How to Safely Avoid the Risk of Fraudulent Tax Invoices

Fraudulent tax invoices are not merely an administrative issue; they can become a gateway to criminal tax risk. Once the tax authority identifies indications that a tax invoice is not based on an actual transaction, a taxpayer’s status may be escalated from a regular audit to a preliminary evidence audit. 

At this stage, the issue is no longer limited to underpaid tax but extends to alleged criminal conduct. What often goes unnoticed is that such risks do not always arise from intent.  

In many cases, taxpayers become entangled due to negligence, particularly in selecting or verifying business partners. As a result, transactions that appear commercially reasonable may be considered problematic from a tax perspective. 

For this reason, mitigating the risk of fraudulent tax invoices should be a major concern. It is not only about avoiding sanctions, but also about protecting business continuity amid increasingly stringent tax supervision. 

Risks That Are Not Always Recognized 

Fraudulent tax invoices, as defined in Director General of Taxes Circular Letter Number SE‑17/2018, are documents that do not reflect real transactions. This may occur where goods or services were never delivered, the issuer’s taxpayer profile is inconsistent, the tax invoice serial number does not follow proper procedures, or the tax invoice is issued by an unauthorized party. 

In practice, such tax invoices are often used to reduce the tax burden, whether through input Value Added Tax (VAT) credits or inflated expense claims. 

However, not all taxpayers involved in this chain intend to violate the rules. In some cases, companies become victims of unreliable vendors. Unfortunately, from the tax authority’s perspective, negligence still carries consequences. 

Once initial evidence is identified, an audit may be escalated to a preliminary evidence audit. At this point, the risks extend beyond additional tax to potential criminal sanctions that may threaten the business. 

Mitigating the Risk of Fraudulent Tax Invoices 

The most fundamental step in avoiding this risk is ensuring that every transaction is conducted with credible parties. The “know your vendor” principle should be embedded in standard company procedures, rather than treated as a mere administrative formality. 

Taxpayers should ensure that business partners are active and valid VAT-registered taxpayers. In addition, the physical presence of the company, the completeness of its legal documents, and the reasonableness of its business profile should be reviewed. Vendors with unclear business structures, no physical office, or those using personal bank accounts for corporate transactions should raise caution. 

In the digital era, such verification should no longer be difficult. Systems such as e‑Faktur and tax invoice serial number (NSFP) validation are available to ensure transaction authenticity. However, these systems are only effective if taxpayers use them properly and consistently. 

Ensuring Transactions Are Factual 

Besides vendor verification, it is equally important to ensure that every transaction leaves a clear trail both in terms of the flow of goods and funds. Supporting documents such as contracts, delivery notes, goods receipt records, and bank transfer evidence should be properly maintained and mutually consistent. 

The absence of any of these elements may cast doubt on the legitimacy of a transaction. In an audit context, data inconsistencies often become the entry point for deeper scrutiny by the tax authority. 

In other words, compliance cannot exist only on paper. It must be reflected in real, traceable business activities. 

The Importance of Internal Control Systems 

The risk of fraudulent tax invoices can also be reduced by strengthening internal control systems. Companies should establish clear procedures for the procurement of goods and services, including vendor verification and transaction authorization mechanisms. 

Segregation of duties between the parties who purchase, record, and pay is another key measure to prevent potential abuse. Regular internal audits can also help identify issues early, before they develop into more serious risks. 

In the long term, investment in good governance is far less costly than facing the legal and financial consequences of tax violations. 

Acting Promptly When Issues Are Identified 

If internal reviews reveal indications of problematic tax invoices, swift action becomes critical. Taxpayers should immediately conduct a comprehensive evaluation to determine whether the issue arose from negligence or involved intentional misconduct. 

In certain circumstances, the tax system still provides room for revisions and voluntary disclosures before a case escalates further. While these steps may entail financial consequences, they can prevent the matter from entering the criminal domain. 

Delaying or ignoring the issue will only increase the risk, especially if the findings are identified first by the tax authority. 

Compliance as a Business Strategy 

Ultimately, tax risk mitigation cannot be separated from the overall business strategy. Compliance is no longer merely an obligation, but part of the measure to safeguard business sustainability. 

Fraudulent tax invoices may appear to offer short-term benefits. However, behind them lie significant risks that can erode finances, reputation, and even the very existence of a company. 

Therefore, the best approach is not to look for ways to “outsmart” the system, but to ensure that every business process complies with the rules. By doing so, taxpayers not only protect themselves from risk but also contribute to a healthier and fairer tax system. 

Disclaimer! This article is a personal opinion and does not reflect the policies of the institution where the author works.