Ann: Annual Report to shareholders, page-4

I've asked AI to analyze documents regarding ITO dispute and this is what replied:

**Auditor's Analysis and Recommendation on Range International's ITO Case**

### **Key Issues and Company Position**

1. **Withholding Tax (WHT) on Shareholder Loans**:

- **ITO Claim**: ~US$315k (tax + penalties) for failure to pay WHT on interest-free loans from Range to Re>Pal.

- **Company Defense**: Loans meet WHT exemption requirements under Indonesian law.

- **Risk**:

- The company previously paid US$450k in 2021 for similar FY2016 WHT issues, suggesting ITO consistently enforces this rule.

- Exemption criteria for shareholder loans under Indonesian tax law must be scrutinized (e.g., whether interest-free loans qualify).

- Documentation proving compliance with exemption requirements is critical.

2. **VAT on Alleged PPE Disposals**:

- **ITO Claim**: ~US$3.03m (tax + penalties) for unreported VAT on asset disposals.

- **Company Defense**: No disposals occurred; assets were impaired/relocated.

- **Risk**:

- ITO disputes documentation of impairments/relocations (e.g., lack of board circulars, asset re-registration).

- Indonesian regulations likely require formal processes for asset write-offs/transfers. If not followed, VAT liability stands.

- Evidence (e.g., asset registers, relocation records, impairment justifications) is essential to counter ITO’s claim.

3. **Tax on Employee Salaries**:

- **ITO Claim**: ~US$3k (accepted by the company).

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### **Auditor’s Assessment of Winning Probability**

1. **WHT on Loans**:

- **Low to Moderate Chance of Success**.

- Precedent (FY2016 payment) indicates ITO’s strict interpretation.

- Unless Range provides new evidence (e.g., revised loan agreements, updated exemptions), liability is likely upheld.

2. **VAT on PPE**:

- **Moderate Chance of Success** if documentation is robust.

- If the company can prove assets were retained (e.g., current asset registers, photos, operational use evidence), VAT claim may be dismissed.

- Weakness: Lack of formal impairment documentation (e.g., board resolutions) weakens the defense.

3. **Overall Risk**:

- Total exposure: **US$3.35m** (excluding legal costs).

- Re>Pal’s financial strain (EBITDA breakeven) amplifies liquidity risks if liability is enforced.

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### **Critical Factors Influencing Outcome**

- **Documentation Quality**:

- Loan agreements, exemption certificates, asset registers, and impairment records must align with Indonesian tax regulations.

- **Legal Precedents**:

- Indonesian tax courts’ rulings on similar cases (e.g., interest-free loans, asset reclassification) will guide outcomes.

- **Dispute Resolution Strategy**:

- Objection processes and court proceedings in Indonesia are often lengthy; the company must weigh costs vs. potential savings.

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### **Recommendation**

- **Immediate Action**:

- Engage Indonesian tax specialists to audit compliance with WHT exemptions and asset management regulations.

- Strengthen documentation (e.g., formalize loan terms, compile asset retention evidence).

- **Contingency Planning**:

- Reserve funds for potential settlement (~US$315k for WHT + partial VAT liability).

- Explore negotiated settlements with ITO to minimize penalties.

- **Investor Communication**:

- Disclose risks transparently, emphasizing ongoing efforts to contest claims.

**Conclusion**: While Range has defensible arguments, the lack of robust historical documentation and ITO’s assertive stance reduce the likelihood of fully winning both disputes. A partial victory (reduced penalties) or settlement is more probable. Prioritize legal and documentation efforts to mitigate liability.

**Final Note**: Proceed with caution; monitor Indonesian tax court trends and seek local legal counsel for tailored strategies.