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Russian Comparables Rejected, Profit Adjustment to Q3 Must Be Justified

PUT-000036.15/2020/PP/M.IIB Year 2025 Dated July 7, 2025

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Russian Comparables Rejected, Profit Adjustment to Q3 Must Be Justified
The 2016 Corporate Income Tax Dispute involving PT DSI and the tax authorities presents a crucial methodological conflict in Transfer Pricing (TP) practice: the debate over comparability of data and the fairness of the profit adjustment point. This case is essentially a battle between the aggressive discretion of the Directorate General of Taxes (DJP) and the Wajib Pajak’s (Taxpayer's) demand for reasonableness, with the Tax Court serving as the ultimate arbiter.
Comparability Testing and the Rejection of Russian Data
The core issue stems from a Cost of Goods Sold (COGS) correction related to PT DSI’s import purchases from an affiliated party. Using the Transactional Net Margin Method (TNMM), the DJP claimed that PT DSI’s Return on Sales (ROS at 3.12%) was too low, thus violating the Arm’s Length Principle (ALP).
Before proceeding to the correction calculations, the Panel of Judges played a vital role in validating the comparable data. The Panel confirmed the DJP’s decision to eliminate some comparable data that included companies from the Russian Federation. This rejection was based on the premise that the geographical, economic, and market conditions of Russia were not sufficiently similar (less comparable) to Indonesia. This elimination firmly re-emphasized the principle that in the Indonesian TP context, regional (Asian) comparability is a non-negotiable factor determining data legitimacy.
The Conflict: Is Correction to Q3 Justified?
With the comparable data finalized (resulting in an ROS range between Quartile 1/Q1 3.30% to Quartile 3/Q3 6.45%), the conflict peaked. Although PT DSI’s profit (3.12%) was only slightly below the Q1 threshold, the DJP took a highly aggressive corrective measure. The DJP set PT DSI’s fair profit target at Q3, 6.45%, which generated a staggering COGS correction of Rp127 Billion. The DJP argued it had the discretion to choose any point within the interquartile range.
PT DSI firmly rebutted this decision. They argued that a correction targeting Q3 would cause their operating profit to surge far beyond the reasonable range—an outcome that ironically violated the ALP itself. PT DSI demanded that the adjustment point must be justified and set at the Median (Q2), 5.41%, which represents the fairest and most realistic central tendency in line with OECD Transfer Pricing Guidelines.
The Judicial Arbitration: Upholding the Median (Q2)
The Panel of Judges ultimately acted as the methodological mediator. While the Panel agreed that PT DSI's profit was outside the reasonable range, making a correction necessary, the Panel rejected the aggressive use of Quartile 3 (Q3) by the DJP. The judges reasoned that the purpose of a correction is to return profit to a reasonable position, not a maximal one.
To ensure fairness and consistency with the spirit of ALP, the Panel ruled that the adjustment must be justified by choosing the Median (Q2) at 5.41%. This decision directly led to a significant reduction in PT DSI’s fiscal burden, with the sustained COGS correction only amounting to Rp45,123,405,106.00.
Implications and Key Takeaways
This ruling provides two crucial takeaways for multinational companies in Indonesia. Firstly, it clarifies that in a TP dispute, the quality of geographical and economic comparability is paramount, and companies from vastly different markets like Russia will likely be rejected. Secondly, the decision creates a strong judicial precedent: the Tax Court will intervene and reject the DJP's aggressive use of Q3 for adjustments, confirming that the most justified and reasonable point of correction, aligning with international best practice, is the Median (Q2).
A Comprehensive Analysis and the Tax Court Decision on This Dispute Are Available Here

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