"Entrusted" Promotion Products Failed to be Credited? Learning from CCI's IDR 543 Million VAT Appeal Loss

In the highly competitive taxation landscape of the Fast Moving Consumer Goods (FMCG) industry, aggressive marketing strategies are mandatory. However, complexity arises when the business structure involves affiliated entities separating upstream manufacturing and downstream distribution functions. The Value Added Tax (VAT) dispute case involving PT CCI provides crucial lessons regarding the limits of Input VAT crediting within intra-group transaction schemes. The Tax Court Decision Number PUT-010151.16/2023/PP/M.XIIB Year 2025 serves as an important precedent on how tax authorities and judges view the concept of "direct relation to business activities".

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The core issue in this dispute stems from the Directorate General of Taxes (DGT) correction on Input VAT amounting to IDR 543,074,961. The DGT assessed that promotion, marketing, and advertising expenses incurred by the Taxpayer could not be credited pursuant to Article 9 paragraph (8) letter b of the VAT Law. The tax authority's main argument was that the promotional materials featured finished beverage products (such as Fanta, Sprite, and Frestea) which were factually neither produced nor sold by the Taxpayer. The Taxpayer, in its business model, only produces and delivers concentrate base materials (beverage base), while the sale of final products is carried out by another affiliated entity, namely the distributor. The DGT maintained the stance that promotional expenses should be borne by the entity selling the products, thus the VAT crediting chain was considered broken.

On the opposing side, PT CCI presented arguments based on economic substance. As a global trademark license holder, the Taxpayer argued that there is an inseparable causal relationship between the sales success of finished beverage products in the retail market and the demand for the concentrate raw materials they produce. They believed that these promotional costs were legitimate expenses to Acquire, Collect, and Maintain (3M) income. Without consumer awareness and demand for the final product, it would be impossible for the Taxpayer to record raw material sales. Therefore, the Taxpayer insisted that the Input VAT on these costs was directly related to their business activities and should be creditable.

The Panel of Judges of the Tax Court, after examining trial evidence, took a position emphasizing the formal and legal aspects of the transaction. In their consideration, the Panel of Judges affirmed that the requirement for Input VAT crediting demands a direct relationship with the goods or services delivered by the Taxpayer itself. The fact that the Taxpayer did not make deliveries of the advertised finished beverage products became a crucial point weakening the Taxpayer's argument. The Judges assessed that such expenditures were more appropriately categorized as expenses of the distributor selling the final products. Economic linkage does not automatically invalidate the formal legal requirement that Input VAT must adhere to the production and distribution activities of the respective Taxpayer.

The implication of this decision rejecting the Taxpayer's appeal is significant for multinational companies with fragmented supply chain structures. This ruling sends a strong signal that cost allocation strategies within corporate groups must be executed with great caution. Companies cannot automatically credit VAT on costs that substantially promote another entity's products, even if there is an affiliation relationship or indirect economic impact. Taxpayers are required to ensure alignment between the entity bearing the cost, the entity receiving direct benefits, and the entity delivering taxable goods, to mitigate the risk of future tax corrections.