Supreme Court Rejects PK Jamsostek, Director Fees, Severance

On 16 April 2014, the Supreme Court rejected the tax authority’s request for a Judicial Review (PK), thereby upholding the Tax Court’s decision that cancelled PPh Article 21 corrections on social security contributions, pension premiums, director fees and severance payments. The corporate taxpayer had previously appealed the tax authority’s assessment dated 21 April 2009.

The tax authority argued that the employee‑related costs, including jamsostek and pension contributions as well as director fees and severance, should form the taxable base (DPP) for PPh 21 and claimed that no withholding of Rp1,090,410,154 for the 2006 tax year had been made. The taxpayer contended that contributions paid to an approved pension‑fund manager are exempt from PPh 21 and that proper withholding had been performed for the director fees and severance. The Tax Court found the authority’s evidence insufficient to justify the corrections.

The Supreme Court ruling clarifies that employer‑paid social security contributions to a legally recognised fund are not subject to PPh 21, and that the tax authority must present proof of withholding before imposing corrections. This provides legal certainty for businesses on the tax treatment of employee costs, director fees and severance. Consequently, the taxpayer avoids additional tax liability while the tax authority bears the litigation costs. Read the full source at news.ddtc.co.id (https://news.ddtc.co.id/literasi/resume-putusan/1814713/sengketa-pph-pasal-21-atas-pembayaran-jamsostek-dan-tantiem).