Pay VAT, But Reclassified as Deemed Dividend? The Story of PT BTCI Winning the Right to Credit VAT at the Tax Court

Tax Court Decision Number PUT-001281.16/2022/PP/M.XIIA Tahun 2025

The Indonesian tax system is confronted with the complexity of determining the substance of intra-group transactions, especially when a Transfer Pricing (TP) correction in Income Tax (PPh) impacts the Value Added Tax (VAT/PPN) aspect. The case of PT BCI, documented under Tax Court Decision Number PUT-001281.16/2022/PP/M.XIIA Tahun 2025, sets an important precedent regarding the protection of the right to credit Input Tax (Pajak Masukan - PM) on the Utilization of Taxable Services from Outside the Customs Area (Pemanfaatan Jasa Kena Pajak dari Luar Daerah Pabean - PJLN), even though a portion of the service payment was re-characterized as a deemed dividend by the tax authority. This crucial matter sparked a VAT dispute of Rp820,971,699.00, culminating in the question: does a PPh secondary adjustment correction automatically void the validity of the Input Tax that has been paid to the state treasury?

The Core Conflict: CIT Audit Findings and Deemed Dividend Extension to VAT

The core conflict in this dispute originated from the Corporate Income Tax audit findings, where the Directorate General of Taxes (DGT/Terbanding) argued that the intra-group service fees paid by PT BTCI to its affiliate, BT Pic, exceeded the arm's length principle. Consequently, the excessive portion (mark-up) of the payment was corrected and classified as a deemed dividend (distribution of profits). The DGT then extended this correction to VAT, arguing that since the transaction was deemed not a service but a distribution of profits, the VAT paid on this PJLN transaction was materially ineligible to be credited as Input Tax, pursuant to Article 9 paragraph (2b) in conjunction with Article 13 paragraph (9) of the Indonesian VAT Law. The DGT’s argument was that the Input VAT was invalid because the information on the Payment Slip (SSP), which is treated as a Tax Invoice, was considered inconsistent with the actual reality of the transaction.

The Taxpayer's Defense: Separate Tax Assessment and Principles of Fairness

Contesting the DGT's argument, PT BTCI (Pemohon Banding) firmly maintained that the PPh correction should not nullify the right to credit VAT Input Tax. The Applicant had fulfilled its formal obligations by self-assessing the VAT and remitting it to the State Treasury via a valid Payment Slip (SSP), in accordance with regulations that equate the SSP for PJLN with a compliant Tax Invoice. The Applicant emphasized the principle of fairness, asserting that VAT is an indirect tax with assessment and credit mechanisms separate from PPh. Therefore, rejecting the credit of VAT that had already been paid solely based on a PPh correction would result in double jeopardy for the Taxpayer.

Judicial Resolution: Legitimate Input Tax and Legal Certainty Upheld

In its legal considerations, the Tax Court Panel definitively ruled in favor of the Taxpayer. The Panel noted that the Applicant had proven that it had remitted the PJLN VAT to the State Treasury. The Panel ruled that the transfer pricing correction, which resulted in the intra-group service payment being classified as a deemed dividend in PPh, lacked the legal standing to revoke the status of the remitted VAT as a legitimate Input Tax. The Panel affirmed its decision by referencing the principles of fairness and legal certainty, asserting that the VAT paid by the Taxpayer, in accordance with Article 16F of the VAT Law, constitutes a creditable right that cannot be disregarded.

Significant Implications and Strategic Risk Management for Multinationals

The implication of this decision is highly significant, setting a precedent that the tax authority cannot automatically reject a creditable Input VAT that has been paid solely due to a PPh secondary adjustment (deemed dividend). This ruling provides legal certainty for multinational companies regarding the management of double tax risk. For Taxpayers, it confirms the critical importance of retaining the PJLN VAT payment proof (SSP) as a strong document, while simultaneously serving as a reminder to continuously strengthen Transfer Pricing documentation to mitigate PPh correction risks from the outset.