The Principle of Material Truth and the Active Role of Judges in Tax Disputes

In the realm of Indonesian tax law, the Tax Court functions as more than just an examiner of administrative completeness. Beyond that, Law Number 14 of 2002 regarding the Tax Court mandates a fundamental principle: The Principle of Material Truth (Kebenaran Materiil). This principle demands that judges' decisions be based on facts that truly occurred, not merely on what is written on paper or formalitites.

Legal Basis: Article 76 of the Tax Court Law and Judicial Conviction

The main foothold for this search for truth is Article 76 of the Tax Court Law. This article asserts that Judges strive to determine what must be proven, the burden of proof, and a fair assessment for the parties to achieve material truth in accordance with tax principles,. The elucidation of this article even opens the door for parties to submit new evidence or facts in court that were not previously revealed during the audit or objection process,,.

However, this freedom does not stand alone. It is paired with Article 78 of the Tax Court Law, which states that decisions are taken based on the results of evidentiary assessment and applicable laws, and are based on the Judge's conviction,,. This means "judicial knowledge" becomes valid evidence to believe the truth of a fact,.

Judicial Efforts: From Evidentiary Tests to Substance Analysis

To achieve material truth, Judges undertake a series of active efforts in court:

1. Ordering Evidentiary Tests (Uji Bukti): Judges are often unsatisfied with mere oral arguments. In VAT disputes, for example, Judges will request a breakdown of the general ledger, bank statements, and tax invoices to be cross-reconciled between the Appellant and the Appellee. The goal is to ensure whether the flow of money and goods truly occurred,.
2. Assessing Substance Over Form: In Transfer Pricing disputes or affiliated transactions, Judges do not only look at formal contracts. Judges will examine whether the transaction has economic substance. For instance, in "Secondary Adjustment" correction cases (deemed constructive dividends), Judges will examine whether the flowing funds were truly loans or disguised profit distributions,.
3. Critiquing the Burden of Proof: Judges are also keen to see if the Tax Authority (Appellee) has performed its duties correctly. In Decision Number PUT-010334.15/2023, the Judge annulled a depreciation expense correction because the Tax Authority was deemed to have merely shifted the burden of proof to the Taxpayer without having strong initial evidence that a correction was necessary. The Judge emphasized that according to the principle of actori incumbit probatio, the party making the claim (the Tax Authority) is obliged to prove it,.

Case Study: The Strict Limit of SEMA Number 2 of 2024

Although the principle of material truth is upheld, there are important limitations regarding Taxpayer behavior. Judicial efforts to dig for the truth must not be abused by parties acting in bad faith.

A concrete example is found in Decision Number PUT-010296.15/2021/PP/M.IIB Tahun 2025. In a dispute over a depreciation expense correction of IDR 10.7 Billion, the Appellant attempted to submit details of fixed assets in court that were not submitted during the audit and objection.

The Panel of Judges, referring to SEMA Number 2 of 2024, refused to consider this new evidence. The Judges opined that the data was in the Taxpayer's possession and had been properly requested by the Examiner but was deliberately withheld. In this condition, the "material truth" submitted late was defeated by intentional procedural non-compliance, so the Tax Authority's correction was maintained,.

Conversely, in Decision Number PUT-009278.16/2023, for a VAT dispute on reimbursement, the Judge granted part of the Taxpayer's appeal after conducting a deep evidentiary test on freight income and export transactions, proving that not all fund flows were VAT objects,,.

Conclusion

The Tax Court is the bastion for substantive justice. Judges have broad authority under Articles 76 and 78 to dig for material truth through evidentiary tests and independent assessment. However, this door to truth requires good faith (cooperation) from the Taxpayer starting from the audit stage. If data is deliberately hidden (as in the application of SEMA 2/2024), Judges have the authority to close that evidentiary door for the sake of legal certainty.