Freight Income Exports of BKP are not objects of 10% VAT. Exports of JKP are consequences of the Destination Principle

In the 2018 tax year, PT HWH recorded revenue from handling cost reimbursements in its financial statements as freight income. The Directorate General of Taxes (DGT) considered this revenue to be the provision of Taxable Services (JKP) within the Customs Area, subject to normal VAT at a rate of 10%, considering that these services did not meet the criteria for 0% VAT on Export JKP.

The core of the VAT DPP dispute lies in the classification of the transaction substance. PT HWH, as the exporter, denied the correction, asserting that the handling costs billed to overseas buyers are an integral part of the Export Value of Taxable Goods (BKP). Referring to Article 1 Number 26 of the VAT Law, PT HWH argued that the Export Value includes all costs requested by the exporter and should therefore be subject to a 0% VAT rate. Furthermore, the Directorate General of Taxes (DGT) questioned the substance of the reimbursement due to evidence of markups in billing to buyers and the fact that the Tax Invoice from the initial service provider was issued in the Appellant's name.

The Panel of Judges issued a resolution based on the substance and the Destination Principle, which emphasizes that tax is collected at the point where the goods or services are consumed. In its legal considerations, the Panel explained that if a service is used outside the Customs Area, then the service should not be subject to VAT at the rate as for delivery within the Customs Area, but rather to VAT at the 0% rate as a Taxable Goods Export. Furthermore, the examination and evidentiary review findings confirmed that the party using the handling service was the overseas buyer. Because the services were utilized outside the Customs Area (and there was no buyer's Permanent Establishment in Indonesia), the Panel of Judges ruled that the provision of the handling services essentially constituted a Taxable Service Export with a 0% VAT rate on Taxable Services Exports, as stipulated in Article 7 paragraph (2) of the VAT Law, which was decisive. Therefore, PT HWH's appeal was granted in its entirety.

The analysis of this decision demonstrates that the Panel of Judges clearly overrode rigid formal requirements (e.g., that the presence of a markup does not diminish the substance of the Taxable Services Export) and prioritized the Destination Principle in VAT. Consequently, the DGT's correction to the VAT DPP of Rp138,953,264 was overturned, and the Appellant successfully won the appeal (entirely granted). This decision provides clarity for exporting taxpayers that all services directly related to export activities and utilized outside the Customs Area, even if not specifically defined in the previous PMK, are entitled to 0% VAT treatment.

A Comprehensive Analysis and Tax Court Decision on this Dispute are Available Here