Negativa Non Sunt Probanda Principle: When the Tax Authority Cannot Shift the Burden of Proof 

Legal certainty in tax audits has again become a focal point following the ruling of the Tax Court on the case of PT WI. In the corporate income tax dispute for Fiscal Year 2020, the panel of judges reaffirmed the application of the negativa non sunt probanda principle—that negative facts do not need to be proven. This principle played a key role for PT WI when the Directorate General of Taxes (DJP) attempted to shift the burden of proof to the taxpayer.

The dispute arose from significant adjustments related to increases in other liabilities and capital contributions, which DJP considered as other income, as well as positive fiscal adjustments on excise stamp penalties and other expenses. DJP argued that PT WI could not substantiate the source or validity of these transactions, thereby classifying them as additional taxable economic capacity. DJP also claimed that certain expenses were not related to activities to earn, collect, and maintain income (the 3M principle), hence the fiscal adjustments. PT WI firmly rejected these claims, asserting that the increases in liabilities and capital contributions were not income and that DJP’s claims regarding expenses unrelated to the 3M principle were unfounded.

The panel of judges agreed with PT WI. In its considerations, the court emphasized that the burden of proof lies with the party making the allegation, in this case DJP. Requesting PT WI to prove that these transactions were not income contradicts the negativa non sunt probanda principle. As DJP failed to provide convincing evidence for its claims, the adjustments related to increases in other liabilities and capital contributions were entirely annulled.

Meanwhile, regarding positive fiscal adjustments, the court ruled that excise stamp penalties cannot be deducted for tax purposes. Although PT WI argued under Article 9(1)(k) of the Income Tax Law, the judges noted that the essence of penalties is to punish and provide deterrence. Therefore, the adjustment for excise stamp penalties was upheld, while other positive fiscal adjustments were canceled due to lack of substantial evidence. According to the court, DJP should not shift the burden of proof to the taxpayer.

This ruling underscores the importance for taxpayers to understand the negativa non sunt probanda principle as a basis for defending against adjustments unsupported by concrete evidence from DJP. The principle ensures that DJP cannot shift the burden of proof to taxpayers to prove the “absence” of facts. In tax disputes, this principle is crucial for maintaining balance between tax authorities and taxpayers, while also upholding legal certainty and fairness in the audit process. Ultimately, whoever asserts a claim must prove it.