Huge VAT Correction Annulled! The KPBN vs. Bappebti Data Showdown in a CPO Transfer Pricing Dispute

The tax dispute concerning the Value Added Tax (VAT) Base Correction (DPP) on Non-Collected Deliveries amounting to Rp. 6,071,208,708.00, PT SAR and the Director General of Taxes (DJP), highlights the complexity of applying the Arm's Length Principle (ALP) to commodity transactions between related parties. The core conflict revolves around determining the Arm's Length Price for Crude Palm Oil (CPO) and selecting the appropriate Comparable Uncontrolled Price (CUP) data. The DJP utilized Bappebti's Medan SPOT Price, while PT SAR used adjusted tender data from PT KPBN, as mandated by the provisions of Article 2 paragraph (1) of the VAT Law.

The dispute initiated with the DJP's redetermination of the CPO sale price, based on the assumption that the price PT SAR charged its affiliate (PT IBP) was below the Arm's Length Price due to the existence of a special relationship (common control). The DJP rejected the KPBN data submitted by PT SAR, arguing that it was non-transparent and not freely accessible to the public, thus failing to meet the criteria for a credible, independent comparable. Consequently, the DJP switched to using the Bappebti (Commodity Futures Trading Regulatory Agency) Medan SPOT Price, which was deemed more reliable and publicly accessible. The VAT DPP correction was then issued based on the price differential resulting from this substitution.

PT SAR, conversely, refuted the correction with the fundamental argument that KPBN is a widely recognized CPO commodity exchange, and the KPBN tender price is the most accurate reflection of the market practice (custom of trade) used by CPO industry players in Indonesia. PT SAR argued that the KPBN price, adjusted for transportation costs (Franco Seller's Factory), was far more relevant to PT SAR 's transactional conditions than the Bappebti SPOT Price used by the DJP. Additionally, PT SAR questioned the legal basis for the domestic VAT transfer pricing correction, which did not meet the criterion of exploiting tax rate differences as stipulated in PER-32/PJ/2011.

In resolving the dispute, the Tax Court Judges provided a crucial legal perspective. The Court ruled that the DJP's rejection of the KPBN data was not legally substantiated. The Court emphasized that the DJP should have acknowledged that the KPBN price is common and routinely used in the CPO industry. The critical point underscored by the Judges was that if the DJP doubted the transparency of the KPBN data, the DJP was obliged to use its authority under Article 35 of the KUP Law to formally request the data from the third party (KPBN) for verification, rather than unilaterally rejecting the data and replacing it with less relevant information. Since the DJP failed to prove that PT SAR's price deviated from the ALP, and given that the Corporate Income Tax correction underlying this VAT correction had been annulled, the VAT DPP correction of Rp. 6,071,208,708.00 was declared void.

This decision holds significant implications for tax practice, particularly for taxpayers engaged in commodity trading with affiliates. It sets a precedent that compliance with common market practices, substantiated by detailed documentation from recognized commodity exchanges, carries superior probative weight. The implication for the DJP is a mandate to be more proactive in using its third-party verification authority and not arbitrarily replacing relevant comparable data with publicly available data whose transactional relevance is questionable. This ruling serves as a firm reminder of the importance of correlation and consistency in determining Arm's Length Prices for both Corporate Income Tax and VAT purposes.

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