Disputes over PPh Article 23 withholding tax on constructive dividends often emerge as a "tail" to transfer pricing corrections in Corporate Income Tax (CIT), creating a heavy cumulative burden for Taxpayers. In PT MI’s case, the Respondent reclassified the difference in affiliate service transaction values as constructive dividends (secondary adjustment) based on Article 18 paragraph (3) of the Income Tax Law and PMK-22/PMK.03/2020.
The core of the conflict began when the Respondent recalculated PT MI's operating profit by eliminating the majority of comparable companies and switching the data methodology to a single-year approach. The Petitioner strongly refuted this, stating there was no profit shifting as the transactions involved domestic entities with identical tax rates, and pointed out the lack of direct shareholding, which is a fundamental requirement for a "dividend."
The Board of Judges emphasized consistency and legal substance. The final resolution hinged on the legal fact that the primary CIT correction for the same period had already been cancelled via Decision Number PUT-010049.15/2023/PP/M.IVA Tahun 2025. Consequently, without a valid primary correction, the secondary constructive dividend correction became null and void.
PT MI's victory reinforces the principle that secondary adjustments are strictly dependent on primary adjustments. The implication for Taxpayers is the vital importance of vigorously defending the "parent" dispute (CIT), as its success automatically dissolves derivative disputes. This ruling also serves as a reminder to tax authorities not to hastily reclassify dividends without concrete proof of profit-shifting motives.
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