ASSISTANCE IN TAX OBJECTION, TAX AUDIT, & TAX APPEAL

Category: Tax & Accounting
Written by Yeni on 16/09/2022
The author’s views are entirely their own and may not always reflect the views of Putranto Alliance.

The government, through the Directorate General of Tax, enforces tax compliance of taxpayers. Tax audits and tax disputes in the form of tax objections and tax appeals frequently occur in companies because of misperceptions in understanding tax regulation. To avoid this misperception, companies should understand the latest tax regulation to avoid the risk of tax disputes.

WHAT IS TAX AUDIT, TAX OBJECTION, AND TAX APPEAL?

Tax audit refers to a series of activities of collecting and processing data, information, and/or evidence objectively and professionally according to auditing standards to assess tax compliance and/or for other purposes in the context of enforcing tax laws and regulations.

In addition, tax objection is a form of legal effort should there is disapproval or disagreement of the tax assessment on a deduction/collection by third parties, the amount of loss, or the amount of tax payable. The taxpayer can then file an objection.

Should the taxpayer is still not satisfied with the Decision Letter of Objection to the objection he submitted, the taxpayer can file an appeal to the Tax Court. An appeal is a legal action that can be taken by a Taxpayer or Tax insurer against a decision that can be appealed based on the applicable tax laws and regulations.

TAX AUDIT

Based on PMK number 17/PMK0.3/2013 on Tax Audit Procedures, there are two types of tax audit:

  1. Office Examination

    An audit was carried out at the office of the Directorate General of Taxes.

  2. Field Examination

    An audit carried out at the place of domicile, place of business activity, or free work, the residence of the taxpayer, or other place determined by the Directorate General of Taxes

A tax audit’s purpose is to verify taxpayers’ tax compliance and for other purposes in implementing tax laws and regulations. In general, there are two kinds of tax audits:

  1. Tax compliance audit

    Tax compliance audit can be classified as follows:
    • Special audit: An audit is carried out when there is an indication of non-compliance with tax obligations, whether based on concrete data or the result of risk analysis; and
    • Routine audit: An audit conducted in connection with the Taxpayers’ performance of their tax rights and/or obligations.

  2. Tax audit for other purposes

    Other purposes that need a tax audit include:
    • Issuance of Taxpayer Identification Number (NPWP) and/or registration or revocation of Value-Added Tax (VAT) Entrepreneur status ex-officio;
    • Revocation of NPWP and/or VAT Entrepreneur status at the taxpayer’s request;
    • Determination of commercial production commencement;
    • Designation of Taxpayer located in a remote area;
    • Determination of exploration cost;
    • Tax collection;
    • Objection;
    • Collection of materials for preparing a Net Income Calculation Norm;
    • Revocation of NPWP and/or VAT Entrepreneur status ex-officio.

STAGES OF TAX AUDIT

A tax audit starts with receiving a Notice of Field Audit or complying in case of an office audit. The tax audit results must be notified and delivered to the taxpayer through a Notice of Tax Audit Findings enclosing a list of the audit findings and the legal basis for the findings. The audit can be done online in special cases, such as during a pandemic.

A tax compliance audit ends with an Audit Report and a legal product that could be in the form of:

  1. Notice of Tax Underpayment Assessment;
  2. Notice of Additional Tax Underpayment Assessment;
  3. Notice of Nil Tax Assessment;
  4. Notice of Tax Overpayment Assessment.
  5. An audit for other purposes concludes with an Audit Report issued to contain the decision to accept or reject the taxpayer’s proposal.

RIGHTS AND OBLIGATIONS OF TAXPAYERS IN TAX AUDIT

The audited taxpayer has the rights to:

  1. Request the tax auditor to show their auditor ID badge and produce an Audit Warrant;
  2. Request the tax auditor to provide a Notice of Field Audit;
  3. Request the tax auditor to produce a letter certifying the change in the composition of the auditor team members;
  4. Request the tax auditor to explain the reason and purpose of the tax audit;
  5. Receive a Notice of Tax Audit Findings;
  6. Attend the audit closing conference on the date indicated in the invitation letter;
  7. Propose to discuss with the Quality Assurance Team if a dispute between the tax auditor and the auditee arises during the audit closing conference; and
  8. Give their opinion and assessment concerning the tax auditor’s performance of tax audit by completing an audit questionnaire.

