| Engagement snapshot | |
|---|---|
| Client archetype | Foreign-owned Indonesian operating company working under a joint-operation arrangement with a domestic partner |
| Service lines | Tax compliance review · Process review and advisory |
| Jurisdiction | Indonesia (governing). Any foreign-law or treaty position on a cross-border activity is out of scope; local counsel required |
| Engagement model | Advisory project, then quarterly review cycles |
| Duration band | Fieldwork 1–3 months, then ongoing quarterly cycles |
| Frameworks | UU PPh · UU PPN · UU KUP · PMK 79/2024 · PMK 28/2026 · PSAK 212 · PSAK 111 |
| Team shape | Partner-led; tax manager; senior associates; process-review specialist |
What was the challenge?
The tax positions could not be filed safely because each one rested on a different set of records.
Under a joint-operation arrangement (kerja sama operasi, KSO), VAT, withholding and loss positions depend on who contracts, who invoices and where costs are booked. A revision or refund request built on an unreconciled position gives the tax office a second set of numbers to question.
| Challenge | Operational reality | Business risk |
|---|---|---|
| Import tax credit | Income tax collected on imports (PPh 22, UU PPh Art. 22(1)) must be matched to import documents, the ledger and the annual return before it is credited | An overpayment claim that does not agree to the books |
| Tax losses | Losses are set against later profits within the period in UU PPh Art. 6(2); under PMK 79/2024 a registered KSO's losses and its members' losses cannot be set against each other | Unused losses lapse, or set-off cannot be traced |
| VAT in the joint operation | Supplies pass from members to the arrangement and from the arrangement to customers (PMK 79/2024); revenue sharing raises a separate VAT question | Output VAT sits with the wrong party; input VAT credit under UU PPN Art. 9(2) lacks support |
| Withholding on rentals and fees | Equipment rentals and consultancy fees attract PPh 23 (Art. 23(1)(c)) or PPh 26 (Art. 26(1)), depending on the payee | Under-withholding that becomes the company's own cost |
| Deferred tax | Deferred tax under PSAK 212 depends on settled loss and timing-difference positions | A deferred tax balance that does not tie to the filed positions |
How did JCSS Indonesia approach it?
We reconciled every tax position to the books and the process cycles before any revision or refund request was prepared.
Baseline the cycles. We reviewed procure-to-pay, order-to-cash, record-to-report, taxation and inventory. Artefact: process maps and a book-to-return reconciliation.
Build the position register. Each tax question was logged with its statutory basis, owner and evidence. Artefact: consolidated register of tax positions.
Test each position. We tested VAT against PMK 79/2024 and UU PPN Art. 9, withholding against UU PPh Arts. 22, 23 and 26, losses against Art. 6(2), and deferred tax against PSAK 212, with joint-arrangement accounting under PSAK 111. Artefact: position memos.
Prepare revision and refund support. Return revisions follow UU KUP Art. 8(1); refund requests follow Art. 11(1), with PMK 28/2026 for preliminary refunds. A position paper supports a possible objection (Art. 25(1)) or appeal (Art. 27(1)). Artefact: support files and position paper. Representation in disputes stayed outside scope.
Streamline controls. We wrote SOPs and a risk-and-control matrix (RCM) across the five cycles. Artefact: SOP set and RCM.
Run quarterly reviews. Each quarter we retest the set processes against the register. Artefact: quarterly review report.
Why this approach: a position that agrees to the ledger and the process is easier to defend than one argued in isolation. We rejected filing revisions and refund requests issue by issue without a process baseline: it is faster, but each filing can contradict the next.
What were the results?
The company held one reconciled view of its tax positions and the controls behind them.
| Result | Measure | Why it matters |
|---|---|---|
| Consolidated register | Each position mapped to its statutory basis | Management and advisers work from one file |
| Refund and revision support | Support files prepared for a potential refund request and return revision | Each filing traces to the ledger |
| VAT position paper | Position paper on VAT for revenue sharing under the arrangement | A possible objection or appeal starts from a documented basis |
| Process controls | SOPs and RCM covering five cycles | Tax-relevant controls have owners |
| Review cadence | Quarterly review cycle agreed | Positions are retested as facts and rules change |
Which frameworks and regulations applied?
- UU PPh (UU 36/2008), Arts. 6(2), 22(1), 23(1)(c), 26(1): loss compensation; import collection; withholding. Text
- UU PPN, Art. 9(2): crediting of input VAT against output VAT. Art. 9
- UU KUP, Arts. 8(1), 11(1), 25(1), 27(1): revision, refund, objection, appeal. Text
- PMK 79/2024 (as amended by PMK 11/2025), Perlakuan Perpajakan dalam Kerja Sama Operasi: tax treatment of the KSO and its members. JDIH
- PMK 28/2026, Tata Cara Pengembalian Pendahuluan Kelebihan Pembayaran Pajak: preliminary refund procedure. JDIH
- PSAK 212 (income taxes) and PSAK 111 (joint arrangements): deferred tax and joint-arrangement accounting, as renumbered from 01 Jan 2024. IAI
Key takeaways for CFOs and tax heads
- Reconcile each tax position to the ledger and its process cycle before filing any revision or refund request.
- Settle the joint operation's VAT status first; it decides who charges, credits and withholds.
- Keep a register of positions with statutory basis, owner and evidence, so each quarterly review retests the same file.
Frequently asked questions
How long can a tax loss be carried forward in Indonesia?
Article 6(2) of UU PPh allows a loss to be set against income from the following tax year, consecutively, for up to five years. Under PMK 79/2024, a registered KSO's losses are compensated only against the KSO's own income, and members' losses cannot be set against KSO income. Each taxpayer's facts need confirmation before a position is filed.
Is a joint operation a separate taxpayer for VAT?
PMK 79/2024 requires a KSO to register for an NPWP (tax identification number) if, in its own name, it supplies goods or services, receives income, or incurs costs or pays income. Separately, it must register as a VAT-registered entrepreneur (PKP) if its turnover exceeds the small-business threshold or any member is already a PKP. Otherwise members meet their obligations individually.
What withholding applies to equipment lease rentals?
For a resident lessor, UU PPh Art. 23(1)(c)(1) sets PPh 23 at 2% of gross (100% higher if the payee has no NPWP, Art. 23(1a)), unless the rental already bears final tax under Art. 4(2). A non-resident lessor falls under Art. 26(1) instead, and any treaty position is separate. Confirm payee residence before withholding.
Can a taxpayer revise an annual return to support a refund?
Yes, while no examination has begun (UU KUP Art. 8(1)); a revision showing an overpayment or loss must also be filed at least two years before the assessment period expires (Art. 8(1a)). A refund is a separate step: an overpayment is returned on request under Art. 11(1), after offset against any tax debt. Preliminary refunds follow PMK 28/2026.
What does PMK 28/2026 cover?
It sets the procedure for preliminary refunds of overpaid tax, under UU KUP Arts. 17C and 17D and UU PPN Art. 9(4c), and replaced PMK 39/PMK.03/2018 and its amendments. Qualifying claims are processed by desk review (penelitian) of the claim rather than full audit, depending on the taxpayer group.