The tax dispute filed by xxPT AGP through a tax appeal against the Income Tax Article 23 Underpayment Assessment Letter for the 2017 Tax Year once again highlights the ambiguity in establishing the object of Income Tax Article 23 (PPh Article 23) withholding, particularly regarding the classification between goods purchase and other services. This specific case, which focuses on the correction of printing and design service costs, tests the consistency of implementing Minister of Finance Regulation Number 141/PMK.03/2015 concerning the Types of Other Services. In its decision, the Tax Court Panel definitively affirmed that the economic substance of the transaction must be prioritized, hence if the payment is fundamentally for the procurement of finished goods, the mandatory withholding of PPh Article 23 on the embedded services cannot be enforced.

The Core Conflict: DJP's Positive Correction Claim on Other Services Objects

The core conflict in this dispute revolves around the positive correction claim made by the Respondent (DJP/Tax Authority) on the PPh Article 23 Tax Base (DPP). The DJP argued that the payments made by the Appellant (Taxpayer), although related to printing, fall into the category of Other Services in accordance with PMK-141/PMK.03/2015, which explicitly lists graphic design services and printing/publishing services. Consequently, the DJP mandated the Appellant to withhold PPh Article 23 at a rate of 2% on these transactions. This correction was based on the view that a separable service element existed and should be subject to withholding.

Appellant's Rebuttal: Upholding Finished Goods Procurement and COGS Integration

In response to the DJP's correction argument, the Appellant provided a very strong rebuttal by emphasizing the substance of the transaction. According to the Appellant, the payments constituted the cost of raw materials or finished goods—the printed products—where the cost of printing and design services was already integrated and an inseparable part of the sales price of those goods (integrated into the cost of goods sold). The Appellant contended that the primary purpose of the transaction was to acquire a physical product (the printed results), not merely to utilize design or printing services separately. This argument asserted that goods purchase transactions are not included in the scope of PPh Article 23 withholding objects under the Income Tax Law provisions.

Tax Court Judicial Analysis: Rejection of Rigid PMK-141 Application and Ancillary Services Principle

The Tax Court Panel provided a resolution by conducting a review of the evidence submitted, including tax invoices and transaction agreements. In its legal consideration, the Panel clearly stated that the nature of the Appellant's transaction was the procurement of goods. The Panel held that even though service elements were involved in the production process of the goods, these services were considered by the Panel to be ancillary services that could not stand alone from the procurement of the physical product. Thus, the Panel rejected the rigid application of PMK-141/PMK.03/2015 and concluded that the Respondent's correction on the PPh Article 23 DPP was not supported by sufficient evidence or legal interpretation.

The implications of this Tax Court decision are highly significant for Taxpayers operating in the manufacturing sector or those frequently procuring goods that involve a creation process (such as design, fabrication, or printing services). The decision establishes a strong precedent supporting the principle of substance over form, clarifying the boundary that PPh Article 23 withholding cannot be applied to transactions whose essence is the purchase or procurement of finished goods. Taxpayers are advised to ensure their contracts and tax invoices accurately reflect the nature of the transaction as a goods purchase to mitigate the risk of similar disputes in the future.

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