Value Added Tax (VAT) is a popular and high-priority tax for tax authority monitoring. This is due to the "easy" nature of VAT monitoring and the steep penalties for VAT law violations. Given that monitoring is the point at which self-assessment becomes an official assessment, it has the potential to cause tax disputes if there are differences in tax authorities' and taxpayers' understanding of a tax provision or tax payable calculation.

Tax disputes, including VAT disputes, can be resolved in the tax court through an appeals process. According to Article 27 paragraph (1) of General Provisions and Tax Procedures Law, taxpayers have a legal right to appeal to the tax court. So, what are the substances of VAT disputes that are mostly found in the Tax Court appeal process?

SUBSTANCES OF VAT DISPUTES IN THE TAX COURT

VAT disputes that frequently arise during appeals process at the Tax Court can be classified into the following categories:

A. Correction of Output VAT Base Due to Tax Base Value Equalization according to Periodic VAT Return and Gross Income according to Annual Corporate Income Tax Return

The first correction that generally occurs is VAT Base correction as a result of difference in VAT Base on Periodic VAT Return and gross income on Annual Corporate Income Tax Return equalization. For disputes arising from this correction, following steps may be taken:

1. Conduct an in-depth analysis of dispute subject in Audit Working Paper Report/Tax Audit Findings Report, Objection Review Report, and Appeal Explanation Letter.
2. Ascertain the dispute value and make a number matrix comparison and dispute explanations according to Appellant and the Appellee in the same period.
3. Ensure that VAT Base has gone through an adequate judgment process on gross income according to Income Tax Return of the relevant year, therefore VAT on the gross income has been calculated and reported in accordance with applicable tax laws and regulations provisions.

B. Correction of Output VAT Base Due to VAT Return and Gross Income Audit Findings Equalization

The second correction that commonly occurs is VAT Base correction which is a "derivative" correction from Gross Income correction based on the audit findings. When there is gross income correction on corporate income tax, the difference between gross income based on corporate income tax audit results and VAT Base reported on Taxpayer's Periodic VAT Return becomes a correction to output VAT Base which is considered not yet reported. For disputes arising from this correction, following steps may be taken:

1. Conduct an in-depth analysis of dispute subject in Audit Working Paper Report/Tax Audit Findings Report, Objection Review Report, and Appeal Explanation Letter.
2. Ensure that correction value and method of gross income audit are in accordance with audit techniques and procedures referred to in Article 29 paragraph (1) of General Provisions and Tax Procedures Law and its implementation regulations.
3. Ensure that VAT Base value determination has gone through an adequate judgment process on audit based gross income, therefore VAT Base on that gross income should have been calculated and reported, in accordance with applicable tax laws and regulations provision.

C. Correction of Input VAT Arise as a Result of Non-Creditable Input VAT

The third correction that often occurs is correction related to input VAT credits. Tax provisions govern that there are several reasons why Input Tax cannot be credited, for example there are no supporting documents to prove the occurrence of transactions, transactions are not directly related to business activities, service delivery occurs outside of customs area, and others. For disputes arising from this correction, following steps may be taken:

1. Conduct an in-depth analysis of dispute subject in Audit Working Paper Report/Tax Audit Findings Report, Objection Review Report, and Appeal Explanation Letter.
2. Ensure that Input Tax Invoice meets the requirements in Article 13 paragraph (5) and (9) of the VAT Law in order for it to be credited.
3. Ensure that Input VAT Invoice is not included in Input VAT Invoice which cannot be credited based on Article 9 paragraph (8) of VAT Law.
4. Attach supporting evidence or adequate documentation for Input VAT transaction to prove that Input VAT can be credited in accordance with tax laws and regulations provision.

D. Correction of Creditable Input VAT Due to Negative Confirmation Result on Creditable Input VAT

Related to Input Tax correction, another potential dispute is correction of Input Tax as a result of negative confirmation on credited Input VAT. For disputes arising from this correction, following steps may be taken:

1. Conduct an in-depth analysis of dispute subject in Audit Working Paper Report/Tax Audit Findings Report, Objection Review Report, and Appeal Explanation Letter.
2. Ensure that Input Tax Invoice meets the requirements in Article 13 paragraph (5) and (9) of the VAT Law in order for it to be credited.
3. Ensure that Input VAT Invoice is not included in Input VAT Invoice which cannot be credited based on Article 9 paragraph (8) of VAT Law.
4. Prepare supporting documentation to prove that VAT on Input VAT Invoice has been paid.
5. Attach supporting evidence or adequate documentation for Input VAT transaction to prove that Input VAT can be credited in accordance with tax laws and regulations provision.

E. Correction of Output VAT Base Due to Differences in Interpretation of Submission of Taxable Goods and/or Services

The next correction is correction of Output VAT Vase as a result of the difference in interpretation of delivery of Taxable Goods and/or Services between tax authorities and Taxpayer. For disputes arising from this correction, following steps may be taken:

1. Conduct an in-depth analysis of dispute subject in Audit Working Paper Report/Tax Audit Findings Report, Objection Review Report, and Appeal Explanation Letter.
2. Juridically ensure that a dispute occurs over submission of Taxable Goods and/or Services that is payable for VAT and/or Sales Tax on Luxury Goods and conduct a legal bases analysis relating to corrections.
3. If there is a delivery of Taxable Goods and/or Services that is not subject to VAT, prepare sufficient calculations and supporting documents/evidence to prove that the VAT deposited and reported is in accordance with the provisions of the tax laws and regulations.

F. Correction of Output VAT Base Arise due to other Causes

Other causes can be in the form of disputes in delivery of Taxable Goods and/or Services in customs area or bonded zone, exports, foreign aid projects and special VAT provisions as regulated in Article 16A, Article 16B, Article 16C, and Article 16D of VAT Law. In general, following steps may be taken for these disputes include:

1. Conduct an in-depth analysis of dispute subject in Audit Working Paper Report/Tax Audit Findings Report, Objection Review Report, and Appeal Explanation Letter.
2. Make a number matrix comparison and dispute explanations according to Appellant and the Appellee in the same period.
3. Prepare adequate supporting documents/evidence to support arguments.

tax-appeal , tax-dispute , vat