Wiped Out or Recognized? The Fate of IDR 105 Billion Loss Compensation Determined by Prior Year Dispute Rulings

Taxpayers must ensure the utilization of fiscal losses adheres strictly to Article 6 Paragraph (2) of the Income Tax Law (UU PPh), which limits compensation to a maximum of five consecutive years; however, the implementation of this provision frequently triggers disputes, especially when the legal status of fiscal losses from preceding years is still being contested in tax litigation. The dispute between PT KTGI and the Director General of Taxes (DJP) before the Tax Court highlights a fundamental conflict between DJP’s assessments via SKPKB/Objection Decisions and the principle of final legal force (inkracht) of Tax Court Decisions, particularly concerning the correction of Corporate Income Tax loss compensation amounting to IDR 105,559,239,569.00 for Tax Year 2018.

The core dispute arose because the DJP made a positive correction to the Loss Compensation, arguing that based on the Tax Audit results for Tax Years 2015 and 2017, PT KTGI’s fiscal losses had been fully offset and no remainder was available for compensation in Tax Year 2018. For the DJP, the determination within the SKPKB and Objection Decision was deemed sufficient legal basis for correction in the current year. Conversely, PT KTGI strongly contended that the DJP’s determination lacked final legal force (inkracht) as the disputes for those preceding years were still under Appeal at the Tax Court. Therefore, in accordance with Article 8 Paragraph (6) of the General Provisions and Tax Procedures Law (UU KUP), PT KTGI maintained the right to utilize the fiscal loss as stated in its 2018 Corporate Income Tax Return, asserting that the remaining compensation from 2014 was still within the five-year time limit.

In addressing this dilemma, the Tax Court Panel adopted an approach prioritizing legal certainty based on the decisions already issued. The Panel upheld the five-year compensation principle as per the Income Tax Law. However, to calculate the outstanding fiscal loss balance, the Panel did not refer to the WP’s Tax Return figures or the DJP’s SKPKB/Objection Decision figures, but instead relied upon the Tax Court Decisions that had been rendered for the relevant Tax Years 2015 and 2017. Based on these prior Rulings, the Panel performed a recalculation (cascading calculation) of PT KTGI's cumulative fiscal losses. The Panel's findings established that the valid remaining loss compensation that could be applied for Tax Year 2018 amounted to IDR 105,247,341,320.00.

This Tax Court Decision, which partially granted PT KTGI's appeal, provides a crucial lesson for tax practice, particularly concerning the management of chain disputes. The Ruling implicitly confirms that Tax Court Decisions hold a degree of legal authority that must be adhered to by another Panel, even if they are not absolutely final (still subject to Judicial Review). For Taxpayers, this highlights the necessity of promptly concluding disputes from previous years that affect the loss carry-forward, as well as the crucial need to comply with Article 8 Paragraph (6) of the UU KUP to accurately amend the Tax Return following any Court Decision. This proactive compliance is essential to mitigate the risk of consequential corrections and penalties in subsequent years.

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