Tax Dispute on Agency Services Rendered Outside Indonesia

THIS civil review (peninjauan kembali/PK in Indonesian) decision summary covers a tax dispute concerning the supply of agency services rendered outside the territory of Indonesia.

The tax authority took the view that agency services do not fall within the category of services excluded from VAT. Accordingly, the supply of agency services by the taxpayer remains subject to VAT.

Conversely, the taxpayer argued that it did indeed supply agency services; however, those services were rendered outside the territory of Indonesia. According to prevailing theory and regulations, VAT is only levied in Indonesia where consumption of a service takes place within the customs territory. The taxpayer therefore considered the correction made by the respondent in the civil review to be inconsistent with the applicable provisions.

At the appeal stage, the judicial panel of the tax court decided to dismiss the appeal filed by the taxpayer. Subsequently, at the civil review stage, the Supreme Court granted the civil review application filed by the taxpayer.

If you wish to read the full decision, please visit the Supreme Court Decision Directory or Perpajakan.id.

Chronology

The taxpayer filed an appeal with the tax court against ithe tax authority's objection to the assessment. In this case, the judicial panel of the tax court held that the correction by the tax authority was correct.

In respect of that appeal, the judicial panel of the tax court declared that the appeal filed by the taxpayer was dismissed. Following the issuance of Tax Court Decision No. PUT-79059/PP/M.XIB/16/2016 on 14 December 2016, the taxpayer filed a civil review legal remedy in writing to the Registrar of the Tax Court on 20 March 2017.

The subject matter of the dispute in this case is the positive correction to the VAT base (dasar pengenaan pajak pertambahan nilai/DPP PPN in Indonesian) for the June 2004 taxable period in the amount of IDR568,072,766.

Opinion of the Disputing Parties

The civil review applicant, as the taxpayer, objected to the legal reasoning of the judicial panel of the tax court. In this case, the civil review applicant is a company engaged in agency services for container cargo vessels. This dispute arose when the civil review respondent found that there was a VAT base in respect of agency services that had not been reported and subject to tax.

The civil review applicant argued that the agency services it provided were not liable to VAT because those services were consumed outside the territory of Indonesia. This argument was based on the characteristic of VAT as a domestic consumption tax, such that VAT is only levied on the supply of goods or services consumed within Indonesia's customs territory.

As a point of note, VAT will only be levied in Indonesia where goods or services are consumed within Indonesia's customs territory. This is consistent with the destination principle, namely the principle affirming that VAT is levied in the country or territory where goods or services are consumed.

Further, at the time this dispute arose, the export of services subject to VAT was limited solely to toll manufacturing services, repair and maintenance services attached to or in respect of movable goods utilised outside the customs territory, or construction services attached to or in respect of immovable goods situated outside the customs territory.

Based on the foregoing, the civil review applicant stated that the correction by the civil review respondent was incorrect. Moreover, the tax court decision was also inconsistent with the facts and applicable provisions. Accordingly, the tax court decision ought to have been annulled.

Conversely, the civil review respondent stated its disagreement with the civil review applicant's submissions above. In this regard, the civil review respondent stated that agency activities do not fall within the group of services not subject to VAT.

Accordingly, the supply of agency services by the civil review applicant remains subject to VAT. The civil review respondent therefore also considered both the correction it had made and the tax court judicial panel's decision to be correct.

Supreme Court Considerations

The Supreme Court was of the view that the grounds of the civil review application were justified. In this case, the tax court decision dismissing the appeal was indeed contrary to the applicable statutory laws and regulations. The Supreme Court's considerations are as follows.

First, the grounds of the civil review application relating to the positive correction to the VAT base for the June 2004taxable period in the amount of IDR568,072,766, on which VAT on vessel agency services was not collected, are justified. This is because, upon re-examining and re-assessing the arguments submitted by the parties, they were able to rebut the facts and weaken the evidence disclosed at trial as well as the legal reasoning of the judicial panel of the tax court.

Second, the supply of agency services relating to loading and unloading activities outside Indonesia's customs territory is indeed not subject to VAT. Accordingly, the Supreme Court annulled the tax court decision. The correction by the civil review respondent therefore cannot be upheld as it is inconsistent with the applicable statutory laws and regulations.

Based on the foregoing, the grounds of the civil review application are sufficiently well-founded and merit being granted. With the aforementioned considerations, the Supreme Court declared that it granted the civil review application filed by the civil review applicant. Accordingly, the civil review respondent is designated as the losing party and ordered to pay the case fees. (dik)