A Win at the Tax Court Despite Lacking a Nominative List: Promotion Expenses Recognized as Long as Incurred for the 3M Principle

The implication of Article 6 paragraph (1) of the Income Tax Law (ITL), which governs expenses incurred to obtain, collect, and maintain income (the 3M principle), was tested again in a Corporate Income Tax (CIT) dispute, confirming that the principle of material truth plays a crucial role. Tax Court Decision Number PUT-009897.15/2021/PP/M.XIA Year 2025 sets an important precedent by revoking a large correction of Advertising and Promotion Expenses imposed by DJP, even though PT API failed to fulfill the administrative requirement of providing a Nominative List as mandated by Minister of Finance Regulation (PMK) Number 02/PMK.03/2010.

The core conflict in this dispute focused on the clash between legal substance and regulatory formality. The DJP rigidly argued that the absence of a Nominative List constituted an absolute violation of PMK 02/PMK.03/2010, rendering the expenses non-deductible. PT API countered by demonstrating that the expenses were genuinely incurred for the purpose of promoting the business and were related to the 3M principle. PT API submitted invoices, activity reports, and various commercial documents to prove the expenses' material truth, even if the required formal list was not submitted.

In its consideration, the Tax Court Panel concluded that PMK 02/PMK.03/2010 is an implementation regulation designed to provide guidance, but it cannot override the fundamental principle stipulated in Article 6 paragraph (1) of the Income Tax Law. The Panel emphasized that as long as the Taxpayer can provide convincing and systematic evidence that the expenses were materially true and directly related to the 3M principle, these expenses must be recognized as deductible business expenses. The Panel believes that the evidence presented by PT API has proven the truth of the expenditure.

This decision serves as a significant reminder that in tax litigation, substance often prevails over formality. While administrative compliance remains essential, the DJP cannot use administrative shortcomings (such as the failure to submit a Nominative List) as the sole basis for a fiscal correction if the Taxpayer can prove, with strong supporting evidence, the material truth and business necessity of the expense. The key to mitigating similar disputes lies in meticulous and convincing documentation that establishes the direct causal link between the expense and the generation of income.

A comprehensive analysis and the Tax Court Decision on This Dispute Are Available Here