A substantial tax dispute arose when the Respondent applied indirect audit techniques through commodity flow testing and transfer pricing adjustments against PT SB, resulting in an additional VAT base of IDR 268 billion. The core issue focused on whether administrative discrepancies in raw material mutations and selling price differences to affiliates could be automatically classified as unreported sales without evidence of actual transactions. The Respondent argued that the absence of Transfer Pricing Documentation (TP Doc) and unit discrepancies constituted strong indications of hidden income under Article 18(3) of the Income Tax Law and Article 4 of the VAT Law.
Conversely, PT SB asserted that as a consistent manufacturing entity, all records were based on valid physical evidence and invoices pursuant to Article 3 of the KUP Law. The Petitioner proved that the Respondent ignored logistical factors such as goods in transit and committed mathematical errors in the unit calculations for yarn and rayon cotton. Regarding transfer pricing, PT SB argued that the price adjustments made by the tax authorities were unilateral and lacked thorough functional analysis, thereby violating the Arm's Length Principle (ALP).
The Board of Judges, in its consideration, stated that the evidence presented by PT SB during the court’s verification process, including bank statements and general ledgers, was more compelling than the Respondent's calculation assumptions. The Judges ruled that the indirect commodity flow method cannot stand alone if the Taxpayer provides complete source documents. The final verdict fully granted PT SB's appeal, emphasizing that tax corrections must not rely solely on administrative assumptions without robust physical and legal verification. This ruling provides legal protection for Taxpayers against the excessive use of indirect audit methods by tax authorities.
A Comprehensive Analysis and the Tax Court Decision on This Dispute Are Available Here
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