Tax authorities often apply secondary adjustments automatically following primary corrections on affiliated transactions, but Tax Court Decision Number PUT-000480.13/2024/PP/M.IIIA Year 2025 emphasizes that every tax assessment must be based on concrete evidence and legal certainty in accordance with Article 29 paragraph (2) of the KUP Law. This dispute stems from the Respondent's move to establish a correction of the Income Tax Article 26 Tax Base for PT Yamaha Music Manufacturing Indonesia (YMMI) amounting to IDR 22.4 billion for the March 2018 Tax Period. The Respondent considered the transfer pricing difference arising from the Transactional Net Margin Method (TNMM) testing in the Corporate Income Tax dispute to be an immediate constructive dividend paid to the parent company abroad.
The core of this legal conflict lies in the validity of the evidence regarding the existence of the tax object. The Respondent argued that based on PER-22/PJ/2013 and SE-50/PJ/2013, any excess payment due to unfair transfer pricing is classified as a dividend subject to Article 26 Income Tax. Conversely, PT YMMI strongly countered with the argument that the correction was merely a paper adjustment without any actual cash flow or matured dividend debt. The Petitioner emphasized that taxing such "imaginary dividends" creates an unfair double tax burden and violates the principle of legal certainty in Indonesian tax law.
The Panel of Judges, in its legal considerations, took a firm stance that tax corrections must not be based on mere assumptions. The Panel stated that the Respondent failed to prove the realization of payment or the charging of dividends to the affiliate. Referring to Article 29 paragraph (2) of the KUP Law, the Panel emphasized that every correction must be supported by strong, competent, and relevant evidence. Since the Respondent only drew conclusions from the Corporate Income Tax correction without additional supporting evidence regarding the dividend transaction, the correction was declared to have no solid legal basis.
The resolution of this case resulted in a "Fully Granted" decision for the Petitioner. The implications of this ruling are crucial for transfer pricing practices in Indonesia, where tax authorities can no longer automatically convert transfer pricing corrections into Article 26 Income Tax objects (dividends) without proving the existence of an actual flow of funds or legal economic benefits. This decision provides protection for Taxpayers against double taxation attempts originating from speculative secondary adjustments. In conclusion, documentation capable of proving the absence of dividend fund flows is the main key for Taxpayers in facing similar disputes in the future.
A Comprehensive Analysis and the Tax Court Decision on This Dispute Are Available Here
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