All questions

Commencing disputes

i Taxes administered by the DGCE

Generally, tax disputes administered by the DGCE begin with an assessment of import and export declarations, customs facilities requests or renewals, and unloading activities declared in a certain area. The DGCE assesses these, and can issue:

  1. a customs official assessment resulting in an import duties tariff or value assessment, and other items;
  2. a customs audit resulting in an assessment other than that of a customs tariff or value, and penalties; or
  3. a customs audit resulting in a customs tariff and duties assessment.

Assessments resulting from (a) and (b) could be opposed by filing an objection letter to the DGCE within 60 days of the assessment date. This generally requires bonds equivalent to the amount of taxes or duties assessed to be provided. The DGCE will make a decision regarding a taxpayer's objection within 60 days after receipt of the objection letter. If the DGCE has not made a decision regarding the objection within 60 days, the taxpayer's objection will be deemed granted, and the bonds will be released back. A customs tariff and duties reassessment and objection decision can only be appealed to the Tax Court within 60 days of the date of the assessment or objection decision. When filing an appeal to the Tax Court regarding a DGCE objection or customs tariff and duties assessment (resulting from an audit), the taxpayer is required to pay the full amount of assessed taxes.

With respect to excises disputes, the taxpayer is entitled to file an objection letter against the DGCE notice of excises collection within 30 days of being notified. The DGCE must issue an objection decision within 60 days of the receipt of the objection letter. Prior to filing an objection, the taxpayer is required to provide a cash or bank guarantee or excise bond from the insurance company equivalent to the amounts of excises assessed. Taxpayers who disagree with the DGCE objection decision may file an appeal to the Tax Court within 60 days from the date of the objection decision. The taxpayer must pay at least 50 per cent of the total underpaid excises before filing an appeal to the Tax Court.

ii Taxes administered by the DGT

Taxes administered by the DGT include income tax (corporate income tax and individual income tax), VAT and sales tax on luxury goods. Pursuant to Article 3, Paragraph 1 of the GRT Law, the self-assessment system must be completed by taxpayers filing tax returns and paying taxes due without reliance on DGT assessments. DGT assessments subject to dispute with taxpayers can be classified as follows: a tax collection notification letter; a tax assessment letter (and withholding tax receipt); and other tax letters (i.e., private letters).

Generally, tax collection notification letters and tax assessment letters are the result of tax audits and verification. Other tax letters issued by the DGT could be subject to dispute depending on the content of such letters. A tax audit is generally initiated by a taxpayer's request for a refund. Almost every tax refund request is followed by a tax audit. The tax refund audit timeline is 12 months from the date the tax return requesting a refund is filed. A taxpayer's refund request is deemed granted if the DGT fails to issue a tax assessment letter within 12 months. In a non-tax refund audit, while there is a procedural timeline, an audit exceeding such timeline cannot be invalidated. A taxpayer who meets certain criteria can receive an advance tax refund, but the DGT still has the authority to audit and issue an assessment. In the case of a tax assessment letter issued in relation to the previously administered advance tax refund, if the tax assessment letter issued shows that the taxpayer has been underpaid, the unpaid tax is added with a penalty of 100 per cent.

According to the DGT audit policy, the DGT can also audit a taxpayer based on selective criteria. The DGT has recently stated to focus on a list of priority targets for potential investigation, which is a list of target taxpayers alleged to be non-compliant taxpayers. As mentioned above, CR-15 uses various factors to determine whether a taxpayer is included in the list of priority targets or not, including indication of a high level of non-compliance by a taxpayer. The indicators of non-compliance are determined based on the type of taxpayer (corporate or individual) and the type of tax office the taxpayer is registered with. In general, the indicators for corporate taxpayers include:

  1. the existence of an intra-group transaction with a value of more than 50 per cent of the total transaction value;
  2. the issuance of more than 25 per cent of tax invoices to taxpayers whose taxation registration numbers begin with 000 in a tax period;
  3. no audit on all taxes for the past three years; and
  4. as a result of analysis of other information, data, reports ot complaints, including results of data analysis from the Center for Tax Analysis.

For individual taxpayers, the indicators include:

  1. non-compliance with tax payment and submission of annual tax returns;
  2. no audit on all taxes for the past three years; and
  3. as a result of analysis of other information, data, reports ot complaints, including results of data analysis from the Center for Tax Analysis.

