Taxpayer's Lawsuit Granted: Failing to Attach DGT-2 Is Not a Sole Basis for PPh Article 26 Tax Collection Letter Issuance

The application of a Double Tax Avoidance Agreement (DTAA) is one of the most sensitive technical issues in compliance with Income Tax (PPh) Article 26 in Indonesia. The Director General of Taxes (DGT) Regulation explicitly mandates the withholding Taxpayer (WP) to enclose the DGT Form (Certificate of Domicile/COD) with the Monthly Tax Return (SPT) as a primary formal prerequisite to utilize the lower DTAA rate. The case of PT. IPS, documented in Tax Court Decision Number PUT-004841.99/2018/PP, highlights how the conflict between this administrative formality and the taxpayer's substantive right can end up in court.

The core conflict in this dispute originated from the issuance of a Tax Collection Letter (Surat Tagihan Pajak/STP) by the DGT to PT. IPS. The STP was issued because the Taxpayer was deemed to have failed to attach a copy of the DGT-2 Form when reporting the withholding of PPh Article 26 on interest payments to the Singapore entity, Oversea-Chinese Banking Corporation Limited (OCBC). The DGT insisted that the absence of the DGT-2 attachment violated the formal provisions of the prevailing DGT Regulation, thereby disqualifying the Taxpayer from the Indonesia-Singapore DTAA rate. Consequently, the tax payable was calculated using the domestic rate of 20%. The STP, covering the difference in PPh and administrative sanctions, was subsequently issued.

Conversely, PT. IPS applied for the cancellation of the STP based on Article 36 paragraph (1) letter c of the General Provisions and Tax Procedures Law (UU KUP), arguing that the STP should have never been issued. While acknowledging the administrative oversight (failure to attach a copy of DGT-2), PT. IPS possessed a valid DGT-2 and could prove that OCBC was the beneficial owner who qualified for the DTAA benefits. Thus, substantively, the PPh Article 26 withholding was correct according to the DTAA rate, and the issuance of the STP based only on a formal oversight was deemed unfounded. The DGT's rejection of this STP cancellation request was subsequently challenged by PT. IPS in the Tax Court.

In its legal considerations, the Panel of Judges adopted a stance prioritizing substance. The Panel concluded that despite the formal deficiency, the evidence presented by PT. IPS indicated that the substantive right to DTAA benefits had been fulfilled. Jurisprudence and principles of tax law often place substance over form, especially if the formal deficiency does not alter the fundamental tax rights and obligations. Therefore, the Panel ruled that the STP issued by the DGT solely due to the administrative shortcoming was deemed a tax assessment that should not have been issued.

The implication of this Decision underscores a crucial principle for Taxpayers: as long as the Taxpayer can substantively prove their right to the DTAA rate (that the beneficial owner qualifies), an administrative deficiency cannot be the sole basis for the tax authority to issue an STP resulting in the application of the domestic PPh rate. This decision also serves as a strategic guide, confirming that a Lawsuit against a decision rejecting the Cancellation of a Tax Assessment (Article 36 paragraph (1) letter c UU KUP) is a valid and effective legal remedy to challenge substantively correct assessments that suffer from formal defects. The PT. IPS case is a reminder for companies to proactively ensure formal DGT/COD compliance, but also provides a foundation for defense should they be forced to face administrative disputes.

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