Transfers of assets in business mergers, consolidations, or business splits must generally be at market value. Gains resulting from this kind of restructuring are assessable while losses are generally claimable as a deduction from income.

However, a tax-neutral merger or consolidation, under which assets are transferred at book value, can be conducted but subject to the approval of the Director General of Tax (DGT). To obtain this approval, the merger or consolidation plan in question must pass a business-purpose test. Tax-driven arrangements are prohibited and therefore tax losses from the combining companies may not be passed to the surviving company.

Subject to a similar, specific DGT approval, the same concession is also available for business splits which constitute part of an initial public offering (IPO) plan. In this case, within one year of the DGT’s approval being given, the company concerned must have made an effective declaration about registration for an IPO with the Capital Market and Financial Institution Supervisory Agency (Badan Pengawas Pasar Modal-Lembaga Keuangan/BAPEPAM-LK). In the event of complications beyond the company’s control, the period can be extended by the DGT for up to four years.