During an audit, a tax audit officer will perform direct and indirect tests as governed by DGT audit procedures. In some cases, a tax audit officer will perform indirect testing such as reconciliation of tax accounts with financial accounts on a tax adjustment basis. However, tax laws require that tax adjustments by the tax officer be based on valid and competent evidence, which in our view does not include the results of indirect testing. Tax Court judges, confirmed by Supreme Court judges, also hold this view. Thus, reconciliation of tax accounts with financial accounts would not qualify as evidence.

In addition, the CR-15 stipulates the tax audit criteria based on concrete data. While the GRT Law is silent on the definition of concrete data and only states the confirmation result of tax invoices and withholding slip as examples of concrete data, the CR-15/2018 extends the classification of concrete data by including any data or information that could directly prove the non-compliant behaviour of taxpayers. The audit timeline for special tax audits based on concrete data is in total one month and 10 days from the issuance of the audit instruction letter. Considering the time frame of the special audit based on concrete data, taxpayers should be aware and prepare to face a special audit based on concrete data especially in relation to the tax year in which the issuance of assessment will expire.

Pursuant to Article 12, Paragraph 3 of the GRT Law, the DGT can only issue a tax assessment letter if it has evidence that the tax disclosed in the tax return is incorrect. This sets the foundation that the burden of proof under the Indonesian tax system lies with the tax authority. The notion that the burden of proof lies with the DGT has been confirmed in a civil review decision by Supreme Court judges. However, this would not be the case for a taxpayer who does not maintain proper accounts and records. In such case, the DGT can issue a tax assessment letter with an underpaid amount, and add a 50 per cent penalty in the case of income tax, and a 100 per cent penalty in the case of withholding tax, VAT and sales tax on luxury goods.

During a tax audit or tax objection, data and document submission should be managed with great caution. The DGT could deny a taxpayer's objection if the data or documents requested are not submitted during the tax audit pursuant to Article 26A, Paragraph 4 of the GRT Law. The DGT could also request the Tax Court to omit the data or documents submitted in the Tax Court that were not submitted previously during a tax audit and tax objection (other than those in the possession of a third party), and this has been confirmed by Supreme Court judges. In another Supreme Court decision, this would not be the case if the data or documents, although not submitted during a tax audit, are submitted during a tax objection. In such case, they would still qualify as evidence.

Prior to a tax audit, the taxpayer can amend his or her tax return resulting in overpaid tax or tax loss within three years of the end of the tax period. An amendment resulting in underpaid tax has no time limit, but is subject to a 2 per cent penalty for each month. During a tax audit, taxpayers can voluntarily disclose errors in their tax returns by applying Article 8, Paragraph 4 of the GRT Law, and pay the resulting unpaid tax and a 50 per cent penalty of the unpaid tax prior to submission of a disclosure. However, the DGT would review such disclosure before deciding to accept or deny it.

Prior to the final findings of a tax audit, taxpayers can request a quality assurance review at the higher level of the DGT. The basis for requesting a quality assurance review is if there is a violation of the law and its application by a tax audit officer. The quality assurance team will issue a legally binding decision as a basis for the final findings of a tax audit and its tax assessment letter.

Following a DGT tax collection notification letter, a taxpayer can file for administrative remedies pursuant to Article 36 of the GRT Law as follows: a penalty reduction or write-off (Article 36, Paragraph 1a of the GRT Law); a reduction or cancellation of the tax collection notification letter (Article 36, Paragraph 1c of the GRT Law); and a cancellation of a tax collection notification letter resulting from a tax audit that was completed without the taxpayer receiving temporary audit findings and a final audit closing conference letter (Article 36, Paragraph 1d of the GRT Law).

Following a DGT tax assessment letter, the taxpayer can file administrative remedies pursuant to Article 36 of the GRT Law as follows: a penalty reduction or write-off (Article 36, Paragraph 1a of the GRT Law); a reduction or cancellation of a tax collection notification letter (Article 36, Paragraph 1b of the GRT Law); and a cancellation of a tax assessment letter resulting from a tax audit that was completed without the taxpayer receiving temporary audit findings and a final audit closing conference letter (Article 36, Paragraph 1d of the GRT Law).

Administrative remedies set out in Article 36, Paragraph 1 of the GRT Law are generally resolved within the following timelines:

  1. an indefinite timeline if filing an application for the first time;
  2. a DGT decision is made within six months of receipt of the first application;
  3. a second application is filed within three months of the DGT decision on the first application; and
  4. a DGT decision is made within six months of receipt of the second application.

A taxpayer's first or second application is deemed granted if the DGT fails to issue a decision letter within six months of the application being received.

