The courts and tribunals
Tax dispute resolution at the judicial level is first settled in the Tax Court. If the taxpayer or tax authority wants to challenge the Tax Court decision, either or both can file a civil review to the Supreme Court. The Tax Court will only be able to accept an application for a lawsuit or an appeal from the taxpayer.
The Tax Court is part of the administrative court system under the judicial power of the Supreme Court, pursuant to Article 27, Paragraph 1 of the Judicial Authority Law. It is located in Jakarta, and uses several cities as its place of trials or hearings, including Jakarta, Yogyakarta and Surabaya. For the purpose of developing its judiciary techniques, the Tax Court is managed by the Supreme Court, while for the purpose of developing its organisation, administration and finance, it is managed by the Ministry of Finance. Although it is managed by two different institutions, Tax Court judges are independent in resolving tax disputes (Article 5 of the Tax Court Law).
Full Tax Court decisions are not provided by the Tax Court. Instead, the Tax Court provides a summary of a Court decision, which is available on its website9 and on the Supreme Court website.10 The Secretary of the Tax Court has said that full tax court decisions were not allowed because of the instruction of the Tax Court Chief.11 Contrary to that, a full Supreme Court decision, even one concerning a tax dispute, is provided by the Supreme Court on its website.12
Pursuant to Article 81 of the Tax Court Law, the Tax Court is required to issue a decision on an appeal within 15 months (12 months plus a three-month extension) and on a lawsuit within nine months (six months plus a three-month extension). Tax Court decisions that exceed this timeline will not cause the decision to be invalidated by the Supreme Court.13
In a lawsuit, a taxpayer is not required to pay unpaid taxes as a procedural requirement, while in an appeal, a taxpayer is required to pay at least 50 per cent of unpaid taxes (Article 36, Paragraph 4 of the Tax Court Law). When an appeal is made on decisions or assessments by the DGCE, by law the unpaid taxes must be paid in full. However, the Supreme Court has issued two decisions ruling that the requirement to pay unpaid taxes for appeals on DGCE decisions or assessments is omitted and not required based on jurisprudence or precedent.14 For appeals made on objection decisions by the DGT, the unpaid taxes in dispute are not required to be paid, as the unpaid taxes are deemed postponed until one month after the Tax Court decision is made (Article 27, Paragraph 5a of the GRT Law). Prior to an appeal on the DGT objection decision, a taxpayer is only required to pay the amount of unpaid taxes agreed during the tax audit.
If the Tax Court decision is considered unfavourable to either taxpayer or tax authority, either or both could file a civil review application to the Supreme Court. The grounds for such application are (under Article 91 of the Tax Court Law):
- the tax court decision was made based on deception by the counterparty, which was only known after the case was decided, or the Tax Court decision was made based on unauthentic evidence adjudicated by a civil court;
- there is new written evidence that is decisive and that, if known during the court proceedings, will result in a different decision;
- an ultra petita decision;
- part of the requisition has been decided without consideration; and
- the Tax Court decision clearly violated the applicable laws.
A civil review application is required to be filed within three months of:
- the discovery of a deception or a civil court decision adjudicating that there is an unauthentic evidence (Article 91a of the Tax Court Law);
- the discovery of new evidence of which the date of discovery must be made under oath and authorised by a competent authority (Article 91b of the Tax Court Law); or
- the Tax Court decision being sent (Article 91c–e of the Tax Court Law).
Currently, there are 63 judges associated with the Tax Court, with a small minority having a law education background, and the majority with an accounting background and general tax knowledge. Most members of the Tax Court are retired tax or customs officials. It is therefore not surprising that there has been criticism regarding the independence of the Tax Court.15 The number of tax disputes filed with the Tax Court in 2017 amounted to 9,580 applications, with an average of 9,806 cases annually during the period 2012–2017. In 2017, 65 per cent of the Tax Court verdicts were in favour of the taxpayer, with 55 per cent decisions, among others, fully approved and the rest partially approved. The Supreme Court received 2,187 applications for reconsideration of the Tax Court verdict in 2017, up 18 per cent from reconsideration application in 2016. Lastly, the percentage of wins at the Supreme Court was 13 per cent in 2017,16 as the majority of Supreme Court decisions uphold the Tax Court verdict.