PPh 26 Appeal Case: Taxpayer Wins Partially! The Successful Evidential Tactic for Offshore Services That Dodged the 20% Tax

The application of Income Tax Article 26 (PPh Article 26) provisions on service fees paid to Non-Resident Taxpayers (SPLN/NRT) has once again become a central issue in Indonesian tax litigation.

The dispute faced by PT NSI, concerning the June 2016 Tax Period, highlights that mere Tax Treaty formalities are insufficient; taxpayers are now confronted with a deep substantive test by the tax authority and the Tax Court Panel. The Directorate General of Taxes (DJP) insisted on maintaining the PPh Article 26 correction at the domestic rate of 20%, accusing the appellant of failing to prove the Beneficial Owner (BO) status of the NRT or that the services in question had created a Permanent Establishment (PE) in Indonesia, which implies the country's right to tax.

The core conflict in the decision numbered PUT-004448.13/2022/PP/M.IIA Tahun 2025 focuses on the interpretation of the Services Article in the Double Taxation Avoidance Agreement (DTAA/P3B).

The DJP argued that the payments, although claimed as import of services (offshore), have a strong economic link to Indonesia, or even meet the time test criteria for Service PE. The DJP also highlighted the anti-abuse aspect by questioning whether the NRT was truly the beneficial recipient (BO) entitled to the lower DTAA rate. On the other hand, PT NSI rebutted by presenting contractual evidence and activity reports affirming that the services were conducted entirely outside Indonesian territory. This rebuttal was strengthened by the submission of valid DGT Forms/Certificates of Domicile (CoD), as well as the argument that the services did not fall into the category of technical, management, or consultancy services specifically stipulated as taxable in the source country.

The resolution of this dispute, which resulted in a Partial Grant of the appeal, indicates that the Tax Court Panel conducted a careful segregation of each disputed item.

The Panel rendered a legal consideration by applying the principle of lex specialis derogat legi generali, prioritizing the DTAA provisions but with a prerequisite of a strict substance test. For the items where the Appellant successfully provided convincing evidence such as time sheets and reports demonstrating that the services did not create a PE in Indonesia (by not exceeding the time threshold for personnel presence) and that the NRT was the BO, the Panel annulled the DJP's correction. Conversely, the correction was upheld for items where the Appellant's evidence was deemed weak or where the Panel determined that the elements of local source or service PE were met.

The implication of this Decision affirms that Taxpayers must shift from merely formal compliance to substantial compliance in cross-border transactions.

The Partial Grant decision sends a vital message that the burden of proof rests solely on the Taxpayer claiming DTAA benefits. The success in partially annulling the correction was driven by the presentation of detailed and structured evidence, which enabled the Tax Court Panel to differentiate the disputed items fairly. Taxpayers making service payments to NRTs must ensure that service activity documentation aligns with their DTAA claim and be prepared to face a substantive test by the tax authorities.