Not Trading Goods: Why Shipping Equipment to Branches is Not Always Subject to VAT?

Disputes Over the Transfer of Taxable Goods (BKP) Between Head Offices and Branches

Disputes over the transfer of Taxable Goods (BKP) between head offices and branches often trigger significant VAT Base (DPP) corrections due to a rigid interpretation of Article 1A paragraph (1) letter f of the VAT Law. In the case of PT RC, the Respondent made a VAT Base correction of IDR 5,341,290,293.00, arguing that a transfer of BKP from the Head Office in Jakarta to the Branch Office in Sampit had legally occurred, even though the goods were physically shipped directly by the supplier to the branch location.

The Respondent Argued Purchase Invoices and the Petitioner Physical Transfer Denial

The Respondent argued that since the purchase invoices were issued in the name of the Head Office and the Input Tax was credited at the Head Office, any distribution of these goods to the Branch (which has a different NPWP) must be subject to VAT as an inter-branch transfer. However, PT RC strongly denied this, stating that the items were office equipment and plantation supplies (not trading goods) sent directly by the supplier to Sampit, thus there was no element of physical "transfer" of goods from the Head Office to the Branch.

The Board of Judges Consideration on Cumulative Business Activity Requirements

The Board of Judges, in its consideration, emphasized that to impose VAT based on Article 4 paragraph (1) letter a of the VAT Law, cumulative requirements must be met, one of which is that the transfer is carried out "in the context of its business or work activities." Given that the goods subject to correction were not trading inventory but operational support equipment, the Board deemed the business activity element was not met. Furthermore, the Respondent was unable to prove any physical flow of goods from the Head Office to the Branch that would underlie the imposition of VAT.

The Implications of This Decision on Asset Separation and Documenting Physical Flow

The implications of this decision confirm that not all transfers of benefits or administrative recordings of goods between head offices and branches automatically become VAT objects. Companies need to ensure a clear separation between trading goods and operational assets and accurately document the physical flow of goods to avoid similar corrections in the future. The Board finally canceled the entire VAT Base correction because the transfer in the context of business activities was not proven.

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