Victory Against the Indonesian Tax Authority (DJP): Tax Court Overrules VAT Taxable Base Correction, Affirms Affiliate Salary Reimbursement Is Not a Tax Object!

The tax dispute case involving PT MOI (the appellant) highlights the complexity of applying VAT provisions related to pure reimbursement transactions between affiliated parties, specifically concerning the determination of the Taxable Base (DPP) for Output VAT. The dispute centered on a DPP VAT correction of Rp. 51,964,675.00 imposed by the Directorate General of Taxes (DJP) on costs fronted by PT MOI, such as salaries, accommodation, and travel expenses for employees working for an affiliated entity, for the November 2018 tax period. The DJP insisted that the reimbursement value constituted 'Compensation' (Penggantian) for the provision of Taxable Services (JKP) and was therefore subject to VAT, based on Article 4 paragraph (1) letter c in conjunction with Article 1 number 19 of the VAT Law.

The core conflict in the hearing arose from a fundamental difference in interpretation between the economic substance and administrative formality. DJP argued that the existence of an 8% administration fee charged by PT MOI and the crediting of Input VAT (PM) on vendor invoices indicated that PT MOI had rendered taxable services. However, PT MOI presented a well-structured rebuttal, asserting that the principal reimbursement transaction was a pure reimbursable cost. PT MOI proved that the entire value of the cost advanced was recorded on the Balance Sheet as an Account Receivable, which consistently demonstrated that the fund was working capital being recovered, not revenue. Furthermore, Output VAT had been separately and explicitly charged only on the 8% administration fee, which represented the actual consideration for the administrative service.

In its decision, the Tax Court's panel of judges provided a clear legal affirmation. The Panel rejected DJP's argument and upheld PT MOI's claim, stating that the principal reimbursement value did not meet the criteria for consideration in the supply of Taxable Goods (BKP) or Taxable Services (JKP). The Panel’s consideration focused on the substance: the absence of a supply element in the principal costs advanced and the consistency of the costs being recorded on the Balance Sheet as a Receivable. This decision effectively avoids the potential for double taxation, as the fee value was already subjected to VAT. Moreover, the Panel also considered that the types of costs advanced (such as manpower services) fall under the category of services excluded from VAT imposition pursuant to Article 4A paragraph (3) of the VAT Law.

The implications of Decision Number PUT-002005.16/2024/PP/M.IIIB Tahun 2025 are highly significant for multinational business practices and tax administration in Indonesia. This ruling serves as a strong precedent, affirming that VAT testing for reimbursement must be based on the economic nature and accounting substance. Multinational taxpayers engaging in cost sharing or cost pooling must ensure explicit contractual documentation and consistent Balance Sheet accounting to substantiate their status as a disbursement agent. DJP's failure to prove the element of service supply on the principal reimbursement value resulted in the full cancellation of the correction, making this case a crucial lesson on the importance of the legal differentiation between pure reimbursement and compensation as the object of the VAT Taxable Base.