The Importance of Article 23 Income Tax Exemptions: Analysis of a Tax Court Ruling on Financial Services and Shipping Services.

This story began with a tax dispute experienced by PT PGL, a company engaged in freight forwarding services. Like a ship carrying an important cargo, PGL had to sail through a wave of tax corrections from the authorities, which ultimately brought the case before the green table of the Tax Court.

For the December 2021 Tax Period, PGL received a Notice of Tax Underpayment Assessment (SKPKB) for Article 23 Income Tax from the Directorate General of Taxes (DJP). The DJP found an unreported difference that should have been the Tax Base (DPP) for Article 23 Income Tax, so PGL was considered to have underpaid by Rp 9,900,561.00, plus penalty interest, bringing the total liability to Rp 12,862,809.00.

The corrected DPP difference for Article 23 Income Tax, which was the root of the problem, amounted to Rp 100,409,095.00. This correction was divided into two main items:

1. Interest Expenses (Rp 60,710,602.00).
2. Other Service Expenses (Rp 39,698,493.00).

PGL immediately filed an objection, but it was rejected by the DJP. Undeterred, PGL lodged an appeal to the Tax Court.

Before the Panel of Judges, PGL presented arguments challenging these two corrected items.

1. The Interest Expense Mission: PT ADT Finance
   The largest correction, Interest Expenses, originated from payments made by PGL to PT ADT Finance. PGL explained that these payments were interest arising from a Working Capital Agreement via Receivable Factoring (Factoring).

PGL's Argument: PT ADT Finance is a financing company registered and supervised by the Financial Services Authority (OJK). According to Article 23 paragraph (4) letter h of the Income Tax Law, income in the form of interest paid to a financial services business entity (financing company) that disburses loans or financing is excluded from Article 23 Income Tax withholding.

2. Other Services: Ship Matters and Final Income Tax
   For the Other Services correction, PGL asserted that these costs were related to shipping services they used from various vendors.

PGL's Argument: Shipping services, according to tax regulations, fall under the scope of Article 15 Income Tax, which is a Special Calculation Norm and is final in nature. Therefore, this Article 15 Income Tax is explicitly excluded from the imposition of Article 23 Income Tax. The shipping vendors also self-assessed and paid their own income tax.

Although the DJP maintained the correction (largely because PGL was deemed uncooperative during the objection process and initial evidence examination), the Tax Court Panel of Judges looked at the substance of the issue:

1. Victory Over Factoring Interest
   The Panel of Judges upheld PGL's claim. PT ADT Finance indeed met the criteria as a financing company. Therefore, the interest payment of Rp 60,710,602.00 to that company was not subject to Article 23 Income Tax withholding in accordance with Article 23 paragraph (4) letter h of the Income Tax Law.
2. Victory Over Shipping Services
   The Judges also agreed with PGL that shipping services are not an object of Article 23 Income Tax. Because such services are subject to final Article 15 Income Tax, they are exempt from Article 23 Income Tax withholding. Thus, the Other Services correction of Rp 39,698,493.00 was also revoked.

This ruling underscores the importance of understanding exemptions under Article 23 Income Tax, especially concerning financial services (financing companies) and services already subject to Final Income Tax (such as shipping/transportation services regulated under Article 15 Income Tax). For PGL, the ship has docked safely, bearing a tax result of nil.

Comprehensive Analysis and the Tax Court Ruling on This Dispute is Available here