Tax Alert! Without Concrete Evidence, Subsidiary Advertising and Warranty Costs Face Total Disallowance.

PT JI Tax Dispute: Positive Correction on Marketing and Warranty Expenses for Limited Risk Distributor

The Tax Authority (Respondent) conducted a positive correction of IDR 21.4 billion on marketing and warranty expenses, arguing that PT JI acted as a limited risk distributor and should not bear such costs. Under Indonesian tax regulations, expenses to obtain, collect, and maintain income (3M) must be supported by competent evidence as stipulated in Article 6(1) of the Income Tax Law and PMK-02/2010. The conflict arose when the Respondent assessed that the marketing function and product risks were held by the parent company (JKC), while PT JI claimed these were pure operational costs for the local Indonesian market.

Judicial Considerations: Lack of Competent Documentary Evidence and Disallowance of Operational Costs

The Board of Judges emphasized in their legal consideration that every expense claimed as a deduction must be physically and administratively proven. During the trial, PT JI failed to present source documents such as Purchase Orders, proof of product sample handovers, or detailed authorizations of promotion plans approved by the parent company. Due to the lack of adequate supporting evidence, the Board of Judges ruled that the Respondent's correction was legally sound. Consequently, Taxpayers must ensure that documentary evidence is fully available for every promotional activity to avoid the disallowance of routine operational costs.

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