Within the framework of enforcing the Arm’s Length Principle (ALP) on related-party transactions, a domestic tax dispute once again highlights the complexities of commodity transfer pricing and its application leading to Constructive Dividends. The case of PT. SAR involves a corporate income tax (PPh) Article 23 correction for the March 2021 tax period amounting to IDR 9,242,016,000.00. This correction arose as a consequence of a secondary adjustment following a primary correction on the sales price of Crude Palm Oil (CPO) to an affiliated party. The Directorate General of Taxes (DJP) insisted on using Bappebti data, but the Tax Court Panel nullified the entire correction after assessing that the domestic auction data presented by the Taxpayer was more reliable.
Core Conflict: The Comparable Data Battle (KPBN vs Bappebti)
The dispute originated from differing views on the arm's length price for the sale of CPO by PT SAR to its affiliated entity, PT IBP. PT SAR employed the Comparable Uncontrolled Price (CUP) method, utilizing daily auction price data from Kharisma Pemasaran Bersama Nusantara (KPBN). KPBN was deemed the most appropriate comparable because it reflected CPO prices in the domestic market on the exact date of the transaction.
Conversely, the DJP rejected the KPBN data on the grounds that it did not meet the criteria for general public accessibility and transparency, as the data was only available to paid subscribers. The DJP chose to use CPO price data from Bappebti (SPOT Medan), which it claimed was more transparent and freely accessible. The price differential between the Bappebti data and the PT SAR sales price formed the basis for the primary correction of PT SAR's Turnover. This primary correction then automatically triggered the PPh Article 23 secondary adjustment, where the transferred profit differential was qualified as a Constructive Dividend under Article 22 paragraph 8 of PMK-22/PMK.03/2020.
Resolution: Industry-Specific Data Recognized as a Reliable Comparable
The Tax Court Panel delivered a firm legal opinion, siding with the reliability of the industry-specific data. The Panel concluded that the DJP's reason for rejecting KPBN data, based solely on criteria of general public accessibility, was without legal foundation. KPBN, as an auction platform for CPO recognized by Bappebti and commonly used by industry players, constitutes an independent data source. Consequently, the KPBN data was deemed to meet the criteria for a reliable comparable under international transfer pricing guidelines, which prioritize the level of comparability.
Since the CPO price set by PT SAR was proven to be at arm's length based on the KPBN data accepted by the Panel, the DJP's Turnover correction (primary correction) was declared unsustainable.
Analysis and Impact: Nullification of the Secondary Adjustment and Lessons for Taxpayers
This decision has two major implications: first, the primary correction (profit) of IDR 9.2 billion was canceled. Second, and automatically, the attached PPh Article 23 correction on the Constructive Dividend was also fully nullified. This ruling reinforces a fundamental principle in transfer pricing disputes leading to secondary adjustment: if the primary correction is not proven valid, the resulting secondary consequence must be eliminated.
The ruling also sends an important signal to Taxpayers, especially commodity companies. In preparing Transfer Pricing Documentation, the use of highly specific and relevant industry data (such as commodity auction/exchange data) must be argumentatively maintained. Taxpayers must be able to explain in detail why such data offers a higher degree of comparability compared to more general data, regardless of general accessibility issues. This case sets a precedent that the Tax Court will prioritize substantive comparability over general administrative transparency in selecting comparable data.
A Comprehensive Analysis and the Tax Court Decision on This Dispute Are Available Here
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