How PT TI Overcame Unilateral Re-benchmarking by DGT in Profit Margin Dispute

Tax Lawsuit Analysis: PT TI, Re-Benchmarking Failures, and the Annulment of a Multi-Billion Rupiah Transfer Pricing Adjustment

Tax authorities frequently adjust a taxpayer’s operating profit through re-benchmarking methods without deeply considering the similarities in Functions, Assets, and Risks (FAR) between the comparable companies and the taxpayer. In Decision Number PUT-013333.15/2019/PP/M.IIB Year 2025, PT TI successfully overturned a Transfer Pricing Adjustment on Corporate Income Tax for the 2016 Fiscal Year amounting to over IDR 55 billion based on the Transactional Net Margin Method (TNMM). This dispute focused on the validity of the comparable selection used by the Directorate General of Taxes (DGT) to pull the taxpayer's profit into the interquartile range.

The Conflict: Unilateral Re-Benchmarking and Discrepancies in Industrial Operating Margins

The core conflict arose when the Respondent rejected the comparability analysis in PT TI’s Transfer Pricing Documentation (TP Doc) and conducted a unilateral re-benchmarking. The Respondent selected eight comparable companies with a median Operating Margin (OM) of 4.76%, while PT TI only recorded an OM of 1.84%. However, PT TI strongly contested this selection, arguing that the DGT’s comparables had significantly different business profiles, including companies with significant related-party transactions and differences in distribution and technical service functions.

Judicial Consideration: Enforcing Comparability Pillars Under PER-32 and OECD Guidelines

The Board of Judges, in their legal consideration, emphasized that determining comparables is a fundamental pillar in applying the Arm’s Length Principle (ALP). After conducting an in-depth examination, the Board found that the DGT’s proposed comparables failed to meet the comparability criteria required by PER-32/PJ/2011 and OECD Guidelines. Conversely, the documentation prepared by PT TI was deemed to more accurately reflect actual industry conditions. Consequently, the Board of Judges annulled the Respondent's entire correction and granted the Petitioner's appeal in full.

Litigation Implications: Fulfilling Functional Analysis Compliance as the Ultimate Shield

The implications of this ruling underscore the critical importance of high-quality Transfer Pricing documentation for taxpayers. PT TI’s victory demonstrates that robust arguments regarding functional analysis can dismantle automatic re-benchmarking by tax authorities. For business entities, this decision serves as a precedent that both formal and material compliance in TP Doc is the best defense against aggressive transfer pricing audits.

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