Difference in Accounting vs. Tax Interpretation: Court Exempts Taxpayer from Fictitious Article 23 Income Tax

The case involving PT. DU vs. the Director General of Taxes highlights an interesting gray area: the difference in interpretation between commercial accounting standards and tax regulations.

The Tax Court's Decision Number PUT-011203.12/2023/PP/M.XVIB of 2025 is not just a victory for one company, but an important affirmation of the primacy of transaction substance over mere account names.

This story began with an Underpaid Tax Assessment Notice (SKPKB) for Article 23 Income Tax for the September 2020 Tax Period. The Respondent (DJP) corrected the Tax Base for the Appellant's Article 23 Income Tax by IDR 1,816,239,461.

The heart of the dispute is the purchase of unloading assets (such as RMG and STS) in 2016 by PT DU from PT IL. The total transaction value was staggering: IDR 490 billion (excluding VAT), paid in installments over 15 years without interest.

The problem arose because PT DU, for its commercial financial reporting purposes, used accounting principles to record this debt based on its Net Present Value (NPV) (IDR 335.7 billion). The difference between the total installment value (IDR 490 billion) and the NPV was periodically recorded as "Interest Expense-SNP" and "Interest Expense-OM" in its commercial books.

The DJP, upon finding these "Interest Expense" accounts, immediately concluded that PT DU was paying interest, and therefore, the transaction was subject to Article 23 Income Tax withholding.

PT DU defended itself with logical arguments:

1. Transaction Substance: Not a single document, be it the sales and purchase agreement or the monthly Debit Notes, mentioned any billing or payment of interest. The asset purchase was documented as payment of principal debt.
2. Accounting Purpose: The recording of the Interest Expense was purely to comply with Indonesian Financial Accounting Standards (PSAK), to recognize the present value of the liability, and was not an actual expense paid.
3. Positive Tax Adjustment: Consistently, PT DU had made positive tax adjustments (disallowing the expense) for this Interest Expense in its Corporate Income Tax calculation because the expense was not recognized for tax purposes.

Ironically, in the Corporate Income Tax objection process, the DJP had actually canceled the Tax Examiner's correction and essentially agreed that this Interest

Expense should not be deductible for tax purposes. However, the DJP stubbornly still imposed Article 23 Income Tax on it.

The Panel of Judges at the Tax Court intervened to assess the facts and evidence. After deliberation, the Panel decisively ruled in favor of the Appellant:

1. Failure to Prove Interest Existence: The Tax Court was convinced that the installment payments contained no interest component. The Respondent completely failed to provide evidence of any billing, payment, or real flow of funds from PT DU to PT IL as interest.
2. Accounting vs. Tax: The Panel of Judges agreed that the recording of the Interest Expense was a correct accounting practice (in accordance with PSAK 55 and Article 28 paragraph (3) of the General Provisions and Tax Procedures Law) and solely for commercial purposes.
3. Correction Dismissed: Since the interest was not a real economic transaction, and the DJP itself had acknowledged the substance of this interest expense in the Corporate Income Tax dispute, the correction of the Article 23 Income Tax base of IDR 1,816,239,461 had no legal basis.

With this decision, the Tax Court fully granted PT DU's appeal, canceled all of the DJP's corrections, and set the remaining Income Tax payable (including penalties) to zero (IDR 0).

This case serves as a valuable lesson for tax authorities and taxpayers to always prioritize the economic and legal substance of a transaction, rather than just being fixated on the nomenclature or account names used in commercial bookkeeping.