The Director General of Taxes (DGT) imposed a positive correction on the Cost of Goods Sold (COGS) amounting to IDR 17.44 billion against PT TTME by applying the Transactional Net Margin Method (TNMM) at the operating profit level. This dispute centered on the discrepancy in financial statement segmentation between affiliated and independent transactions, as well as the method of allocating operating costs, which was deemed not to reflect the company's economic substance. The DGT utilized initial Independent Auditor’s Report (IAR) data containing account misclassifications, while the Taxpayer submitted a revised IAR as supporting evidence.
The core conflict lay in determining accurate segmentation. The DGT insisted on using the proportion of turnover to allocate operating costs, which automatically eroded profit margins in the affiliated segment. Conversely, PT TTME argued that certain operating costs were more appropriately allocated based on the gross profit ratio to maintain consistency with the company's functional and risk profile. The use of multiple years' data also became a point of contention in determining the arm’s length margin range.
The Board of Judges, in its legal consideration, overturned the DGT’s entire correction. The Board opined that the revised IAR issued by the external auditor was valid evidence to correct previous administrative misclassifications. Furthermore, the Board assessed that the cost allocation method based on gross profit applied by the Taxpayer was more rational and in accordance with prevailing accounting principles compared to the proportional turnover allocation used by the Respondent. This decision reaffirms that material truth through strong supporting evidence prevails over the formality of initial documents.
A Comprehensive Analysis and the Tax Court Decision on This Dispute Are Available Here
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