Unveiling the Fair Value of Family Shares: The Story of a Rp15 Billion Tax Dispute Behind the Transfer of PT TBS Shares

The Tax Court recently concluded a dramatic tax dispute involving a taxpayer with the initials BS and the Director General of Taxes, centered on corrections to Article 25/29 Income Tax (PPh) for the 2018 tax year. The core of this dispute is a staggering net income correction of Rp15,048,229,700.00 determined by the Respondent (DGT). This correction stems from the profit difference or capital gain on the transfer of PT TBS shares from BS to B, who is none other than his biological father.

According to the DGT, the transaction that occurred in March 2018 was a share sale between parties with a special relationship—specifically a lineal blood relationship—as regulated by the Income Tax Law. Consequently, the price used must be the fair market value, not the nominal value stated in the deed.

However, BS presented a rather dramatic defense. He insisted that the transfer of his 4,700 shares to B was not a business-oriented sale and purchase transaction, but merely the return of entrusted shares from parent to child. He also claimed there was no increase in economic capacity or actual inflow of funds from the share transfer. BS stated that the shares were only returned because he was deemed "incompetent in managing the company."

After examining the notarial deeds related to PT TBS, the Tax Court Panel of Judges found different facts. A 2014 deed showed that BS acquired the shares through a new capital deposit into the company, not through entrustment from B. Then, a March 2018 Notarial Deed explicitly mentioned an agreement for the sale and purchase of shares between BS and B. Thus, the Panel rejected BS's claim regarding the "return of entrusted shares." The transaction was legally a sale influenced by a special relationship.

After establishing that the transaction was a sale requiring the use of fair value, the dispute shifted to the valuation methodology used by the DGT. The DGT had used the services of a Tax Appraiser Functionary who applied two approaches: the Asset Approach and the Market Approach, comparing PT TBS (a closed company) with similar publicly listed companies (Tbk), such as Sampoerna Agro Tbk and Jaya Agra Wattie Tbk.

BS strongly criticized this, stating that comparing with Tbk companies with listed share prices on the stock exchange was highly unreasonable and incomparable. The Panel of Judges agreed with this objection and stated that the Market Data Approach was inappropriate due to the incomparability between PT TBS and the Tbk companies.

The Panel of Judges then decided to rely on the method deemed most reliable, namely the Asset Approach. Based on the DGT's assessment results using this approach, the fair value per share was found to be Rp4,167,140.88.

Since BS could not provide evidence regarding his share acquisition cost, the Panel used the nominal share value per share of Rp1,000,000.00.

The Panel's final calculation determined the taxable share sale profit (Capital Gain) to be Rp14,885,562,136.00.

With this correction, BS's total Net Income was set at Rp17,992,149,697.00, and the total PPh still due, including administrative sanctions, was Rp6,416,272,644.00.

This ruling serves as an important reminder for taxpayers conducting asset transfers between related parties: family relationships do not negate tax obligations, and the tax authority has full authority to correct transaction values using fair market prices.

A Comprehensive Analysis and the Tax Court's Decision on This Dispute is Available here