Implications of Applying Article 23 Paragraph (4) Letter H of the Income Tax Law in a Dispute Over Tax Withholding on Factoring Interest Paid to a Financing Company

The tax dispute involving PT PGL originated from the tax authority's audit findings regarding its Article 23 Income Tax obligations for the period of November 2021. During the examination, tax officials discovered interest expense amounting to IDR 71 million recorded in the company's books, which was deemed not to have been subject to tax withholding. This finding was based on the equalization method, which involves comparing the company's internal data with the submitted tax reports, leading to the issuance of an underpayment tax bill plus interest penalties totaling tens of millions of rupiah.

PT PGL, represented by DS as its President Director, objected and decided to bring the case to the Tax Court. The company argued that the interest expense was a payment for factoring services provided by PT AF, a licensed financing company. Based on prevailing tax regulations, interest paid to financing institutions functioning as loan distributors should be exempt from Article 23 Income Tax withholding.

On the other hand, the Directorate General of Taxes (DGT) maintained its position and questioned the documents submitted by the company. According to the DGT, internal documents such as journal vouchers provided by PT PGL lacked strong validity because they were not accompanied by verification from authorized officials and were considered chronologically incomplete. The tax authority argued that without convincing source evidence, the expense must still be categorized as a taxable object subject to withholding.

However, the Panel of Judges, chaired by LP, held a different view after examining the facts presented during the trial. The judges were convinced of the transaction's existence based on valid factoring agreement deeds and examined General Ledger data. The judge emphasized that PT AF is indeed a financing company supervised by the Financial Services Authority (OJK), therefore interest payments to it are automatically exempt from tax withholding in accordance with Article 23 paragraph (4) letter h of the Income Tax Law.

Ultimately, the Panel of Judges decided to grant all of PT PGL's appeal requests and annul the corrections proposed by the tax authority. With this ruling, the previously imposed tax bill on the company was declared null. This victory proves that a deep understanding of tax regulation relaxations and possession of strong legal agreements are key factors for taxpayers in facing legal disputes in court.