Zero Tax for PBG: Determination of Withholding Agents for Income Tax Article 23 in Freight Forwarder Transactions

Income Tax (PPh) Article 23 highlights the substance of legal relationships in the application of withholding obligations, particularly in disputes involving complex service supply chains such as freight forwarding. The dispute between PBG and the Directorate General of Taxes (DJP) concerns Income Tax Article 23 for the period of May 2017, with a correction to the DPP (Taxable Income) under Income Tax Article 23 amounting to Rp384,357,48.00 for port services. This decision is fundamentally based on Article 8(3) of Government Regulation No. 94 of 2010, which regulates the conditions for the occurrence of withholding objects.

The core of this dispute centres on corrections made by the DGT through the equalisation mechanism. The DGT found that tax invoices issued by PKP port service providers had been reported as output tax, indicating that there were costs on the part of PBG that had not been subject to income tax deduction under Article 23. The DGT relied on the formalities of the invoice data as the main evidence of the deduction obligation.

However, PBG presented substantive arguments refuting the existence of direct transactions or payments to the issuer of the port service invoice. PBG argued that they had entered into a contract and made payments (as well as withholding income tax under Article 23) to the freight forwarder company acting as an intermediary and bearing the operational costs, including port services. According to PBG, Income Tax Article 23 arises only if there is an employment or service relationship between the taxpayer provider and recipient; because PBG's relationship is only with the forwarder, the obligation to withhold tax on port services has been fulfilled by the forwarder. In fact, the tax invoice for port services that is the subject of the dispute was issued by the Freight Forwarder company, and not to PBG. This is also reinforced by the fact that PBG has deducted Income Tax Article 23 from the Forwarder, and there is no direct Tax Invoice from the port service provider to PBG, but rather addressed to the Forwarder Company.

In its ruling, the Panel of Judges agreed with PBG's argument. In its legal considerations, the Panel of Judges ruled that the correction to the DPP amounting to Rp378,363,700.00 could not be upheld. Furthermore, for the correction of the object of Income Tax Article 23 based on the DPP in the tax invoice not received by PBG amounting to IDR 5,993,787.00, which according to the Panel refers to the DGT Tax Invoice system that has been reported by PBG's transaction counterparty, the material truth of the transaction has been fulfilled. The Council assessed that there was no adequate legal relationship between PBG and the issuer of the port service invoice to trigger PBG's obligation to withhold Income Tax Article 23. This decision underlines the importance of the nexus principle in Income Tax Withholding and Collection disputes. Thus, the verdict is to grant part of the total dispute filed by PBG.

The implications of this ruling are crucial for taxpayers who use intermediary services. This ruling sets a precedent that corrections to Income Tax Article 23 based on the equalisation of invoice data from third parties who are not direct suppliers to taxpayers can be cancelled, provided that the taxpayer can provide evidence of having deducted Income Tax Article 23 on the fees paid to the intermediary and confirm that there is no direct legal relationship. This ruling serves as a lesson that the key to success is the ability to provide comprehensive and accurate documentation of the supply chain and payments.

A comprehensive analysis and the Tax Court Decision on This Dispute Are Available Here