (Global Anti-Base Erosion) is already clearly applicable in Indonesia. This provision establishes a 15% global minimum tax rate for multinational enterprise groups with consolidated gross revenues exceeding €750 million, the exact same threshold as the Country-by-Country Report (CbCR).
Its three main mechanisms operate sequentially:
IIR (Income Inclusion Rule): The parent entity pays a top-up tax on the profits of group members whose effective tax rate is below 15%.
UTPR (Undertaxed Payments Rule): A fallback mechanism that applies when the IIR is not implemented by another country.
QDMTT/DMTT (Domestic Minimum Top-up Tax): The country where the low-taxed profits are located collects the top-up tax itself.
In Indonesia, this provision is regulated through Minister of Finance Regulation PMK-136/2024, applicable for fiscal years starting January 1, 2025 (for IIR and DMTT), with UTPR following on January 1, 2026. The €750 million threshold must be met in at least 2 of the 4 fiscal years immediately preceding the tested GloBE fiscal year, in accordance with Article 3 of PER-6/PJ/2026, rather than just the current year. Technical provisions such as forms, reporting procedures, and registration are further regulated through PER-6/PJ/2026, which became effective on May 4, 2026.
Pillar Two does not replace transfer pricing rules; rather, it is an additional layer that makes the consistency of transfer pricing documentation increasingly vital. Taxpayers must note three main intersections. First, CbCR data serves as the testing basis for the Transitional CbCR Safe Harbour, which evaluates whether a jurisdiction's gross revenue and profit before tax fall below specific thresholds. If transfer pricing documentation and the CbCR are inconsistent, this simplification route may fail to be utilized. Second, non-arm's length transfer prices can distort test results, both in the simplified effective tax rate test and the substance-based income exclusion test, as both rely on profit figures that must reflect accurate transfer pricing. Third, shifting profits to low-tax jurisdictions via transfer pricing is no longer automatically advantageous; once the effective tax rate drops below 15%, the difference will still be collected through IIR, UTPR, or DMTT, regardless of where the profits were originally "parked."
The positions of these two pillars for transfer pricing practitioners in Indonesia can be mapped as follows:
Pillar One, Amount A: Focuses on reallocating profits to market jurisdictions. Its relevance to transfer pricing remains indirect, and its status in Indonesia has not yet been realized multilaterally.
Pillar One, Amount B: Focuses on simplifying baseline distribution pricing. It directly alters the benchmarking process for distributors, but remains unadopted in Indonesia.
Pillar Two, GloBE: Focuses on the 15% global minimum tax rate above the €750 million threshold. It acts as an input for safe harbour tests and ETR calculations, and is already applicable in Indonesia through PMK-136/2024 and PER-6/PJ/2026.
Of the two BEPS 2.0 pillars, Pillar Two is clearly in effect and directly impacts the compliance of business groups in Indonesia starting in 2025, while Pillar One remains halfway complete: Amount A has stalled, while Amount B is fully developed but awaiting domestic adoption decisions. For transfer pricing practitioners, both pillars warrant close monitoring as they have the potential to change how benchmarking is conducted and how transfer pricing results are evaluated from a global minimum tax perspective. For further consultation regarding the impact of BEPS Pillar One and Pillar Two on your company's transfer pricing documentation, PRAS inc. is ready to assist. Contact our team via the PRAS inc. website or social media.
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