PT NC’s Loan Interest Dispute: Why Cash Flow to Third Parties Remains a Taxable Object?

Accrual vs. Cash Basis: Analyzing Decision Number PUT-012440.12/2023/PP/M.IB on Article 23 Interest Tax

Disputes regarding the withholding of Article 23 Income Tax on loan interest often become a crucial point in tax audits, especially when debt assignment schemes or payments via third parties are involved. Decision Number PUT-012440.12/2023/PP/M.IB Year 2025 reaffirms the principle of substance over form within the legal-formal framework of the loan agreement between PT NC and PT BIS.

The Conflict: Contractual Maturity vs. Cash Flow Realization

The conflict centers on the Respondent's adjustment of interest expenses deemed due based on the Loan Agreement. The Respondent argued that accounting-wise and legally, the interest obligation had accrued and matured; thus, withholding applies under Article 15 paragraph (3) of PP 94/2010. Conversely, PT NC countered that the loan was enjoyed by PT Arutmin Indonesia, and since no payments were made by PT NC, no taxable object existed.

Judicial Resolution: Legal Relationship and Bookkeeping Consistency

The Board of Judges rejected PT NC's arguments by emphasizing the legality of the legal relationship. The Judges found that PT NC had recognized the debt in its books and had even performed Article 23 withholding on the same transaction in 2018. The Board held that the payment mechanism (direct or through another party) does not eliminate the obligation to withhold as long as the legal lending relationship exists.

Implications: Cautious Documentation of Novation Schemes

This decision confirms that recognizing debt in financial statements is strong evidence for tax authorities to determine tax accrual. Taxpayers cannot avoid obligations simply by stating no payment has been realized if the interest has fallen due contractually. Moving forward, companies must be cautious in documenting novation schemes to ensure tax obligations align with business reality.