Domestic Affiliated VAT Transaction Survives IDR 967 Million Correction! The Taxpayer's Key to Victory: Proof of Volume Discount and Coal Quality Penalty

Value Added Tax (VAT) disputes often arise as a domino effect of Transfer Pricing (TP) corrections on Corporate Income Tax (CIT), even in domestic affiliated transactions. The case of PT ABGTI against the Director General of Taxes (DJP) highlights the complexity of applying the Arm's Length Principle (ALP) in determining the VAT Taxable Base (DPP PPN) for Output VAT. The DJP corrected the DPP PPN for self-collected supplies by IDR 967,410,703.00, arguing that the Gross Mark-up (GMU) on coal sales to PT IBR (an affiliate) fell below the arm's length range, following PT ABGTI’s failure to provide adequate Transfer Pricing Documentation (TP Doc).

The DJP's correction was legally grounded in finding a related party relationship (RPR) through common management (the same Director) and the use of the Cost Plus Method, comparing the Gross Mark-up of the affiliated transaction with comparable independent transactions (PT SPV). Since the affiliated transaction’s GMU (March 2021) of 11.91% was below the arm’s length range (Q1-Q4), the DJP adjusted the selling price to increase the DPP. PT ABGTI strongly argued against this correction, asserting that the lower selling price had solid commercial justifications. These justifications included volume discounts due to significantly larger and more routine sales quantity to the affiliate (75% of total sales), the benefit of faster Terms of Payment (15 days vs. 45 days), and most crucially, a price adjustment/penalty due to a decline in coal quality (GCV value) upon delivery, a factual circumstance that legitimately reduced the selling price.

The Tax Court ruled in favour of PT ABGTI. The Panel of Judges accepted and affirmed the validity of PT ABGTI's arguments, particularly the supporting evidence for the price adjustment due to product quality and economic factors such as volume discount and payment speed that justified the lower profit margin. Furthermore, the Panel noted that the fact that the DJP only corrected a small portion of the affiliated transactions indicated that the DJP's suspicion of systematic price manipulation was weak. Finally, the Panel underscored that since the corrected VAT related to domestic transactions and would constitute Input VAT creditable by the affiliate, the correction did not result in a net loss to state revenue (the zero sum effect). Based on these considerations, the Tax Court nullified the Output VAT correction and Granted PT ABGTI’s Appeal in Full, resulting in a zero VAT Underpayment and no administrative sanctions.

A Comprehensive Analysis and the Tax Court Decision on This Dispute Are Available Here