The audited taxpayer has the obligation to:

  1. Comply with the summons to attend the tax audit conference for field tax audit briefing;
  2. Produce and/or loan documents forming the basis for income calculation;
  3. Allow accessing and/or downloading electronic data;
  4. Allow the auditor to enter sites or rooms where documents are stored;
  5. Assist in the smooth running of the audit, such as:
  6. Provide personnel and/or equipment at their expense if accessing the electronic data requires specific equipment and/or expertise;
  7. Assist the auditor team in accessing personal and/or non-personal properties; and/or
  8. Make available a room if the audit is carried out on their premises;
  9. Loan the Audit Working Papers prepared by Public Accountant
  10. Submit a written response to the Notice of Tax Audit Findings; and
  11. Provide other necessary written and/or verbal information.

TAX OBJECTION

Based on UU KUP article 25, taxpayers can propose a tax objection only to the Directorate General of Taxation for:

  1. Underpayment Tax Assessment Letter (SKPKB);
  2. Additional Underpayment Tax Assessment Letter (SKPKBT);
  3. Overpayment Tax Assessment Letter (SKPLB);
  4. Zero Tax Assessment Letter (SKPN);
  5. Withholding or collecting taxes by third parties based on tax laws and regulations provisions.

The term of filing an objection based on Article 25 number (2), (3), (4) UU KUP, as follows:

  1. The Letter of Objection wrote in Indonesia;
  2. Include the amount of tax payable or the amount of tax deduction /collection or the amount of the loss following the taxpayer calculation;
  3. Include clear reasons;
  4. The Letter of Objection is filled in 3 (three) months since SKP (The Letter of Tax Assessment) is issued / the date of tax deduction /collection, except beyond the jurisdiction of the taxpayer (force majeure).
  5. One letter of objection only for one type of tax and a tax year.

If the terms are not fulfilled, the objection submitted is not considered. In addition, a taxpayer should pay off the tax payable at least an amount that the taxpayer has approved before submitting the letter of objection.

Taxpayers can only file an objection to the material or content of the tax assessment letter, which includes the amount of loss based on the provisions of tax laws and regulations, the amount of tax, or the material or content of withholding or collecting taxes.

Suppose there are reasons for the objection other than the material or content of the tax assessment letter or withholding or collection of taxes. In that case, those reasons are not considered in settlement of the objection.

The longest settlement period of tax objection is 12 (twelve) months from the date of the letter of objection accepted, and DJP has to decide. The objection letter is considered approved if the DJP does not decide by that period.

TAX APPEAL

When a submitted objection is rejected, but a company is still not satisfied with the decision letter of objection, a company can take a tax appeal.

Below are the terms to submit an appeal:

  1. Taxpayers may file an appeal only to the tax court on the Decision Letter of Objection;
  2. The application is submitted in Indonesian with clear reasons no later than 3 (three) months since the Decision Letter of Objection is received and attached with a copy of the Decision Letter of Objection;
  3. 1 (one) Letter of Appeal shall be submitted.

WHEN DO YOU NEED TAX OBJECTION, TAX AUDIT, & TAX APPEAL SERVICE?

A company needs service-related tax objections, tax audits, and tax appeals when they receive an unfair tax assessment or get tax disputes with Tax Authority. Moreover, a tax service assists a company in tax compliance, tax planning, tax auditing, tax restitution, and the completion of a tax dispute.

HOW CAN WE HELP

The Tax Authority has been tough on enforcing tax compliance. This results in an increasing number of tax audits and tax disputes. A good understanding of Tax and Company Law and awareness of the time frame to lodge an objection or an appeal are crucial when dealing with such a situation. As with any court case in Indonesia, case settlements in tax disputes usually drag on for months. Our registered tax consultant and tax attorney can help to represent and communicate your point of view during such tax disputes.

We strive to maintain good cooperation and seamless communication with the client so that the case can be properly represented in the Tax Court or the Tax Authority. We anticipate problems, advise clients on the relevant data requirements, and provide recommendations and guidance for your case. We will carefully review your data, journals, and tax reports in such engagements.

REFERENCES

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