Tax Authority Misinterprets! Actuarial Adjustment Journal is Not a Taxable Object for Final PPh 21, PT KL Wins Big at Tax Court

The Tax Court has reaffirmed a fundamental principle in the withholding of Final Income Tax (PPh) Article 21 on severance pay: the difference between accrual basis accounting and the payment basis taxable event. In decision number PUT-003392.28/2024/PP/M.XVA Tahun 2025, the Panel of Judges granted the appeal of PT KL (Appellant) in its entirety regarding a Final PPh 21 dispute for the December 2021 tax period. This decision annuls the correction made by the Director General of Taxes (Respondent) amounting to IDR 245,740,316.00, which was based on a flawed interpretation of an accounting adjustment journal.

The core of the dispute

(fundamentum petendi) began with the Respondent's correction to the Final PPh 21 Tax Base (DPP). The Respondent found an Adjusting Journal Entry (AJE) as of December 31, 2021, where the Appellant recorded a debit to the "Severance Expense" account for IDR 245,740,316.00. Based on this expense recognition, the Respondent concluded that Final PPh 21 had become due on that amount. The Respondent operated on the principle that recognizing an expense in the profit and loss statement was equivalent to the arising of a taxable income object.

The Appellant strongly refuted

the Respondent's argument. They explained that the journal entry was purely accrual-based (a provision) made according to Actuarial Report calculations related to Post-Employment Benefits. This journal entry—which was a unified adjustment involving the Provision and OCI Actuarial Gain/Loss accounts—was intended solely to adjust the provision (liability) value on the Balance Sheet to comply with accounting standards. The Appellant emphasized that no actual payment (cash out) was made to any employee related to this adjustment.

Citing Article 15 paragraph (1)

of Government Regulation (PP) No. 94 of 2010 and PMK 16/2010, the Appellant argued that PPh Article 21 (including severance pay) only becomes due "at the time of payment". Since the AJE was merely an accrual entry with no payment made, the Final PPh 21 was not yet due. The Appellant also proved that they had correctly withheld and reported Final PPh 21 on all actual severance payments made (in October and December 2021) totaling IDR 6,553,429,210.00.

The Panel of Judges agreed

with the Appellant's arguments and evidence. The Panel stated this was a dispute of evidence (sengketa pembuktian). After examining the evidence (Actuarial Reports, AJE, Payment Journals, and Tax Returns), the Panel opined that no severance payment had occurred as alleged by the Respondent. The Panel concluded that the correction amount of IDR 245,740,316.00 was not an object of Final PPh Article 21, but merely an adjustment to the accounting provision (pencadangan). Consequently, the Respondent's correction was deemed incorrect and annulled, setting the final tax due to Zero (Nihil).

A Comprehensive Analysis and the Tax Court Decision on This Dispute Are Available Here