Nominal Price Share Transfers to Affiliates Carry High Risk in Tax Court.

Tax Ruling: PT PVI and the Application of the Adjusted Net Asset Method in Share Transfers

The dispute over the share transfer between PT PVI and PT PSW at nominal price triggered a significant correction by the Respondent under the Transfer Pricing scheme. Article 18 paragraph (3) of the Income Tax Law grants absolute authority to tax authorities to redetermine income if related party transactions do not meet the Arm's Length Principle (ALP). In this case, the Respondent rejected the nominal price of IDR 1,000,000.00 per share and established a fair value through the Asset Approach using the Adjusted Net Asset Method, considering that the transferred entity held land assets whose value had significantly appreciated through revaluation.

Conflict of Interest: Nominal Pricing vs. Underlying Asset Value

The core of the conflict lay in the Petitioner’s argument that the nominal price was reasonable due to the company's pre-operational status and zoning regulation hurdles (green belt) on its land assets. However, the Respondent argued that equity value must reflect the fair market value of its underlying assets.

Judicial Reasoning: Audited Statements as Authentic Evidence

The Board of Judges, in its consideration, upheld the Respondent's position, emphasizing that the audited financial statements featuring asset revaluation serve as authentic evidence of the economic value that should have been the basis for the transaction. This decision sets an important precedent for Taxpayers that future profit expectations or operational conditions do not necessarily negate net asset value in affiliated share transactions.

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