Taxpayer Wins Absolutely at Tax Court: Is the Indonesian Tax Authority (DJP) Mandated to Perform Corresponding Adjustment on Domestic Affiliate Transactions?

The Director General of Taxes Regulation Number PER-32/PJ/2011 explicitly limits the scope of Transfer Pricing (TP) corrections on domestic affiliated transactions to specific conditions, namely when the Taxpayer exploits differences in tax rates. The case study in Decision Number PUT-007006.16/2024/PP/M.XVIIIB Tahun 2025, which fully granted the appeal filed by PT SAR (the Appellant), serves as a critical emphasis on this principle. The dispute originated from a VAT DPP correction of Rp27.7 billion, a direct consequence of a Crude Palm Oil (CPO) sales price correction to a local affiliated party. The Tax Authority (Respondent) utilized the power granted by Article 18 paragraph (3) of the Income Tax Law to redetermine the arm's length price using Bappebti data, arguing that the KPBN tender price used by the TP was non-transparent and did not reflect business reasonableness.

The core conflict during the trial was not only centered on establishing the arm's length CPO pricing method (CUP using KPBN versus Bappebti data) but, more profoundly, on the legal and procedural validity of the domestic TP correction. The Appellant strongly argued that transactions with a local affiliate, which shares the same Corporate Income Tax rate (22%), should be excluded from TP correction as per Article 2 of PER-32/PJ/2011, as there was no exploitation of tax rate differences. Furthermore, a crucial demand from the Appellant was the Respondent's failure to perform a Corresponding Adjustment (CA) on the affiliated buyer's side.

The legal opinion of the Tax Court Panel substantially accepted the Appellant's arguments, leading to the cancellation of the entire correction. The Panel tended to rule that the Respondent failed to prove that the transaction fell outside the legal limits set by domestic TP regulations. Moreover, the Panel underscored the importance of the principle of fairness and legal certainty by emphasizing that a positive TP correction without a concurrent CA on the counterparty within the same jurisdiction would create potential economic double taxation.

The analysis of this decision yields significant implications for Taxpayers in Indonesia. It reinforces protection for TPs engaged in domestic affiliated transactions with equivalent tax rates, curbing the Tax Authority's discretion to impose arbitrary TP corrections. The key implication is that the Tax Authority is essentially mandated to adhere to the Corresponding Adjustment principle simultaneously in domestic TP corrections. Failure to comply will create substantial grounds for Taxpayers to successfully challenge the tax assessment notice (SKP) through litigation. In conclusion, this Decision represents a crucial milestone in upholding the arm's length principle and preventing economic double taxation within the context of Indonesian domestic taxation.

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