On August 20, 2021, the Director General of Taxes (“DGT”) issued Circular Letter Number SE-45/PJ/2021 (“SE-45”) to provide guidelines for testing the creditability of input VAT invoices through the confirmation process in the DGT’s information system. This confirmation process is often conducted in a tax audit process. A negative confirmation from this process will lead to the VAT invoice being deemed non-creditable.

SE-45 provides more certainty over the confirmation process of testing creditability of input VAT invoices, i.e. that the confirmation process should not be considered a determining factor. According to SE-45, an input VAT invoice can be credited as input VAT as long as it meets the following requirements:

1. It is not VAT on expenditure as referred to in Article 9 paragraph (8) of the VAT Law;
2. It complies with the formal requirements, i.e. the provisions set out in Article 13 paragraph (5) of the VAT Law or the requirements outlined in the DGT Regulation concerning certain documents treated as equivalent to a VAT invoice as referred to in Article 13 paragraph (6) of the VAT Law; and
3. It complies with the material requirements, i.e. it contains actual information regarding the delivery of Taxable Goods, delivery of Taxable Services, import of Taxable Goods, and/or utilization of intangible Taxable Services or Taxable Goods from outside the Customs Territory within the Customs Territory. The testing of material requirements shall be conducted by testing cash flow, the flow of goods or the acquisition of services, and the flow of documents and confirmation of VAT invoices through the information system of the Directorate General of Taxes.

SE-45 confirms that even though the confirmation process result is ‘negative’, the input VAT invoice can be creditable provided the formal requirements and material requirements are met. SE-45 provides a summary of varied results of the confirmation process: