What should a taxpayer do in a tax audit in Indonesia?

Before we share our views about what taxpayers should do in a tax audit in Indonesia, we will first describe what tax audit is and the criteria for a taxpayer to be subject to a tax audit in Indonesia.

 

What is a tax audit?

According to the Indonesia Republic Minister of Finance Regulation no. 184/2015, it is explained that audit is a series of activities to collect and process data, information, and/or evidence which are carried out objectively and professionally based on an audit standard to test compliance with taxation obligations and/or for the purpose of other in the framework of implementing the provisions of tax laws and regulations.

 

Criteria for a tax audit in Indonesia

The criteria for taxpayers who will be subject to a tax audit in Indonesia according to PMK 184 of 2015 are as follows:

  1. Taxpayers who apply for the refund of an overpayment of taxes as referred to in Article 17B of the General Provision of Tax Law;

  2. There is other information in the form of concrete data as referred to in Article 13 paragraph (1) letter (a) of the General Provision of Tax Law;

  3. The Taxpayer submits a Tax Return stating overpayment, other than the one applying for the refund of the overpayment of tax as referred to in letter a;

  4. Taxpayers who have been given preliminary refunds of overpayment of taxes;

  5. The taxpayer submits a tax return stating the loss;

  6. Taxpayers perform merger, consolidation, expansion, liquidation, dissolution, or will leave Indonesia for good;

  7. Taxpayers make changes to the financial year or bookkeeping method or because of the revaluation of fixed assets;

  8. Taxpayers do not submit or submit Tax Returns but beyond the time limit specified in the warning letter selected for Audit based on Risk Analysis; or

  9. The Taxpayer submits the selected Letter to be carried out based on Risk Analysis.

 

Things to do by the taxpayer to reduce risks related to the tax audit in Indonesia

If a taxpayer becomes a subject in a tax audit in Indonesia, the following are things that must be done to reduce the risks related to the tax audit.

 

1. Examining the Types of Tax Audit in Indonesia

Examining the type of tax audit will give an idea of what preparation needs to be done because the type of tax audit will determine the depth and complexity of the audit. Tax audits can be carried out by the tax office through office audit or field audit.

The type of tax audit in Indonesia can be seen in the tax audit instruction letter (Surat Perintah Pemeriksaan Pajak), if there is a field audit order (Surat Perintah Pemeriksaan Pajak Lapangan), it means that the taxpayer will be subject to field audit (Pemeriksaan Lapangan).

 

Office tax audit (Pemeriksaan Kantor)

An office audit is a tax audit conducted at the office of the Directorate General of Taxes (“Tax Office”). An office audit is carried out only if the taxpayer is deemed to have a low tax risk level which indicated from good level of compliance, that is, the financial statements have been audited for 2 consecutive years and have received an Unqualified opinion and are not in the investigation process related to tax crimes and have never been involved in criminal violations of tax provisions within five years last.

 

Field tax audit (Pemeriksaan Lapangan)

A field audit is an Audit that is carried out at the Taxpayer's residence or domicile, the Taxpayer's place of business activity or work, and/or other places deemed necessary by the Tax Auditor. Field checks are conducted for the criteria for taxpayers who are considered to have a higher risk.

 

2. Pay attention to the scope and period of the examination

Tax audits can be carried out for all types of tax or only one or several types of taxes. Types of taxes that can be audited for companies or corporate taxpayers are:

  1. Corporate Income Tax

  2. Income Tax Article 21

  3. Income Tax Article 23, Article 26, Article 4.2, Article 15

  4. Value-added tax

For the Individual taxpayers, in general, the tax audit object is his/her individual income tax, unless the personal taxpayer is an entrepreneur with an individual business form, so that the following scope of examination may apply:

  1. Income Tax Article 21

  2. Income Tax Article 23, Article 26, Article 4.2, Article 15

  3. Value-added tax

Make sure what year and month are the scopes of the tax audit.

