In accordance with Article 27 paragraph (1) of General Provisions and Tax Procedure Law (“Ketentuan Umum dan Tata Cara Perpajakan” or “KUP Law”), taxpayers have the right to file an appeal against the tax authorities. In general, taxpayers will file an appeal if they disagree with Objection Decision Letter findings. Taxpayers must file an appeal to the Tax Court no later than three months after receiving an Objection Decision Letter.

In 2022 fiscal year, taxpayers filed 11,602 dispute cases. Meanwhile, percentage of tax court decisions that defended appeal/lawsuit object was 44.80%, exceeding the 44% target set by Directorate General of Taxes (DGT). In terms of appeals, DGT has a win rate of 38.05%, while taxpayer has a win rate of 61.95%.

Table 3.10 Percentage of Tax Court decisions defending the object of appeal/lawsuit in 2022

No	Verdict	Appeal	Lawsuit	Grand Total
1	Cancel	0	62	62
2	Correct typing/calculation errors	549	25	574
3	Add	2	0	2
4	Partially granted	2.614	109	2.723
5	Fully granted	5.089	508	5.597
6	Remove from dispute	156	302	458
7	Reject	2.251	869	3.120
8	Not acceptable	213	543	756
	Grand Total	10.874	2.418	13.292
1	Win rate	38,05%	73,90%	44,80%
2	Lose rate	61,95%	26,10%	55,20%

DGT's success in defending appeal object is one of the Key Performance Indicators (KPI) used by tax authorities to evaluate DGT's performance. Therefore, the better DGT's performance, the more favorable court decisions (including rejecting, not accepting, increasing taxes to be paid, and being removed from the list of disputes) and partially granting the disputed cases. So, what is the substance of the disputed cases?

Substance of Corporate Income Tax Disputes in the Tax Court

In 2022, Corporate Income Tax is the state’s second largest tax contributor after Domestic Value Added Tax (VAT). This shows the importance of Corporate Income Tax in Indonesia’s budgetary function. Taxpayer compliance in filing corporate income tax returns also rises year after year. Nonetheless, corporate income tax disputes continue to arise. Generally, income tax disputes are related to accounting and financial system activities, which serves as the basis for conducting examinations and tests of corrections determined by the Appellee.

The substance of corporate income tax disputes in the tax court through appeal process includes:

A. Gross Income Correction

1. Gross Income correction through flow of money and flow of accounts receivable testing.
   This correction is carried out by examining and testing evidence relating to:
   • Accounts Receivable Book
   • Cash/Receipt Book
   • Financial statements
   • Bank account
   • Transfer receipt
   • Proof of Loan (Loan Agreement)
   • Bank Notes/Credit Notes
   • Proof of Custody
   • Proof of Capital Deposit
   • Other documents proving that the money was not obtained through sale or settlement of accounts receivable
2. Gross Income correction through Corporate Income Tax Returns and VAT Returns equalization.
3. Gross Income correction through allegations of related party transfer pricing.
4. Gross Income correction through comparability of export activities, VAT Returns and Customs Report data.
5. Gross Income correction through analysis of gross profit which is applied to purchases of raw materials correction (COGS).
6. Gross Income correction due to cash discounts and sales discount without invoice numbers or are not listed on tax invoices or commercial invoices.
7. Business circulation correction through flow of goods testing, evidence checking and testing and related calculations.
8. Sales correction of exchange rate differences.

B. Cost of Goods Sold (COGS) Correction

1. COGS correction of purchase amount according Corporate Income Tax Return, financial statements and VAT In equalization.
2. COGS correction of purchases amount based on accounts payable flow approach.
3. COGS correction of exchange rate expenses.
4. COGS correction of inventory valuation that is not in accordance with Tax Law.
5. COGS correction of compensation amount for losses in previous years.

Corrections are carried out by checking and testing evidence and performing related calculations.

C. Other Income or Expenses Correction

1. Other income and expenses correction that Appellant can deduct from gross income. This correction is carried out by examining and testing evidence as well as performing related calculations.
2. Other income and expenses correction of income/interest expenses from/to shareholders.
3. Other income and expenses correction relating to elements that the Appellant stated were expenses but cannot be counted as expenses, according to the Appellee.

D. Positive Fiscal Correction

1. Non-deductible expense correction from Gross Revenue in accordance with Article 6 of Income Tax Law
   This correction may appear when an expense is not related to earning, collecting and maintaining income, or when there is incomplete evidence at the time of inspection, as well as promotional costs that are not supported by a nominative list.
2. Correction of commercial and fiscal depreciation difference
3. Corrections of reserves for unrealized costs

E. Negative Fiscal Correction

1. Correction of income elements that are not supported by competent evidence
2. Correction of commercial depreciation and/or amortization under fiscal depreciation and/or amortization
3. Correction of costs that have been realized

F. Compensation Amount for Losses in Past Years Correction

This correction is carried out by examining the compensation for losses relevancy in previous year’s Corporate Income Tax Return as well as Decision on Objection and/or Decision of Tax Court which grants Taxpayer’s compensation for loss.

G. Tax Credits Correction

This correction is carried out by testing and examining evidence and performing calculations in accordance with Article 24 of Income Tax Law. The test referred to must specify between final and non-final taxes. This is due to the fact that only non-final taxes can be credited.

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