This dispute centers on the interpretation of Article 4 paragraph (1) of the Income Tax Law regarding the determination of additional economic capability through indirect methods, specifically the cash flow test of the Taxpayer's bank accounts. The Respondent (DJP) issued a correction of IDR 4,015,205,391 on credit mutations, considered as salary or bonuses from the companies where the Appellant served as a director. The Respondent argued that any funds entering a personal account without a clear loan contract must be classified as taxable net income.
However, the Appellant provided a strong rebuttal, claiming the account functioned as a transactional instrument for corporate operations (entrusted funds) to pay vendors and reimburse costs advanced by the Appellant. Evidences included detailed fund usage for vendors of PT KPS and PT KBS, as well as mortgage payment schemes sourced from the company. This demonstrated a lack of actual wealth increase for the Taxpayer personally.
The Board of Judges emphasized the principle of substance over form in their consideration. The Board ruled that as long as the Taxpayer can prove the funds were immediately disbursed for the benefit of the legal entity (the company), such funds do not qualify as income under the Tax Law. The cash flow test evidence presented by the Appellant was deemed valid and sufficient to overturn the Respondent's assumption. Consequently, the Board cancelled the correction for this position as it was proven to be operational entrusted funds, not gross income.
A Comprehensive Analysis and the Tax Court Decision on This Dispute Are Available Here
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