Upon a DGT decision on the first or second taxpayer application of Article 36, Paragraph 1 of the GRT Law, the taxpayer can file a lawsuit to the Tax Court appealing the decision. The lawsuit should be made within 30 days of the decision.

Further to the above, following a DGT tax assessment letter and withholding tax receipt, a taxpayer can request administrative remedies pursuant to Article 25 of the GRT Law by filing an objection to the DGT within three months of the tax assessment letter being sent or the date of the withholding tax receipt. The three-month timeline is not applicable when the taxpayer is able to demonstrate a force majeure situation. Upon filing a tax objection, the administrative remedies set out in Article 36, Paragraph 1 of the GRT Law will be denied as long as the two remedies are closely related. Pursuant to Article 26, Paragraph 4 of the GRT Law, the burden of proof still lies with the DGT, unless the tax assessment was issued based on the grounds of insufficient accounts or records.

The taxpayer's objection will be deemed granted if the DGT fails to issue an objection decision letter within 12 months of the objection letter being received. Upon the DGT objection decision, the taxpayer can file an appeal to the Tax Court. The DGT objection decision could be fully accepted, partially accepted or denied, or could increase the amount of taxes.

Regarding other letters issued by the DGT, such as tax audit instruction letters or private letters, such letters can be resolved by filing a lawsuit with the Tax Court. Generally, the Tax Court will consider the case and decide whether such letter is subject to resolution in the Tax Court provided that certain criteria are met, especially if such letter has resulted in specific tax consequences for the taxpayer. The lawsuit for such letter should be filed within 30 days of the date the letter was sent.

Law No. 30 Year 2014 regarding Governmental Administration (GA Law) provides rules and guidance for governmental bodies when performing their duties. The GA Law is also to be applied by the administrative courts, which system the Tax Court is part of. Administrative products of governmental bodies are defined broadly under the GA Law, which provides more criteria for administrative products. The grounds to challenge administrative products under the GA Law include abuse of power, procedural error and principles of good governance (i.e., the principle of legitimate expectation). However, such grounds have not been applied significantly by Tax Court judges in precedent cases. Nonetheless, the GA Law still arguably provides grounds for the Tax Court in deciding tax disputes both under appeal or lawsuit.

In 2015, the Supreme Court issued Supreme Court Regulation No. 5 of 2015, which allows persons to file a 'request for decision' to the administrative court with regard to their rights to receive an administrative decision from a government body. The ground to file such 'request for decision' is generally when a person's prior request to a government body is deemed granted, but the government body has not issued an executorial decision. With regards to taxation, it has happened that a taxpayer's request for interest has been granted ultimately by the Tax Court, but the DGT has not issued any executorial decision allowing the interest to be paid to the taxpayer.

A seizure letter as a result of tax collection forces a taxpayer to surrender an amount of money or assets to settle the taxes owed. The taxpayer can file a lawsuit on such seizure letter within 14 days of the date of the letter in the following situations: where the taxpayer has filed for dispute resolution on the taxes due and is in financial distress, and thus requests that any tax collection, including seizure, be halted until the relevant dispute resolution has been issued; or where the process of seizure is procedurally flawed, which could result in the reprocessing of the seizure.

Unpaid taxes or penalties set out in a tax collection notification letter should be followed by active tax collection efforts, including those that end in a seizure letter. On the other hand, the collection of unpaid taxes and penalties set out in a tax assessment letter should be postponed pursuant to the taxpayer's objection to the DGT. However, such unpaid taxes and penalties are subject to a 50 per cent penalty of the unpaid amount if the DGT issues a decision partially granting or denying the taxpayer's objection. The 50 per cent penalty is not imposed if the taxpayer paid the unpaid taxes and penalties prior to objection, or if the taxpayer has filed a tax appeal to the Tax Court. The 2 per cent interest each month imposed on an unpaid tax assessment letter will not be imposed if the taxpayer files an objection to the DGT.

Legitimate businesses should declare their taxes properly according to the law and should not be afraid of tax audits if everything is in order. The operations of tax audits are to verify what has been reported in the tax return and by doing so it is intended to ensure that those who should be paying taxes are actually doing so and those who have reported their taxes have done so correctly. The DGT shall ensure that any past practice agreed to is respected, and if that practice is overturned, then it should be done prospectively and not retrospectively. When there is a tax audit, the taxpayers have to recollect claims made years ago and if they do not have the details and documents to support the transactions then they face the consequences of the expenses being disallowed. The taxpayer is, therefore, recommended to have a proper tax risk control, especially documentation and the rationale to justify any specific transactions.