Tax Court Annuls Input VAT Corrections on Non-Reporting Counterparties and Cleaning Service Fees

The Value Added Tax (VAT) dispute involving PT UIT highlights the complexity in implementing Article 9 paragraph (8) of the VAT Law, particularly regarding the disallowance of Input Tax (PM) by the tax authorities. The Directorate General of Taxes (DJP) maintained corrections on Input Tax amounting to Rp. 250,833,289.00, which were divided into two crucial issues: first, Input Tax originating from Tax Invoices (FP) deemed unreported by the counterparty or misinterpreted as code 040 FP (which is non-creditable); and second, Input Tax on the acquisition of Taxable Services (JKP) considered to have no direct connection to the company's business activities. This ruling serves as a vital reference in reinforcing the constitutional right of the Taxable Entrepreneur (PKP) Buyer to credit Input Tax, provided the material requirements are fulfilled.

The core conflict in this dispute centered on the duality of legal interpretation. DJP insisted on a formalistic approach, disallowing the crediting of Input Tax worth Rp. 224,906,836.00 based on the discrepancy in reporting data within the DJP's system. The DJP deemed PT UIT failed to prove the flow of money/goods and subsequently shifted the basis of correction to FP code 040 (Deemed Value) by referring to Minister of Finance Regulation (PMK) Number 75/PMK.03/2010. PT UIT, on the other hand, strongly rebutted the correction. PT UIT argued that they acted in good faith and submitted comprehensive evidence, including contracts, invoices, transfer proofs, and even the counterparty's VAT Period Notification Letter (SPT), proving that the VAT was collected and deposited. This rebuttal was based on the joint and several liability principles (Article 16F of the VAT Law) and the latest tax invoice testing guidelines.

Regarding the second correction of Rp. 25,926,453.00, the difference in perspective arose concerning the phrase "direct connection to business activity." DJP narrowly interpreted the direct connection, rejecting the crediting of Input Tax for support services such as cleaning service, garden maintenance, and employee accommodation, as they were not deemed to directly generate the VAT-liable Taxable Goods (BKP). PT UIT's argumentation was more pragmatic and substantial. They emphasized that these expenditures were essential general and administrative and operational costs (necessary and inevitable) to maintain the smooth production and sale of BKP. The legitimacy of these costs was further substantiated by the fact that DJP itself did not make fiscal corrections to these expenses in PT UIT 's Corporate Income Tax (PPh Badan) calculation.

The Tax Court Judges determined that PT UIT's arguments were stronger and more credible. In their resolution, the Panel explicitly rejected the correction on the Unreported Counterparty FP. The Panel held that corrections based solely on reporting data discrepancies by the PKP Seller, without considering the real transaction evidence presented by the PKP Buyer, contradicted the legal principle of nemo punitur pro alieno delicto (no one should be punished for the fault of another). The Panel also rejected the DJP's argument based on FP code 040, as the regulation cited was misapplied—PMK 75/PMK.03/2010 governs the Input Tax treatment for PKPs supplying services, not PKPs receiving services like PT UIT.

The analysis of this decision has significant implications, reaffirming the Director General of Taxes Circular Letter Number SE-45/PJ/2021, which mandates that the testing of Input Tax must include the flow of money, goods/services, and documents, not just confirmation of reporting. This decision sets a positive precedent for taxpayers facing Input Tax crediting disputes due to counterparty negligence. Furthermore, it broadens the meaning of "direct connection to business activity" to include essential operational and management expenditures, especially if those costs have been recognized as deductible expenses in Corporate Income Tax.

In conclusion, this dispute provides valuable lessons for PKPs that the best defense in Input VAT disputes is robust documentation of the underlying transaction. Every expenditure containing Input VAT must be supported by perfect traceability between procurement, payment, and its impact on operations, ensuring the right to credit can be fully maintained before the tax authorities and the Tax Court.

A comprehensive analysis and the Tax Court Decision on This Dispute Are Available Here