The transfer pricing dispute over the Cost of Goods Sold (COGS) was at the core of PT ELI's (PT ELI) Corporate Income Tax (CIT) appeal for the 2017 Tax Year. The tax authority’s correction was based on the assumption that the purchase price of fuel products from an affiliate was not at arm's length and resulted in an unduly low operating margin for PT ELI. To rectify this, the tax authority disregarded the taxpayer's ex-ante pricing formula, which used MOPS 5-0-0 (the average MOPS price 5 days before the Bill of Lading), and replaced it with a monthly average MOPS calculation. This conflict directly tested the implementation of the arm's length principle (ALP) in the context of commodity transactions regulated by Indonesia’s Minister of Finance Regulation Number 213/PMK.03/2016.
The tax authority’s argument that the purchase price should be lowered to ensure the taxpayer achieved a certain profit failed before the Panel of Judges. The Tax Court ruled that the use of the monthly average MOPS price was commercially inapplicable. Commodity transactions require price certainty at the time of the transaction (ex-ante), whereas the monthly average price is ex-post (determined after the transaction month).
The Panel explicitly upheld PT ELI's argument that the use of the MOPS 5-0-0 formula, plus adjustments (Alpha, Beta, Delta), was a reasonable method consistent with industry practice. Consequently, the tax authority’s COGS correction of USD2,597,821 was overturned by the Tax Court. This decision sets an important precedent, affirming that the pricing methods employed by the Tax Authority must be logically and practically implementable by the taxpayer under real commercial conditions, and must be consistent with the ex-ante pricing criteria found in Indonesian TP regulations.
A Comprehensive Analysis and the Tax Court Decision on This Dispute Are Available Here
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