Equalization Correction Alert! PT DMG Loses in Tax Court Due to Failure to Prove Accounting Errors 

Tax Dispute of PT DMG: Legality of Income Tax Article 23 Equalization Under Article 12 Paragraph (3) of the KUP Law

Article 12 paragraph (3) of the KUP Law authorizes the Director General of Taxes to determine the amount of tax due through audit procedures if evidence is found that the Tax Return (SPT) submitted by the Taxpayer does not reflect the actual situation. In the PT DMG dispute, the Respondent made a positive correction to the Article 23 Income Tax Object for the December 2016 Tax Period amounting to IDR 5.18 billion, sourced from the results of expense equalization in the Profit and Loss Statement with the objects reported in the Article 23 Income Tax Return. The core of the conflict began when the Respondent found discrepancies in rental expenses, vehicle maintenance, and office maintenance, which were considered tax withholding objects for which obligations had not been met.

The Core Conflict: Demands for Cash Flow Testing vs. Absence of Bank Statements and Work Contracts

The Petitioner (PT DMG) denied the correction on the grounds that there was an error in including values in the financial statements. PT DMG argued that the Respondent only based the correction on numerical equalization without conducting cash flow and goods flow tests as mandated in credible tax audit standards. However, on the other hand, the Respondent stated that during the audit and objection process, PT DMG was uncooperative because they did not provide vital documents such as Bank Statements and Work Contracts, so the cash flow test could not be performed optimally.

Resolution of the Board: Burden of Proof on Internal Data Under Article 78 of the Tax Court Law

The Board of Judges, in their resolution, emphasized the formal and material aspects of evidence according to Article 78 of the Tax Court Law. The Judges argued that since the data used by the Respondent came from the Petitioner's own Financial Statements, the burden of proof to refute the validity of that data (related to the claim of accounting errors) rested entirely with the Petitioner. Throughout the trial, the Petitioner was unable to show strong supporting documentary evidence to underlie the "accounting error" argument.

Ruling Implications and Conclusion: Equalization as a Valid Instrument and the Critical Need for Hard Evidence

The implication of this decision confirms that the equalization method is a valid testing instrument for tax authorities. For Taxpayers, claims of administrative errors or accounting mistakes will not have legal standing before the Board of Judges without the support of comprehensive documentary evidence (hard evidence). In conclusion, document transparency during the audit and the strength of evidence in court are the main keys to winning tax disputes.

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