Winning in Tax Court: Why PT AF’s Unit Link Premium Reserves Remain Deductible Despite Being Linked to Final Income by DGT?

A Crucial Dispute Regarding the Deductibility of Unit Link Premium Reserve Formations

A crucial dispute regarding the deductibility of unit link premium reserve formations amounting to IDR 1.66 trillion at PT AF has finally been resolved through an authoritative decision by the Board of Judges. The core of this conflict lies in the contradiction between the Directorate General of Taxation's technical policy via SE-97/PJ/2011 and the fundamental provisions of the Income Tax Law.

Narrative: The Case of Positive Correction to the Premium Reserve Costs

Narrative: The case began when the Respondent (DGT) made a positive correction to the costs of forming unit link life insurance premium reserves. The Respondent argued that unit link products contain investment components subject to final tax; therefore, based on Government Regulation No. 94 of 2010, costs associated with final income are non-deductible. The Respondent specifically cited SE-97/PJ/2011, which limits the deduction of premium reserves only to the protection component.

Conversely PT AF Asserted Legal Mandate and Company Solvency

Conversely, PT AF asserted that the formation of premium reserves is a legal mandate under the Insurance Law and OJK regulations to ensure company solvency in meeting obligations to policyholders. Fiscally, these reserves are directly related to earning insurance premiums, which are subjects of the general income tax rate, not costs incurred to obtain final investment income.

In Its Legal Consideration the Board of Judges on Technical Reserve Deductibility

In its legal consideration, the Board of Judges stated that a Circular Letter (SE) must not create new norms or restrict Taxpayer rights guaranteed by Laws and Ministerial Regulations. Since the Income Tax Law explicitly allows deductions for insurance reserves, the Respondent's correction was declared legally baseless. This ruling reaffirms that all technical reserves mandatory under insurance industry regulations are deductible expenses. Consequently, life insurance companies gain legal certainty that reserve obligations cannot be annulled merely by internal tax authority instructions.

Conclusion

Conclusion: PT AF’s victory in this category proves that compliance with sectoral regulations (OJK) carries significant weight in proving fiscal costs, provided it is supported by the correct hierarchy of laws.

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