The implementation of the secondary adjustment sanction in the form of a constructive dividend within the context of Transfer Pricing (TP) often becomes a crucial focal point in tax disputes, particularly those involving PPh Article 26. This specific case tests the extent to which the tax authority can uphold a PPh Article 26 correction arising from non-compliance with the Arm's Length Principle (ALP) concerning a corporate income tax (PPh Badan) transaction. Based on Tax Court Decision Number PUT-003598.13/2024/PP/M.IIIA Tahun 2025, the Panel of Judges annulled the PPh Article 26 Tax Base (DPP) correction related to the constructive dividend, providing substantive clarity on the interpretation of the Ex Ante principle and the legitimacy of using multiple year comparable data in TP Documentation (TP Doc).

Core Conflict: Primary COGS Correction and Constructive Dividend Reclassification

The core conflict in this dispute originated from a primary Cost of Goods Sold (HPP) correction imposed by the Directorate General of Taxes (DGT) on the Taxpayer's import purchases from foreign affiliated parties. The DGT insisted that the Taxpayer's profit margin (OM 4.76%) was not at arm's length because it fell below the acceptable range established using Single Year comparable data (2021). The difference resulting from this HPP correction was then reclassified as a constructive dividend based on PMK 22/PMK.03/2020 Article 22 paragraph (8) and subjected to PPh Article 26 withholding tax. This argument was strongly contested by the Taxpayer, who asserted that their TP Doc complied with PMK 213/PMK.03/2016 by prioritizing the use of multiple year comparable data (2018-2020), which was the Ex Ante available data at the time the 2021 transaction price was determined.

Judicial Resolution on the Ex Ante Principle and Annulment of Secondary Adjustment

In its resolution, the Panel of Judges explicitly sided with the Taxpayer's Ex Ante interpretation. The Panel ruled that the DGT's action of using Single Year data (2021) comparables was inappropriate because that data was not yet available or published when the 2021 transaction price was agreed upon. The Panel's decision reinforces that compliance with the Ex Ante principle logically mandates the use of historical data (multiple years). Since the primary correction (HPP correction) which formed the underlying basis for the PPh Article 26 secondary adjustment was nullified, the resulting correction categorized as a constructive dividend, amounting to IDR 5.3 billion, could not be sustained.

Strategic Impacts and Key Takeaways for Multinational Taxpayers

The impact and implications of this decision are highly significant for multinational taxpayers in Indonesia. The ruling establishes a strong precedent that taxpayers preparing their TP Docs using the multiple year data methodology, as a manifestation of the Ex Ante principle, possess a solid legal basis for their defense in litigation. The strategy that taxpayers must firmly adopt is to focus on refuting the primary PPh Badan correction; success at this stage will automatically negate the PPh Article 26 secondary tax liability. This decision confirms that in TP disputes, not only the figures but also the logic of data availability and regulatory compliance are the ultimate determinants of success.

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