Taxpayer Wins Against Fictitious Dividend Correction! Why KPBN CPO Tender Price Data Is Superior to Bappebti Benchmarks in Tax Court?

The Tax Court has definitively nullified the Income Tax Article 23 Underpayment Assessment Letter (SKPKB), confirming that the secondary adjustment in the form of a Constructive Dividend, which was based on a transfer price adjustment for the sale of Crude Palm Oil (CPO) to an affiliated party, cannot be legally sustained. This ruling stems from a dispute involving PT. SAR, where the Directorate General of Taxes (DGT) performed a primary adjustment on Corporate Income Tax (CIT) Turnover and consequently applied a PPh Article 23 secondary adjustment, deeming the shifted profit as a disguised dividend. The implementation of Article 18 paragraph (3) of the Income Tax Law, which governs the DGT's authority to adjust transfer prices, became the central focus of interpretative conflict in this specific case.

The core conflict of the dispute revolves around two distinct arguments concerning the reliability of the CPO price data and the legal authority for the secondary adjustment. The DGT argued that the CPO sale price used by the Taxpayer to its affiliate was not at arm’s length and rejected the Kharisma Pemasaran Bersama Nusantara (KPBN) PTPN data on the grounds of insufficient transparency, instead utilizing Bappebti (Medan Spot Price) data as a comparable benchmark deemed more reliable due to public accessibility. Conversely, the Taxpayer insisted that KPBN PTPN data represented the most comparable market price (Comparable Uncontrolled Price - CUP) and was widely accepted within the domestic CPO industry, rejecting the Bappebti data which was considered contaminated by international indices and featuring crucial timing differences. Fundamentally, the Taxpayer also challenged the legal basis of the secondary adjustment itself, asserting that Article 18 of the Income Tax Law does not explicitly grant the authority to create a fictitious dividend object (constructive dividend) for domestic transactions, especially since the affiliated entity was not a shareholder.

The Panel of Judges explicitly ruled in favor of the Taxpayer's arguments. The Majelis Hakim's primary legal consideration stated that, based on the separate CIT ruling for the 2021 Fiscal Year, the primary Transfer Pricing adjustment on Turnover had already been deemed unsustainable. With the collapse of the primary adjustment, the PPh Article 23 secondary adjustment in the form of a Constructive Dividend, which is a consequential correction, automatically also collapses and lacks any strong legal basis to be maintained. Furthermore, the Judges emphasized that the Taxpayer successfully demonstrated that the KPBN PTPN data met the requirements for a comparable independent benchmark, and the DGT lacked sufficient legal reason to reject a consistent, industry-recognized benchmark.

This decision carries significant implications for Taxpayers in the commodity sector engaging in domestic related-party transactions. The ruling reinforces protection against the application of domestic secondary adjustments, while simultaneously underscoring the necessity of superior transfer pricing documentation. Taxpayers must ensure that their comparability analysis (especially the application of the CUP method) is supported by market data that is not only available but also the most relevant and widely recognized by the relevant industry, explicitly justifying why the chosen data is the most appropriate.

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