Ministry of Finance Prepares Regulations on EBITDA-Based Loan Restrictions

The Ministry of Finance (“Kemenkeu”) through the Directorate-General of Tax (“DJP”) is drafting a ministerial regulation in relation to the use of loan-to-earnings ratio based on Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) in limiting the loan costs that can be charged in calculating Income Tax (“PPh”). The loan cost restriction instrument is targeted for completion in the near future.

“The Regulation of the Minister of Finance process is already being administered at the DJPP so that it can be issued immediately. This is because we have received several notes and inputs, including those related to the tariff amount, mechanism, and the OECD adoption model,” said Yon Arsal, Expert Staff to the Minister of Finance for Tax Compliance, to Hukumonline.

Indonesia plans to use the ratio of borrowing costs to EBITDA as an instrument for borrowing costs that can be charged in PPh calculations. This is stated in the transfer pricing country profile document in the membership section of the Organization for Economic Co-operation and Development (“OECD”).