Affiliate Price Adjustments Not Recognized as Basis for PPh 22 Import Collection

The dispute between PT SB and the DGT originated from the DGT's correction of the Tax Base (DPP) for Income Tax Article 22 Imports for the December 2018 Tax Period amounting to IDR 23,477,255,804.00. This correction resulted in the issuance of a SKPKB PPh 22 Impor (Import Income Tax Assessment Notice) with an underpayment of Rp586,931,395.00 and interest of Rp234,772,559.00, bringing the total amount payable to Rp821,703,954.00. The DGT assessed that there was an underpayment of Income Tax Article 22 on the price adjustment (TP Adjustment) recorded in the Prior Period Intercompany COGS Pricing Adjustment account.

PT SB rejected the correction. According to PT SB, the TP adjustment is not subject to Income Tax Article 22 Import because it is a price adjustment to ensure arm's length profits. The adjustment is not related to the determination of the Import Value by the DJBC, so it should not be treated as an object of Income Tax Article 22. PT SB also pointed out that the DGT never made corrections to similar transactions in 2017 and 2019, so the corrective action only in 2018 was considered inconsistent. In addition, the SKPKB PPh 22 Impor was issued without an SP3DRI from the DJBC, even though according to SE-65/PJ/2015, the determination of PPh 22 Impor by the DJP should be based on prior notification from the DJBC.

The DGT maintained its correction on the grounds that the price adjustment had the effect of increasing the purchase value of imports and was therefore subject to Import Income Tax Article 22. The DGT considered that the TP adjustment entry indicated a reduction in expenses or an increase in the purchase value related to imports, and was therefore substantively subject to Import Income Tax Article 22.

The Panel of Judges ruled that the DGT's correction was untenable. The Panel found inconsistency on the part of the DGT because similar adjustments in other years were not corrected. In addition, the issuance of SKPKB without notification from the Customs and Excise Office was not in accordance with formal provisions. The Panel also considered that the price adjustment was solely related to testing the fairness of affiliated transactions and was not a determination of the Import Value which forms the basis of Income Tax Article 22.

Thus, the Council granted all of PT SB's appeal, declared that the correction of DPP PPh 22 Imports amounting to Rp23,477,255,804.00 was incorrect, and determined that the amount of PPh Article 22 that still had to be paid was Rp0.00.

Comprehensive Analysis and Tax Court Decision on This Dispute is Available Here