Taxing Dead Assets? PHE ONWJ Wins IDR 12 Billion Oil & Gas Tax Dispute Over Unilateral Building Value Adjustments 

PT PHE ONWJ Tax Dispute: The Benefit Principle and NJOP Valuation Accuracy for Oil and Gas Assets

The application of the "benefit principle" in Land and Building Tax (PBB) for the oil and gas sector was recently tested in a dispute between PT PHE ONWJ and the Directorate General of Taxes (DGT). The core conflict centered on the DGT's correction of the Building Tax Object Sale Value (NJOP) regarding pipelines, platforms, and wells deemed unreported in the 2019 tax returns. The DGT argued that the "non-productive" or "decommissioning" status of an asset does not strip its status as a taxable object, provided the asset remains physically within the Work Area and has been formally handed over.

The Taxpayer's Argument: Gross Split Contract Characteristics and the 3M Principle for Inactive Assets

The Taxpayer strongly refuted this argument, emphasizing the characteristics of the Gross Split contract under Government Regulation 53/2017. In this scheme, PBB is considered an operating cost that must correlate with obtaining, collecting, and maintaining income (3M). Assets that are closed or no longer economically productive should not be burdened with PBB as they have lost their economic benefit. Furthermore, the Taxpayer proved inconsistencies in the DGT's data, identifying assets included in the 2019 correction that were actually constructed in 2020, one year after the tax year in question.

Judicial Considerations: Evaluating Valuation Methodology and Data Irregularities

The Board of Judges, in its legal consideration, highlighted the validity of the data and the valuation methodology used by the DGT. The Board found that the DGT set the building's indicative value using internal circulars that resulted in an irrational NJOP per square meter (reaching IDR 1.69 billion/m2), far exceeding the fair value of similar reported assets. The Judges opined that while physical possession exists, NJOP valuation must still utilize a credible cost approach based on real data. The DGT's data irregularity—incorporating future assets (2020) into a 2019 assessment—served as strong evidence of a flawed correction basis.

Strategic Implications and Conclusion: Annulment of Corrections and Zero Tax Liability

This decision carries significant implications for upstream oil and gas players, affirming that PBB assessments cannot be conducted haphazardly without accurate field verification. PT PHE ONWJ's victory reinforces that the tax authority's power to determine NJOP ex-officio is limited by principles of data accuracy and valuation fairness. For taxpayers, documenting asset status (active vs. inactive) and physical evidence of construction progress are crucial instruments in facing PBB audits. In conclusion, the Board of Judges annulled the DGT's entire correction and declared zero tax liability due to the DGT's failure to prove the validity and existence of the disputed objects in the 2019 tax year.

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