A tax dispute regarding cross-border transactions re-emphasizes the critical importance of fulfilling the formal requirements of Double Taxation Agreements (DTAs). In Tax Court Decision Number PUT-005045.13/2024/PP/M.XXA Tahun 2025, the Panel of Judges fully granted the Taxpayer's appeal against the Income Tax (PPh) Article 26 correction imposed on royalty payments to non-resident parties, where the core of the dispute centered on the validity of applying the preferential DTA rate. This decision involves PT NSDI appealing against the correction of the PPh Article 26 Tax Base (DPP) for the September 2021 Tax Period. The Directorate General of Taxes (DGT) issued an Underpayment Tax Assessment Letter (SKPKB) for PPh Article 26, based on the assumption of insufficient tax withholding on royalties paid to a Non-Resident Taxpayer (NRT) domiciled in the United States. This case offers an interesting study on the implementation of Article 26 of the PPh Law directly interacting with the provisions of the Indonesia-US DTA, specifically Article 12 concerning royalties.

The Core Conflict: DGT Rejection of Preferential DTA Rate vs Formal Form DGT-1 Compliance

The DGT argued that the Taxpayer failed to properly execute the PPh Article 26 withholding obligation, which can be interpreted as a rejection of the use of the lower DTA rate (10%) and a reversion to the domestic rate (20%), or an issue with the DPP amount. Meanwhile, the Taxpayer consistently disputed the correction. The Taxpayer asserted that all royalty payments were subjected to a 10% PPh Article 26 withholding and remitted according to regulations, based on the strong foundation of a valid and authenticated Form DGT-1 from the NRT. The Taxpayer's argument focused on the formal compliance with the DTA, which is mandatory for claiming tax treaty relief.

Judicial Reasoning: Evidentiary Analysis of Withholding Slips and DTA Prerequisites

The Panel of Judges, after thoroughly examining the evidence, particularly the PPh Article 26 Withholding Slips and the Form DGT-1, concluded that the Appellant had met all the prerequisites for applying the Indonesia-US DTA rate of 10%. The Panel opined that the evidence presented by the Taxpayer convincingly demonstrated that all PPh Article 26 obligations had been correctly executed. The Panel found no sufficient and convincing evidence to support the DGT's correction, thus ruling that the correction to the PPh Article 26 Tax Base could not be upheld.

Implications and Legal Certainty for Cross-Border Royalty Transactions

This decision provides legal affirmation that DTA formalities, especially the existence and validity of a valid Form DGT-1 (Certificate of Domicile), serve as an effective defense mechanism for Taxpayers in Indonesia. As long as the Taxpayer can prove both formal compliance (DTA documents) and the substance of the royalty payment was properly recognized and withheld according to the DTA rate, corrections by the tax authority will be difficult to maintain at the litigation level. The implication of this decision reinforces the principle that the burden of proving the correctness of a correction lies with the tax authority. With the full acceptance of the appeal, this Tax Court Decision definitively overturns the disputed PPh Article 26 SKPKB, providing legal certainty for Taxpayers engaged in cross-border royalty transactions who successfully adhere to DTA administrative requirements.

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