Beware of Deemed Income Corrections! How BUT D S.A Won the Article 15 Tax Dispute Despite Being Labeled a Foreign Trade Representative Office

Deemed Income vs. Reality: Analyzing BUT D S.A.’s IDR 26.31 Billion Tax Victory

The dispute originated when the Respondent (DGT) imposed a positive correction on the Final Income Tax Article 15 tax base for BUT D S.A for the December 2022 Tax Period, amounting to IDR 26.31 billion. The Respondent applied a deemed income scheme of 0.44% of the gross export value, assuming the Petitioner functioned as a Foreign Trade Representative Office (KPDA).

The Conflict: Entity Qualification & Effective Connection

The core of the conflict lay in whether a quality control function creates a taxable "Permanent Establishment" (PE) under the normative scheme.

Judicial Resolution: Substance Over Form

The Board of Tax Judges found no evidence of cash flows or compensation. Document examination revealed import transactions occurred directly between a Singaporean entity and the Indonesian buyer. Tax equalization with Article 21 and Corporate Income Tax reinforced that the Petitioner had no operational activities or payroll during the disputed period.

Strategic Implications for Representative Offices

The Petitioner's absolute victory provides legal certainty regarding the strength of business license restrictions by BKPM:

• License Hierarchy: BKPM-issued KPPA licenses are primary evidence that must be considered when determining tax subject status.
• Cessation of Operations: Once a license is revoked and operations cease, the presumption of income generation becomes legally void.
• Burden of Proof: The DGT cannot apply normative schemes unilaterally; they must prove the existence of local cash flows or direct involvement in sales.