Tax authorities often exercise strict discretion in determining comparables for transfer pricing disputes, but Tax Court Decision Number PUT-000472.15/2024/PP/M.IIIA reaffirms that compliance with PMK Number 22/PMK.03/2020 regarding the application of full range vs. interquartile range is absolute for legal certainty for musical instrument manufacturers in Indonesia.
The dispute arose when the Respondent made a positive correction to the operating revenue of PT YMMI (the Petitioner) using the Transactional Net Margin Method (TNMM). The Respondent rejected all comparable companies proposed in the Petitioner's Local Document (TP Doc), citing inconsistencies in product characteristics and functional profiles. Instead, the Respondent used two global comparables, Samick and Kawai, which yielded profit ranges significantly higher than the Petitioner's performance. The core of the conflict lay in the validity of these comparables, as the Petitioner argued that the Respondent's comparables were fully fledged manufacturers with massive R&D and marketing functions, starkly contrasting the Petitioner's profile as a mere contract manufacturer.
The Board of Judges provided a juridical resolution by examining the technical procedures for determining the arm's length range. The Judges opined that by regulation, the use of the interquartile range requires an adequate number of comparables to form a statistical distribution. In this case, since only two comparables were available, the "full range" must be applied according to the implementing rules of the Income Tax Law. Based on court facts, the Petitioner's operating profit indicator was found to be within this full range. Consequently, the Board of Judges cancelled the entire transfer pricing correction of USD 1.645.178,00, as it was deemed to satisfy the arm's length principle. This ruling sets a significant precedent that the DGT cannot force an interquartile range when the number of comparables is limited.
A Comprehensive Analysis and the Tax Court Decision on This Dispute Are Available Here
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