WHT Article 26 Automatically Nullified! Tax Court Case Study Revokes Transfer Pricing Concealed Dividend Correction.

The implementation of transfer pricing provisions in Indonesia inherently creates the risk of double correction, namely a primary adjustment on Corporate Income Tax (CIT) automatically followed by a secondary adjustment in the form of a constructive dividend subject to WHT Article 26 or Article 23. The case of PT ALSI, referenced in Decision Number PUT-002691.13/2024/PP/M.XVA Tahun 2025, sets an important precedent affirming the principle of mutatis mutandis dependence between primary and secondary corrections. The Tax Court granted the taxpayer's appeal in full regarding the WHT Article 26 (secondary) correction after finding that the CIT correction (primary) which served as its foundation had been canceled in a separate ruling.

The Core Conflict: Fiscal Adjustment and the Dividend Definition

The core conflict in this dispute originated from a Positive Fiscal Adjustment correction of Rp1.23 billion on the 2018 Corporate Income Tax Return. This primary correction, which resulted from the Tax Authority's application of the Transactional Net Margin Method (TNMM), was legally pursued with a WHT Article 26 secondary adjustment. The Tax Authority insisted that the corrected profit difference constituted a constructive dividend paid to an affiliated foreign party, thus mandating WHT Article 26 withholding in accordance with PMK-22/PMK.03/2020. Conversely, the Taxpayer disputed this classification, stressing that the foreign counterparty whose Cost of Goods Sold (COGS) was corrected was not a shareholder, fundamentally failing to meet the legal definition of 'dividend' under Article 4 paragraph (1) letter g of the Income Tax Law.

Tax Court's Consideration: Inseparable Causal Relationship

The Tax Court did not delve deeply into the academic debate concerning the definition of the constructive dividend. The Majelis's legal consideration focused on the inseparable causal relationship between the two disputes. Based on the judicial conviction and the fact that the primary adjustment correction (CIT dispute file 002690.15/2024/PP) had been canceled and could not be maintained at the Tax Court level, the Majelis concluded that the WHT Article 26 secondary adjustment correction, which functioned merely as a consequence, automatically lost its legal basis. This decision nullified the Tax Underpayment Assessment Letter (SKPKB) for the Taxpayer's WHT Article 26 entirely.

Implications for Multinational Litigation Strategy

The implications of this decision are highly significant for multinational compliance and tax litigation practices. This ruling strengthens the litigation strategy where taxpayers must exert maximum effort to nullify the primary correction at the CIT level. Victory in the primary dispute will effectively negate all penalties and WHT liabilities that are derivative (secondary adjustment). Furthermore, the ruling re-emphasizes the importance for taxpayers to meticulously document every affiliated transaction, along with being prepared to submit an integrated legal defense encompassing both CIT and WHT disputes.

Conclusion

This case serves as a powerful reminder for multinational taxpayers. While the legal argument regarding the definition of concealed dividend is an important line of defense, the most efficient litigation strategy is to focus on proving the arm's length nature of the transfer price in the primary adjustment. When the primary foundation of the correction is revoked, the entire structure of the derivative WHT correction will collapse.

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