The Cash Flow Trap: When Bank Loans Are Treated as Revenue by Tax Authorities

Tax disputes often originate from differing interpretations of financial data, particularly in deciphering a company's cash flow. The case of PT ST versus the Director General of Taxes (DJP) in this Tax Court Decision serves as a classic example of how an accounts receivable analysis conducted in aggregate—without tracing the nature of transactions—can lead to baseless tax corrections. This dispute highlights the critical importance of material evidence in Indonesian tax law, where auditor assumptions must yield to factual evidence in court.

The core issue in this case was a correction to the Value Added Tax (VAT) imposition base amounting to IDR 3,872,060,172.00 for a single tax period, which was an implication of a total annual correction. The DJP, exercising its authority under Article 12 paragraph (3) of the General Tax Provisions and Procedures Law (UU KUP), performed an equalization between Corporate Income Tax and VAT. The auditors discovered inflows of funds into PT ST's bank accounts that significantly exceeded the reported turnover. Without hesitation, this discrepancy was deemed as deliveries of Taxable Goods (BKP) for which VAT had not been collected. The DJP's argument was simple: any inflow that could not be adequately explained during the audit was considered revenue.

However, PT ST mounted a vigorous defense in the Tax Court. They proved that the surge in "receipts" in their bank statements was not sales proceeds from customers, but rather the disbursement of a working capital credit facility from Bank W and internal fund transfers between company accounts. PT ST asserted that VAT is imposed on the delivery of goods or services (Article 4 paragraph 1 of the VAT Law), not on the receipt of debt. The DJP's correction was deemed flawed for equating liability (debt) with revenue (turnover), and for lacking support from physical evidence of delivery such as Delivery Orders or Sales Invoices.

The Tax Court Panel of Judges ultimately rendered a decision fully favoring PT ST (Fully Granted). In their reasoning, the Judges emphasized that this VAT correction was a consequential adjustment from the Corporate Income Tax dispute. Since it was proven in the examination of the Corporate Income Tax dispute that the fund flows were non-sales transactions (loans and internal transfers), the premise of the DJP's correction was legally nullified. This ruling reinforces the legal implication that tax authorities cannot enforce VAT imposition solely based on cash flow assumptions without competent evidence of the delivery of Taxable Goods or Services.

A Comprehensive Analysis and the Tax Court Decision on This Dispute Are Available Here