Input VAT Saved! Taxpayer Wins Against Fictitious Invoice Correction: The Key Argument Revealed

Tax Court Decision on Input VAT Crediting and Fictitious Invoice Indications of PT MSJ

The principle of prudence for taxpayers in crediting Input Value Added Tax (VAT) was once again tested in the June 2018 VAT dispute involving PT MSJ. In this case, the fiscal authority (Directorate General of Taxes/DGT) made a correction based on indications of non-genuine or fictitious tax invoices. The core conflict in this dispute, classified under the PPN-A1 taxonomy code, revolved around whether a buyer (the Appellant), who has substantially conducted real transactions and fulfilled formal requirements, can be legally penalized for the non-compliance or subsequent inactive status of the seller's PKP (Taxable Entrepreneur) registration. The dispute originated from the issuance of an Underpayment Tax Assessment Letter (SKPKB) for VAT, which the taxpayer disputed through the objection mechanism, eventually leading to an appeal before the Tax Court.

Central Conflict and Interpretation of Article 9 Paragraph (8) of VAT Law

The central conflict lies in the interpretation of Article 9 paragraph (8) of the VAT Law regarding the crediting requirements. The DGT argued that the status of invoices being indicated as fictitious or originating from a problematic PKP automatically nullifies the right to credit Input VAT for the buyer. Conversely, PT MSJ firmly maintained that they acted in good faith, with all transactions supported by complete documentation—ranging from contracts, purchase orders, delivery orders, to valid bank payment proofs—and crucially, that the seller's PKP was active at the time of the transaction. The buyer does not possess the authority or capability to continuously audit the compliance of the seller's PKP.

Burden of Proof and Tax Court Panel Resolution

In its resolution, the Tax Court Panel explicitly placed the burden of proof upon the Respondent (DGT). The Panel stated that the accusation of fictitious invoices is a serious charge that necessitates strong evidence. If the Respondent is unable to present convincing evidence that the Appellant knew or should have known about the non-genuineness of the tax invoices, the taxpayer's crediting right must be respected. This decision was grounded in the fact that the Appellant successfully proved the materiality of its transactions.

Impact Analysis and Jurisprudence for Business Practices

The analysis of this decision demonstrates a significant impact on Indonesian business practices. The taxpayer's victory, with a fully granted appeal (Kabul Seluruhnya), provides legal certainty that the due diligence obligation of the buyer is limited to the formality and materiality of the internal transaction, and cannot be extended to bear the risk of the DGT’s failure to supervise the seller’s PKP. The implication is that the DGT must strengthen its supervision and confirmation systems for tax invoices, rather than assigning the seller's non-compliance to the good-faith buyer. In conclusion, this Tax Court Decision serves as a crucial jurisprudence, clarifying the boundaries of Input VAT buyer liability.

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