Why Cost Equalization Alone is Insufficient to Demand Article 23 Income Tax?

PT DL Tax Dispute: Article 23 Income Tax Base Correction Through Cost Equalization Method

The correction of the Article 23 Income Tax Base (DPP) amounting to IDR 3.35 billion, established by the Respondent through the cost equalization method in the Profit and Loss Statement, is the core conflict in this dispute. The Respondent exercised authority under Article 12 paragraph (3) of the KUP Law to determine outstanding tax on Staff Training & Development accounts and other operational costs deemed technical or management services without withholding evidence. However, the Petitioner (PT DL) firmly refuted this by arguing that the correction was assumptive as it was not based on concrete evidence of services provided by third parties that constitute Article 23 Income Tax objects as regulated in Article 23 of the Income Tax Law and PMK-141/PMK.03/2015.

Legal Considerations of the Panel of Judges: Examination of Primary Transaction Evidence

The Panel of Judges provided a resolution by conducting a thorough examination of the documentary evidence (vouchers, invoices, and contracts) submitted during the trial. The Judges opined that training costs consisting only of material or module purchases without involving instructor services, as well as communication costs to public service providers, are not objects of tax withholding. This decision carries an important implication that the equalization method is merely a supporting tool and cannot replace primary transaction evidence in determining tax object status. In conclusion, the Panel partially granted PT DL's appeal, canceling most corrections that were not materially proven as taxable services.

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