Transfer pricing disputes in the air cargo industry often become a battleground of interpretation regarding the selection of comparable companies that are truly comparable in functional terms. In the case of PT MIA, the Director General of Taxation (DGT) performed an operating profit adjustment, asserting that the company's margins were significantly below the industry average; however, the Tax Court vacated this adjustment following a more precise re-testing process. The core conflict emerged when the Respondent applied the Transactional Net Margin Method (TNMM) using comparables with broad logistics business lines, while the Petitioner argued that the risk profile of air cargo is highly specific and cannot be equated with land logistics or general warehousing.
The Panel of Judges, in their legal considerations, emphasized that comparability is the cornerstone of Transfer Pricing. Through the evidentiary process during the hearing, the Panel re-screened comparable companies using strict criteria: they must possess 2018 unconsolidated data and industry codes relevant to air transportation. Consequently, although PT MIA's profit was relatively low, the figure was found to be within the interquartile range derived from the refined set of comparables. This decision carries significant implications for Taxpayers to be more meticulous in performing functional analyses and selecting industry codes (SIC/NAICS) in their TP Documentation. The primary conclusion is that a low margin does not inherently imply non-compliance, provided it can be justified against comparables with identical risk profiles and functions.
A Comprehensive Analysis and the Tax Court Decision on This Dispute Are Available Here
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