The tax authority performed a correction on PT SB's related party transaction prices by establishing a fair market price based on third-party (independent) transactions. Under Article 2 paragraph (1) of the VAT Law in conjunction with Article 18 paragraph (3) of the Income Tax Law, the Director General of Taxes is authorized to redetermine income and deductions to calculate Taxable Income for taxpayers with special relationships, in accordance with the Arm's Length Principle.
The core conflict emerged when the Respondent found that the sales price of RY 30/1 Yarn to PT Tantra Textile Industry (affiliate) was lower than the price to Laksono Handoyo (independent). PT SB countered that the transaction with Laksono Handoyo was not comparable due to significantly lower volume and the inclusion of "advertisement costs" in that specific price. However, the Board of Judges opined that the Petitioner failed to present concrete evidence, such as inventory cards detailing technical specifications or umbrella contracts explaining the special pricing scheme.
The legal resolution in this case favored the Respondent regarding the affiliation dispute. The Board of Judges emphasized that the burden of proof regarding the existence of different transaction conditions (such as volume and marketing functions) lies with the Taxpayer. The implication for PT SB is the necessity to strengthen Transfer Pricing Documentation (TP Doc) with detailed operational data to prove that price variances are a logical consequence of differing functions and risks, rather than the result of a special relationship.
A Comprehensive Analysis and the Tax Court Decision on This Dispute Are Available Here
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