Total Loss! DJP Not Entitled to Correct PPh Article 23 Based Solely on Deemed Interest Expense on Shareholder Loans (PUT-009197.12/2023/PP/M.XIIIA Tahun 2025)

Tax Court Decision Number PUT-009197.12/2023/PP/M.XIIIA Tahun 2025 provides a crucial affirmation on the limits of applying the deemed interest expense provision, as stipulated in Article 12 paragraph (2) of Government Regulation Number 94 of 2010, within the context of Income Tax Withholding and Collection (PPh Article 23). This decision explicitly grants the appeal filed entirely by PT SSS regarding the correction to the PPh Article 23 Tax Base (DPP) of Rp344,366,460.00 related to a loan from its Shareholders. The core of the ruling clarifies that the concept of deemed interest, intended to correct Corporate Income Tax (CIT) expenses, does not automatically create an object for PPh Article 23 withholding obligation if no actual interest payment occurred.

Core Conflict: Deemed Interest vs. Actual Payments

The core conflict in this dispute originated from a cost equalization performed by the Director General of Taxes (DJP). The DJP discovered a shareholder loan that was interest-free, prompting the DJP to exercise its authority to calculate a fair interest (deemed interest expense). The DJP argued that this deemed interest amount must be treated as interest income for the Shareholder and, according to Article 23 paragraph (1) letter a number 2 of the Income Tax Law, was subject to PPh Article 23 withholding by PT SSS. PT SSS strongly countered, stating that PPh Article 23 is only due on income that is actually paid, provided for payment, or accrued. Since the actual interest payment was zero, there was no withholding obligation. The primary debate focused on the asymmetric nature of the deemed interest provision, which should apply only to the restriction of deductible expenses in the Borrower's CIT calculation.

Resolution: Coherence and Substance Over Form

The Tax Court Judges discovered a critical fact during the trial that, in the related CIT dispute for the same Tax Year, the DJP had applied a double correction to the same shareholder loan interest position. This double correction involved: (1) applying deemed interest, and (2) restricting interest expense deductibility based on the Debt to Equity Ratio (DER), regulated under PMK 169/PMK.010/2015. The consequence of this dual correction was that the amount of deductible interest in the CIT context was set to zero.

The Majelis' legal opinion stated that if the entire interest amount (including the deemed interest) had been nullified as an expense and substantially unrecognized as a burden in the CIT context, then there could be no interest income considered due and liable for PPh Article 23 withholding. The Tax Court effectively revoked the DJP's PPh Article 23 correction, affirming that the absence of factual interest payment, coupled with the nullification of interest recognition as income due to the double correction in CIT, simultaneously eliminates the basis for PPh Article 23 withholding. This decision underscores the importance of coherence and the substance over form principle in determining a tax object.

Analysis and Significant Implications

The implication of this ruling is highly significant for Taxpayers involved in inter-affiliate loan transactions, especially interest-free loans. This decision sets a strong precedent that limits the tax authority's ability to use deemed interest as the sole basis for PPh Article 23 corrections, particularly where no real interest payment exists or where a double correction has already been applied in the CIT calculation. The key takeaway for Taxpayers is the necessity of maintaining comprehensive documentation for affiliate transactions and strategically opposing PPh Withholding corrections that rely only on the assumption of deemed interest which does not result in actual payments, while ensuring harmonization between CIT and Withholding Tax data.

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