Absolute Victory at the Tax Court: Why PT SLI's Constructive Dividend Correction Was Overturned?

Tax Dispute: Secondary Adjustments, Constructive Dividends, and Article 26 Withholding for PT SLI

This dispute originated from the Respondent's move to apply a secondary adjustment in the form of constructive dividends based on Article 18 paragraph (3) of the Income Tax Law and PMK-22/2020. The Respondent deemed that the difference in related-party transaction values that did not comply with the Arm's Length Principle (ALP) in Corporate Income Tax (CIT) automatically became an object for Article 26 withholding tax for overseas beneficiaries. The disputed value amounted to IDR 6,317,155,575.00 for the June 2021 tax period.

Core Conflict: Transfer Pricing Triggers and the Legal Basis for Withholding

The core of the conflict lay in a duality of arguments: the Respondent insisted that every transfer pricing adjustment at the CIT level triggers an obligation to withhold tax on constructive dividends. Conversely, PT SLI emphasized that without actual payment and without direct shareholding relationships, such corrections lack a solid legal basis, especially since the primary adjustment was still under appeal.

Judicial Resolution: The "Follow the Fortune" Principle and Accessory Nature

In its resolution, the Board of Judges emphasized the "follow the fortune" principle. Given that the Tax Court had already ruled on PT SLI's CIT dispute through Decision Number PUT-001067.15/2024, which overturned all primary adjustments, the legal basis for the secondary adjustment effectively vanished. The Board of Judges argued that the Article 26 tax correction, being accessory in nature, cannot stand independently without a valid and final primary adjustment.

Implications: Legal Certainty in Linkage Between Primary and Secondary Adjustments

The implications of this decision provide legal certainty for Taxpayers, stating that tax authorities cannot arbitrarily impose Article 26 tax on constructive dividends if the transfer pricing correction at the CIT level is unproven or annulled by the court. This case reinforces the critical linkage between primary and secondary adjustments in Indonesian tax litigation.

In conclusion, PT SLI's victory in this Article 26 tax dispute is a logical consequence of successfully refuting the transfer pricing arguments in the previous CIT dispute.

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