Taxpayer Wins Against DJP: Reimbursement Costs Are Not Services! Annulling Hundreds of Millions in Final PPh Correction

Compliance with Income Tax Article 23/26 withholding in Indonesia often triggers disputes, particularly in cases involving the interpretation of the gross amount that forms the Tax Base (DPP). Tax Court Decision Number PUT-001072.35/2024/PP/M.XXB Tahun 2025 sets an important precedent by reaffirming the limits of Final Income Tax imposition on other service fees. In the dispute between PT STLI (Appellant) and the Directorate General of Taxes (Respondent) concerning Final PPh Article 23/26 for the Tax Period May 2021, the Panel of Judges unanimously granted the entire appeal of the Taxpayer because the Respondent was deemed incorrect in classifying the payment as a taxable object.

The core conflict began with the Final PPh Article 23/26 correction of IDR 168,324,717.00 carried out by the Respondent. The Respondent argued that the payment made by the Appellant to third parties was included in the category of 'other services' as stipulated in the Minister of Finance Regulation Number 141/PMK.03/2015, and therefore was subject to PPh Article 23/26 withholding. The Respondent tended to interpret the total invoice value as service fees without separating the non-service components (such as materials or reimbursements) within it.

The Appellant, through the appeal process, firmly refuted the basis for the correction. They argued and presented sufficient evidence to demonstrate that the corrected transaction value actually represented two items excluded from the definition of the gross amount DPP for PPh Article 23/26, namely (1) payment for the purchase of goods/materials and (2) reimbursement of costs already paid to third parties. In the context of PPh Article 23/26 withholding, payments categorized as reimbursement are explicitly excluded from the 'gross amount' used as the basis for tax calculation.

The resolution to this dispute emerged from the legal considerations of the Panel of Judges. The Panel conducted a material test on the evidence submitted, including tax invoices, purchase invoices, and reimbursement supporting documents. The Panel was convinced that the Appellant successfully proved that the value corrected by the Respondent was a pass-through cost or a purchase of materials, not a pure service fee received by the service provider as income. Because the substance of the transaction did not meet the element of service fees, there was no obligation for the Appellant to perform PPh Article 23/26 withholding.

The implications of this decision are highly significant for Taxpayers. This decision confirms that in PPh withholding disputes, the burden of proof to demonstrate the exclusion of reimbursement and material purchases can be overcome if supported by detailed and clear documentation. This requires Taxpayers to maintain a billing and payment system that clearly and documentedly separates the service component subject to PPh Article 23/26 from the non-service components that are excluded. The obligation to withhold tax must genuinely be based on the service fee that constitutes income for the recipient, not on the total transaction value that includes cost reimbursements.

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