Why Transactions from PE to Head Office Are Not Subject to VAT?

BUT DBAG VAT Dispute: Boundaries of Imposition on Banking Services and Intra-Company Legal Relations

The dispute between BUT DBAG and the tax authorities serves as a crucial precedent regarding the boundaries of VAT imposition on banking services and intra-company legal relations. The primary focus of this case was the correction of TP Sales Marketing and Swift Charges, which the Respondent categorized as taxable service deliveries. The conflict originated when the Respondent applied SE-121/PJ/2010 to tax intra-entity fund flows, while the Taxpayer maintained that legally, a Permanent Establishment (PE) and its Head Office are a single legal entity incapable of entering into agreements with itself.

Judicial Considerations: Distinct Party Requirements and Article 4A Financial Service Exemptions

The Board of Judges, in its consideration, took a firm stance that the VAT Law requires a legal agreement or action between two distinct parties for a service delivery to occur. In this case, transactions between the Jakarta PE and the London Head Office failed to meet this requirement. Furthermore, the Judges emphasized that Swift Charges and banking marketing activities are inseparable parts of financial services exempted from VAT under Article 4A paragraph (3) letter d of the VAT Law. This decision confirms that regulations at the Circular Letter level cannot expand the scope of taxable objects already exempted by Law. Consequently, the VAT base correction was entirely overturned, providing legal certainty for the foreign banking sector in Indonesia.

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