Member Article

Reduction in Income Tax for Publicly Owned Companies

The Ministry of Finance recently issued regulation No.238/PMK.03/2008 of 2008 regarding the Procedures for and Supervision of the Granting of Tariff Reductions to Local Entity Tax Payers which are Publicly Owned Companies. In brief this regulation provides a 5% tariff reduction in Income Tax to Publicly Owned Companies, if for at least 183 calendar days (or 6 months) in one financial year, (i) at least 40% of their issued shares are held by the Public, and (ii) the number of shareholders holding less than 5% of the issues shares of the company is at least 300. A statement from the Securities Administration Bureau (BAE) confirming the above, must be enclosed in the Annual Tax Notification Letter (SPT). This regulation is effective retroactively as of 01 January 2008.

New Regulation on Conflict of Interest Transactions

On 12 December 2008, BAPEPAM-LK issued an amendment to the then BAPEPAM-LK regulation on Certain Conflict of Interest Transactions (Regulation No.IX.E.1). Now the title of the regulation is Affiliated Transactions and Certain Conflict of Interest Transactions.  Under this new regulation, ‘Affiliated Transactions’ means any transactions between a Publicly Owned Company and its Affiliates (as defined in the Capital Market Law, this includes a relationship between two companies in which one or more members of the Boards of Directors or Commissioners are the same; a relationship between a company and a party that directly or indirectly controls or is controlled by the company; a relationship between two companies that are controlled directly or indirectly by the same party; or a relationship between a company and its controlling shareholder). The definition of ‘Conflict of Interest Transactions’ has also changed to eliminate transactions between a company and the affiliates of its directors, commissioners or main shareholders (holding 20% shares). It is now defined as a difference in the economic interests of a Publicly Owned Company and its directors, commissioners or main shareholders in a Transaction that may cause the company to suffer a loss due to the price being unreasonable. A ‘Transaction’ is defined as an activity or contract related to: (i) granting and/or receiving a loan, (ii) obtaining, releasing or using Assets (aktiva) including using it as a security, Services, or Securities of the Publicly Owned Company or a Company it Controls, or (iii) entering into contracts related to the activities.

Under this regulation, all Affiliated Transactions must be disclosed to the BAPEPAM-LK and the public within 2 working days of the Transaction, except for certain transactions that are exempt from this regulation. The information that must be disclosed includes information on the value of the transaction, the parties involved and a summary of the independent appraisal report on the transaction. Certain exemptions to this disclosure are provided for a transaction between the company and its employees that has been approved by the General Meeting of Shareholders or is disclosed in a periodic financial statement.

As in the previous regulation, Conflict of Interest Transactions require prior written approval from the Independent Shareholders of the company (except for certain transactions that are exempt by this regulation) and must be drawn up in a notarial deed. The quorum for the first and second meeting is more than ½ of the Independent Shareholders, and for the first meeting, the resolution must be approved by more than ½ of the Independent Shareholders. For the second meeting, it must be approved by more than ½ of the Independent Shareholders attending the meeting. A proposed Transaction for which the meeting satisfies the quorum but does not obtain the minimum required approval, can only be resubmitted to the General Meeting of Shareholders 12 months after the meeting which did not approve the plan. Certain exemptions for the Independent Shareholders approval are also provided, such as a transaction between the company and its employees that has been approved by the General Meeting of Shareholders or is disclosed in a periodic financial statement, a sale performed by the company through an open auction, and if the value of the transaction is not more than 0.5% of the paid-up capital of the company and not more than Rp 5 billion.

 

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