After receiving the audit instruction letter, we must immediately see the date of the letter and the date of the meeting requested by the tax audit team. For office audit type, the date of meeting and attendance of the taxpayer at the tax office will be the starting date of the audit process.

Each type of examination has a different period of time. For this reason, it is important to pay attention to the type of tax audit in order to estimate the completion time of the audit.

 

Office audit Completion Time

Based on the Minister of Finance Regulation 184/2015, the office audit examination is carried out within a period of 4 (four) months which is calculated from the date the Taxpayer arrives and fulfills the summons for office audit and can be extended no later than 2 months until the date of the Audit Result Report, if in the examination there are:

  1. Office Audit is extended to Tax Period, Part of Tax Year, or other Tax Year;

  2. There is a confirmation or request for data and/or information from a third party;

  3. The scope of Office Audit covers all types of taxes; and/or

  4. Based on the consideration of the head of the tax audit unit.

 

Field Inspection Completion Time

Field inspection testing is carried out within a maximum period of 6 (six) months since the Field Audit Notification Letter is submitted to the Taxpayer, representative, proxy, employee, or adult family member of the Taxpayer, until the date the SPHP is submitted to the Taxpayer, representative, attorney, employee, or adult family member of the Taxpayer.

 

3. Preparing the Data Requested by the Tax Auditor and the Appropriate Communication Method with the Tax Auditor Team

 

a. Preparation of data that will be requested by the Tax Auditor

Each tax audit will always involve data or documents from the taxpayer, the tax auditor will always request for related data and information to find any non-compliance and potential tax liability from taxpayers. Therefore, taxpayers must prepare the requested data as well as possible so that it is easily understood by tax auditors and to counter the findings of tax audit.

 

During the tax audit, taxpayers better to perform an internal review of their tax conditions so that they know any weaknesses, including non-compliance items that may have been committed without realizing it. With this review, taxpayers will have clearer information about their conditions and provide benefits for the right strategy in tax audits or in the discussion process with tax auditors.

 

Standard Procedure of Office Audit 

The standard procedure of the tax auditor in the office audit is to ask for information on the following matters:

  1. The identity of the taxpayer

  2. Taxpayer business processes

  3. Bookkeeping and documentation

  4. Information about customers and suppliers

  5. Transactions of a special nature include transfer pricing

  6. Clarify the data found by the tax examiner with the data on the SPT and other documents.

 

Field Audit Standard Data Request

When the tax audit in Indonesia goes through a field inspection, the tax auditor according to the tax audit manual will request the following data and documents depending on what is being audited, as follows:

  1. Financial statements.

  2. Ledger.

  3. Documents related to the recording of cash and/or all taxpayers' checking account for testing of cash flows.

  4. Documents related to recording sales and receivables to be able to test the flow of receivables.

  5. Documents related to all delivery of Taxable Goods (“BKP”), all Output Tax Invoice issued during the audited tax period, and documents related to business circulation occurring during the audited tax period to be able to test the equalization or reconciliation between business circulation and BKP submission.

  6. Contract or sale-purchase agreement related to the transaction.

  7. Documentation of the fair price of transfer pricing transactions.

  8. Other documents depending on the context of the examination.

 

b. How to communicate with tax auditor in Indonesia

Communication with tax auditors must be in written, formal, and documented form. The following are things that need to be considered in communication:

  1. Actively communicating, responding immediately to, or answering questions or requests from the examining team. Never ignore communications from the tax audit team.

  2. Taxpayers can communicate by phone and email with the inspection team to inquire about developments informally.

  3. In the case of submitting data or documents to the tax auditor, a written receipt must be made of each data, please mention if the borrowed data is a photocopy or original document.

  4. Formal communication by letter. Please make sure the receipt of the letter is well documented and always confirm with the tax audit team when the letter has been received. Sending a copy of the letter (scanned copy) via email to the inspection team can help make the communication process better.

  5. If the taxpayer needs time to collect data or documents requested by the tax audit team, they can inform the tax audit team for an extension of time. Meanwhile, data or documents that are ready can be submitted first.

