Constructive Dividend Correction Collapses in Tax Court: PT TBI's Absolute Victory Against Respondent's Unilateral Estimates

Secondary Adjustments & Constructive Dividends: Analyzing PT TBI’s IDR 86.2 Billion Victory

The tax dispute between PT TBI and the Directorate General of Taxes (DGT) regarding Income Tax Article 26 for the March 2021 period highlights the complexity of applying secondary adjustments in affiliated transactions. The tax authority imposed a positive correction of the Income Tax Article 26 tax base amounting to IDR 86,246,439,652 by classifying the difference in affiliated transaction prices as constructive dividends.

The Conflict: Pandemic Impacts vs. Profit Shifting Assumptions

The conflict originated from a primary adjustment in the 2020 Corporate Income Tax. The Respondent utilized the TNMM method with single-year 2020 data to calculate a difference treated as a dividend. Conversely, PT TBI argued that the margin decline was purely due to the COVID-19 pandemic, supported by Local File documentation prepared using ex-ante multi-year data.

Judicial Resolution: Accessory Nature and Technical Inaccuracies

The Tax Court Judges stated that this Income Tax Article 26 dispute is accessory to the main Corporate Income Tax dispute. Since the Bench had previously annulled all primary corrections (Decision Number PUT-012544.15/2023/PP/M.VB Year 2025), the secondary adjustment automatically lost its legal basis. Furthermore, the Bench identified technical inaccuracies where the Respondent used sales as a multiplier, even though the corrected objects were costs (COGS).

Implications: Legal Certainty in Crisis Periods

This decision reaffirms that a secondary adjustment cannot stand alone without a valid primary adjustment. For Taxpayers, this victory demonstrates that commercial arguments supported by external evidence (industry market decline) can effectively mitigate unilateral estimates. It also highlights the critical importance of maintaining robust multi-year data in transfer pricing documentation.