The Application of the Substance Over Form Principle in VAT Import Facility Dispute

The application of the substance over form principle became the primary key in winning a tax dispute regarding VAT Base (DPP) corrections involving import facilities. This dispute began when the Respondent made a positive correction to the delivery of Construction Services by CSTS JO to BB Ltd, claiming that the entire contract value was a VAT object that must be collected, ignoring the imported goods components using the Masterlist facility. The Respondent argued that the delivery did not meet the reimbursement criteria and should be recorded as gross income subject to VAT.

The Petitioner's Position

On the other hand, the Petitioner consistently emphasized that in a "Turnkey" EPC contract, BB as a Production Sharing Contract (PSC) holder has the right to VAT not collected facilities based on the Masterlist approved by SKK Migas. The value of imported goods that have received such facilities is legally not allowed to be subject to VAT again when delivered as part of the construction project. The Petitioner proved they had separated the billing (invoices) between the service value subject to VAT and the Masterlist goods value receiving the facility.

The Board of Judges' Consideration

The Board of Tax Judges, in its consideration, agreed with the Petitioner's argument that the Masterlist facility essentially attaches to goods imported for the benefit of national upstream oil and gas operations. Imposing VAT on goods that have been regulatory granted "Not Collected" facilities at import would invalidate the state's directive in encouraging oil and gas investment. The fact that there were no similar disputes in previous audit periods strengthened the Petitioner's position that the administrative mechanism implemented was in accordance with common practices in the oil and gas industry.

Ruling and Implications

This decision has important implications for EPC business actors in the oil and gas sector to remain diligent in reconciling contract values and ensuring separate recording between service components and goods receiving state facilities. This victory confirms that administrative invoice formalities must not override the substance of the right to tax facilities granted by law.