Tax Alert! Lacking Detailed Activity Evidence, PT CPA’s Billions in Affiliate Service Costs Denied by Tax Court

Intra-Group Service Dispute: The Criticality of Benefit and Existence Tests (PT CPA)

The intra-group service fee dispute between PT CPA and the Directorate General of Taxes (DGT) underscores the critical importance of supporting documentation to prove the existence and economic benefit of services under Article 6(1) of the Income Tax Law and the Arm's Length Principle (ALP). The Board of Judges rejected the appeal because the Taxpayer failed to present concrete operational evidence, despite the availability of formal payment records.

Core Conflict: Existence and Benefit Tests for Affiliate Services

This conflict began when the Respondent made a positive correction of IDR 5.3 billion regarding Technical and Management Service fees paid by PT CPA to PT AEPMI (an affiliate). The Respondent argued that there was insufficient evidence showing the services were actually rendered (existence test) and provided economic benefits (benefit test). Conversely, PT CPA defended its position by stating that the services were essential to cover internal HR limitations in agronomy and legal fields, and claimed to have submitted progress reports as evidence.

Judicial Opinion: Burden of Proof and Operational Evidence

In its legal considerations, the Board of Judges emphasized that the burden of proof lies with the Taxpayer under the self-assessment system. The judges assessed that the evidence submitted by PT CPA, such as invoices and bank vouchers, only proved financial administrative aspects (billing), not the actual execution of service activities in depth. The absence of personnel details, accurate visit schedules, and specific work output reports led the Judges to conclude that the costs did not qualify as deductible expenses for earning, collecting, and maintaining income.

Conclusion: High Standards for Intra-Group Transactions

This decision has serious implications for Taxpayers involved in affiliated service transactions. Compliance is no longer sufficient with just contracts and proof of payment; Taxpayers must prepare activity logs, detailed correspondence reports, and tangible evidence of work output. Without documentation of "who did what and when," intra-group service costs are highly vulnerable to full correction by tax authorities. In conclusion, the PT CPA dispute demonstrates that the Tax Court applies a high standard of proof for intra-group transactions. Taxpayers are advised to proactively prepare Transfer Pricing Documentation (TP Doc) supplemented by daily operational evidence to mitigate the risk of future corrections.