No VAT Invoice, No Problem? Strategy to Defend COGS Corrections on Non-VAT Supplier Transactions 

Tax Dispute: Correction of Cost of Goods Sold Due to Absence of Input VAT Invoices

This dispute centers on the correction of the Cost of Goods Sold (COGS) by the Tax Authority due to the absence of Input VAT Invoices as evidence of merchandise purchases. In the realm of Individual Income Tax, particularly for retail businesses, reliance on non-VAT registered (Non-PKP) suppliers is often a point of vulnerability during tax audits as it is deemed to lack the competence of external evidence.

Case Background: Discrepancy Equalization and Receipts from Non-PKP Suppliers

The case began when the Respondent performed an equalization between the purchase value in the Income Tax Return and the reported Input VAT Invoices in the Tax Information System. Due to a significant discrepancy, the Respondent issued a correction, arguing that the purchase costs were not supported by valid documents under Article 6 Paragraph (1) of the Income Tax Law. Conversely, the Petitioner argued that as a telecommunication equipment retailer, the majority of supplies were obtained from individuals or entities not yet registered for VAT, yet the transactions were genuine and backed by receipts.

Judicial Evaluation: Emphasis on Material Truth through Cash Flow Verification

The Board of Judges emphasized material truth in their consideration. Although formal evidence in the form of VAT Invoices was unavailable, the Judges conducted an in-depth test of cash flows and other internal/external documents such as receipts and bank statements. Consequently, part of the COGS correction was overturned as the Petitioner successfully demonstrated that the outflow of funds aligned with the volume of stock sold.

Legal Implication: Income Tax Validity and the Document Integrity Chain

This decision reaffirms that in Income Tax disputes, the absence of a VAT Invoice (as a VAT document) does not automatically disqualify purchase costs as long as the Taxpayer can prove the existence of the transaction and its connection to obtaining, collecting, and maintaining income (3M). For taxpayers, maintaining the integrity of the document chain from receipts to bank transfer evidence is the primary mitigation against similar corrections.