 

4. Paying attention to the rights and obligations of taxpayers in tax audit

 

Tax Auditor Obligations are as follow:

In carrying out an Audit to test compliance with the fulfillment of tax obligations, the Tax Auditor is obliged to:

  1. Submits the Field Audit Notification Letter to the Taxpayer in the event that the Audit is carried out by the type of Field Audit or in Taxpayer Summon Letter regarding to the Office audit in case the Audit is carried out by the type of Office Audit;

  2. To show the Tax Auditor Identity and SP2 to the Taxpayer when conducting the Audit;

  3. To show a letter containing the Tax Auditor team changes to the Taxpayer if the composition of the Tax Auditor team changes;

  4. To hold a meeting with the taxpayer in order to provide an explanation regarding:

  • - The reason and purpose of the Audit;
  • - The rights and obligations of the Taxpayer during and after the Audit;
  • - The right of the Taxpayer to apply for a discussion with the Audit Quality Assurance Team in the event that the Audit results are limited to the legal basis for the correction which has not been agreed upon between the Tax Auditor and the Taxpayer at the Audit Result Final Discussion, except for the Audit on other information in the form of concrete data conducted by the type of Office Audit as referred to in Article 5 paragraph (3) letter a; and
  • - The obligation of the Taxpayer to fulfill the request for books, records, and/or documents which become the basis of bookkeeping or recording, and other documents, which are borrowed from the Taxpayer;
  1. Write down the results of the meeting as referred to in letter d in the minutes of the meeting with the Taxpayer;

  2. To give the Audit Result Notification Letter (Surat Pemberitahuan Hasil Pemeriksaan/SPHP) to taxpayers;

  3. To give the right to be present to the Taxpayer for the Audit Result Final Discussion at a predetermined time;

  4. Submitting the Audit Questionnaire to the Taxpayer;

  5. Provide guidance to Taxpayers in fulfilling their tax obligations in accordance with the provisions of tax laws and regulations by submitting written advice;

  6. Return books, records, and/or documents which serve as the basis of bookkeeping or records, and other documents borrowed from the taxpayer; and

  7. Keep secret from other parties who are not entitled to everything that is known or notified to the tax auditor by the Taxpayer in the context of the Audit.

 

Taxpayer Rights in Tax Audit in Indonesia

During the field tax audit, taxpayers have the right as follows:

  1. Ask the Tax Auditor to show the Tax Auditor Identification and SP2

  2. Ask the Tax Auditor to issue a Field Audit Notification Letter in the event that the Audit is carried out by the type of Field Audit;

  3. Ask the Tax Auditor to show a letter containing the Tax Auditor team changes if the membership composition of the Tax Auditor team changes;

  4. Ask the Tax Auditor to provide an explanation of the reasons and objectives of the Audit;

  5. Receive an Audit Result Notification Letter (“SPHP”);

  6. Attend the Audit Result Final Discussion at the predetermined time;

  7. Submit a request for discussion with the Audit Quality Assurance Team, in the event that there are still Audit results that are limited to the legal basis for corrections that have not been agreed upon between the Tax Auditor and the Taxpayer at the time of the Audit Result Final Discussion, except for the Audit on other information in the form of concrete data carried out by the type of Office Audit as referred to in Article 5 paragraph (3) letter a; and

  8. Provide opinion or assessment on the implementation of the Audit by the Tax Auditor through filling out the Audit Questionnaire.

 

5. Final Result Discussion Tax Audit

During the audit process completion, the taxpayer and tax audit team will have a meeting session to discuss the final results of the audit and provide the tax audit report with a maximum period of 2 months. After the discussion meeting is complete, an Audit Result Notification Letter (SPHP) will come out containing a list of findings during the examination.

In responding to tax audit findings, taxpayers must prepare supporting information and argumentation, well structured with the right regulatory reference. Taxpayers are required to provide responses which can be in the form of an approval sheet or an objection letter The response letter must be received by the DGT within 7 days after the SPHP is received by the Taxpayer.

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