Unraveling the Misinterpretation of Deemed Interest A Tax Court Decision that Reinforces the Burden of Proof

This dispute arose when DJP identified a significant discrepancy between the financial statements of PT SSS and its Article 23 withholding tax return. Based on its audit, DJP concluded that several transactions constituted service payments subject to withholding and issued a tax underpayment assessment with a corrected tax base (DPP) of Rp344,366,460.00 for the November 2017 tax period. A major part of this correction was driven by DJP’s application of a deemed interest expense linked to shareholder loans.

PT SSS rejected the correction, arguing that DJP’s application of deemed interest relied purely on assumptions and failed to reflect the actual economic substance of the loan. PT SSS emphasized that the loan from its shareholder was entirely interest-free, meaning no interest was paid or accrued; therefore, no deemed interest could arise as an object of Article 23 withholding tax. The taxpayer also affirmed that the other corrected accounts did not involve real service payments that would trigger withholding obligations.

DJP maintained its position by referring to Article 12 of Government Regulation 94/2010 and the Debt-to-Equity Ratio (DER) requirements under PMK 169/PMK.010/2015. Based on these provisions, DJP argued that imputed interest should still be recognized and treated as a taxable object under Article 23, even if no actual payment was made.

After reviewing all evidence and arguments, the Tax Court found that no interest was paid, no interest expense was recorded, and the conditions for imposing deemed interest were not met. The Court concluded that combining the deemed interest assumption with DER adjustments led to an overstated and unsupported correction lacking factual basis. The Court reaffirmed that tax corrections must rely on actual transactions and adequate evidence—not hypothetical or constructed figures.

The Court ultimately determined that the correct Article 23 tax base was Rp16,095,080.00, with Article 23 tax due of Rp574,712.00, consistent with PT SSS’s figures. Thus, DJP’s correction of Rp344,366,460.00 could not be upheld.

Accordingly, the taxpayer’s appeal was fully granted, reinforcing that deemed interest cannot be imposed without real economic benefit and that Article 23 withholding applies only when an actual service payment or remuneration exists.

Comprehensive Analysis and Full Tax Court Decision Available Here