Input VAT Credit is Still Possible for 'Dormant' Companies: Key Lessons from a Tax Court Ruling

Input VAT Creditability for Inactive Companies: A Precedent in the PT BML Case

The application of Article 9 paragraph (8) letter b of the Indonesian Value Added Tax Law (UU PPN), which stipulates that Input VAT must be directly related to business activities, often becomes a source of dispute, especially for Taxpayers who are currently inactive or have zero turnover. This Tax Court Decision sets an important precedent by revoking a VAT correction, explicitly stating that a company's non-active status cannot be the sole basis for rejecting Input VAT (PM) credit, as long as the substance of the transaction can be proven through the PKPM (Output VAT-Input VAT Confirmation) mechanism.

The Core Conflict: Zero Turnover and Non-Active Status

This case originated from the Directorate General of Taxes' (DJP) correction of Input VAT for PT BML amounting to IDR 750,000.00 for the August 2015 tax period. The DJP argued that the correction was valid because PT BML was found to no longer be conducting production or operational activities, with zero turnover during the disputed period. This non-active condition was used as the basis to conclude that the Input Tax Invoice (FPM) had no direct relation to the business activities that generated Taxable Deliveries, violating the substantive provisions of the UU PPN.

Procedural Grounds vs. Real-World Hardships

Furthermore, the DJP reinforced its correction argument with procedural grounds, specifically PT BML's failure to submit complete documents during the audit, meaning that evidence newly submitted during the appeal stage should not be considered in accordance with Article 26A paragraph (4) of the General Provisions and Tax Procedures Law (UU KUP). However, PT BML strongly countered, asserting that the FPM was valid and related to the company's efforts to maintain its existence. They also explained that document submission delays were due to the company's severe internal difficulties, which subsequently led to a declaration of bankruptcy.

Judicial Resolution: The Power of PKPM Confirmation

During the hearing, the Tax Court Panel of Judges thoroughly analyzed the material evidence of the transaction. The Panel rejected the DJP’s argument regarding the company's non-active status, stating that costs supporting the company's survival are still necessary and can credit Input VAT. The decisive point in the ruling was the finding that the DJP itself had conducted a PKPM Confirmation of the Input Tax Invoice, which explicitly stated that the FPM was "valid" and the VAT had been collected and deposited by the counterparty.

Conclusion and Legal Implications

Based on the result of the PKPM Confirmation carried out by the DJP, the Panel of Judges concluded that the substantial and formal truth of the Input Tax Invoice was proven. Consequently, the Panel ruled that the Input VAT must be credited in accordance with Article 9 of the UU PPN. The implications of this ruling are highly significant, providing legal certainty for Taxpayers facing difficult or distress conditions. The decision asserts that the weight of material evidence, especially the official confirmation results from the DJP, is higher than rejections based merely on non-operational status or procedural arguments. This decision completely annulled the DJP's correction and penalties, granting PT BML's appeal in full.