The dispute between Income Tax Article 23 and Final Income Tax Article 4 paragraph (2) re-emerged in the case of BUT NEC Corporation against the Directorate General of Taxes. The core conflict focused on the classification of submarine telecommunications cable installation work performed by a service provider holding a construction service qualification certificate. The Respondent issued an adjustment by reclassifying the transaction as construction services, noting that PT ITI (the counterparty) was registered under the Telecommunications Installation classification and held a business entity certificate from the LPJK. On the other hand, the Taxpayer insisted that the work was purely an installation service that did not result in a physical building as defined in construction service regulations.
In its consideration, the Board of Judges prioritized the formality of certification and technical classification from the competent authorities. Based on expert testimony from the Ministry of Public Works and Public Housing (PUPR), submarine cable laying activities are specifically included in the sub-classification of construction services under the latest regulations. The legal resolution favored the Respondent, with the Board of Judges ruling that the status of the service provider holding a construction business license and the type of work falling within the Indonesia Standard Industrial Classification (KBLI) for construction are decisive factors. Consequently, the appeal was rejected, and the transaction remained classified as a Final Income Tax object. This ruling emphasizes the importance for Taxpayers to conduct due diligence on the licensing status of counterparties and align contracts with the latest KBLI codification to avoid tax reclassification risks.
A Comprehensive Analysis and the Tax Court Decision on This Dispute Are Available Here
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