Battling Assumptions with Evidence: The Vital Role of Legal Maxims in Tax Disputes

In the Tax Court arena, fierce clashes often occur between the Tax Authority (the Appellee) and the Taxpayer (the Appellant). Disputes frequently stem from fiscal corrections based on the examiner's belief or assumption that a transaction is unreasonable, non-existent, or an attempt at tax avoidance. However, the Indonesian tax legal system upholds the principle of material truth (Article 76 of the Tax Court Law), where justice is upheld not through conjecture, but through solid evidence.

Two ancient yet highly relevant legal maxims, "Affirmantis est probare" (he who affirms must prove) and "Facta sunt potentiora verbis" (facts are more powerful than words), serve as the primary shields for Taxpayers seeking justice.

Burden of Proof on the Accuser

The principle of Affirmantis est probare asserts that the burden of proof lies with the party stating a positive claim. In the context of a tax audit, if the Appellee makes a positive correction—for example, claiming that management service fees paid by the Taxpayer to an affiliate are fictitious and are actually profit distributions (dividends)—then the Appellee is obligated to prove that allegation.

The Appellee is not permitted to shift the burden of proof to the Taxpayer to prove the absence (negative) of such an allegation. The Appellee is prohibited from assessing tax solely based on assumptions or suspicions without competent evidence showing that the transaction did not occur.

Facts Defeat Rhetoric

Complementing the burden of proof principle, the maxim Facta sunt potentiora verbis emphasizes that narratives or verbal arguments hold no power if they contradict physical evidence. In the Tax Court, Judges assess the strength of evidence based on authentic documents such as cash flow, goods flow, contracts, and business correspondence.

If the Appellee merely presents theoretical arguments that a transaction "makes no sense" or is "unusual," while the Taxpayer presents a pile of valid transaction proofs (invoices, bank statements, delivery notes), then by law, facts must prevail over assumptions.

Application Example: Constructive Dividend Disputes

A tangible application of these principles is often seen in Transfer Pricing or related-party transaction disputes. For instance, in cases where the Appellee corrects royalty or technical service fees on the grounds that the transactions lack economic substance, re-characterizing them as constructive dividends.

In court, the Appellee argues that because the Taxpayer is in a loss position or has a special relationship, the service payment must be profit shifting. However, the Taxpayer (Appellant) counters by bringing evidence:

1. Facts (Facta): Valid contracts, proof of payment transfers, work result reports, and evidence of economic benefits received by the company.
2. Law of Evidence (Affirmantis): The Appellant challenges the Appellee to present contrary evidence proving the service was not performed.

When the Appellee fails to present adequate functional and risk analysis or concrete evidence that the service was fictitious, the Panel of Judges will overturn the correction. The Judges deem the Appellee's arguments as mere assumptions (verbis) that crumble in the face of the transaction evidence (facta) presented by the Taxpayer.

Conclusion

In tax litigation, Taxpayers need not fear bombastic corrections as long as they maintain orderly documentation. The Tax Court acts as a fortress for justice seekers where the tax authority's assumptions are rigorously tested. Through the principles of Affirmantis est probare and Facta sunt potentiora verbis, the law guarantees that tax may only be collected based on irrefutable facts, not mere suspicion.