Warning: A Paid VAT-FTS Payment Slip Can Be Non-Creditable! Case Study on Affiliated Manpower Costs from Korea

The procedure for crediting Input Value Added Tax (VAT) on Foreign Taxable Services (VAT-FTS) is not solely based on the formal fulfillment of payment via a tax payment slip (SSP), but must be supported by convincing evidence of the transaction's substance. The case PT CJLSI in this Tax Court Decision sets an important precedent that emphasizes the strict application of Article 9 paragraph (8) letter f of the VAT Law (UU PPN).

The core conflict in this dispute originated from the Directorate General of Taxes' (DJP) correction to the VAT-FTS Tax Base (DPP) arising from an invoice for Salary Manpower costs issued by the Headquarter (HQ) in Korea. PT CJLSI, as the domestic service recipient, had self-assessed and paid the VAT-FTS, subsequently crediting it as Input VAT. The problem arose when the DJP questioned the substantial existence of the services being invoiced.

The DJP argued that the Salary Manpower transaction could not be proven as a taxable service that was genuinely utilized. Although PT CJLSI presented the VAT-FTS SSP with a valid NTPN (State Revenue Transaction Number) and an HQ invoice, the DJP noted the absence of crucial supporting evidence, specifically a clear fund transfer trail, to demonstrate that the costs were truly settled with the HQ or disbursed to the expatriates. Therefore, the DJP held the view that the crediting of Input VAT violated the material requirements because the acquisition did not correspond to the actual circumstances.

Conversely, PT CJLSI contested the correction by relying on the principle of formality. The VAT had been legitimately paid, and the VAT-FTS SSP is considered equivalent to a Tax Invoice that should be creditable. According to PT CJLSI, the Service Agreement with the HQ was valid legal evidence for the service of facilitating expatriate salary payments, which supported the company’s business activities, meaning the paid Input VAT must be recognized.

The Tax Court Panel decided to reject PT CJLSI's appeal. This decision was based on the consideration that the VAT-FTS SSP, though formally valid, could not be credited because the Taxpayer failed to prove the material validity of the underlying service transaction. The inability to present comprehensive evidence of the fund transfer (settlement) rendered the Panel doubtful of the transaction’s real existence (substance). However, the Panel, based on the principle of justice and legal certainty, still recognized the VAT payment value contained in the SSP. This recognition aims to prevent loss for the Taxpayer, and the value of the paid VAT will be taken into account in the dispute concerning the domestic Input VAT correction.

This decision underscores that in an era of tax enforcement that increasingly prioritizes substance, merely complying with formal obligations (such as paying VAT-FTS) is no longer sufficient to secure the right to credit Input VAT. The implication of this ruling for multinational companies, particularly those often involved in Intra-Group Services, is the mandatory need to strengthen documentation proving the cost flow and robust benefit test evidence. Failure to ensure fund traceability will allow tax authorities to apply Article 9 paragraph (8) letter f of the UU PPN, leading to the denial of Input VAT credits. This precedent reinforces the audit focus on the validity of transactions beyond the formality of documents.

The PT CJLSI case serves as a reminder to every Taxpayer that VAT-FTS compliance must be accompanied by perfect material documentation. To avoid similar disputes, companies must ensure that their Service Agreements and all payment evidence (transfers) for services from abroad are clearly recorded and verifiable, thereby proving that the utilized services genuinely exist and possess a clear economic benefit.

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