Winning Appeal Strategies: Why Judges Rejected the CUP Method in a Coal Sector Dispute?

The Tax Court Decision Number PUT-004346.15/2023/PP/M.XVIIIA of 2025 serves as a significant precedent for the mining industry regarding the application of the Arm’s Length Principle (ALP). The core of this dispute lies in a Corporate Income Tax correction of IDR 4.14 billion imposed by the tax authority using the Comparable Uncontrolled Price (CUP) method. The authority attempted to rigidly apply market index prices to affiliate transactions, but this move was overturned by the Board of Judges for failing to meet the strict comparability requirements mandated by transfer pricing regulations.

The conflict began when the respondent questioned the fairness of PT KMIA’s coal sales prices to its Singaporean affiliate. The respondent insisted that the CUP method is the most appropriate way to test commodity transactions, citing published market indices as the primary benchmark. Conversely, the Taxpayer defended its position by arguing that the TNMM method using the Berry Ratio indicator is far more representative. The Taxpayer emphasized that quality variables such as calorific value and sulfur content create significant price distortions if compared directly using market indices without accurate adjustments.

The Board of Judges, in its consideration, provided a resolution favoring material truth and comprehensive economic analysis. The Judges ruled that the respondent’s use of the CUP method was not supported by an in-depth comparability analysis regarding transaction timing and technical specifications. In contrast, the Taxpayer’s transfer pricing documentation was deemed to consistently show that the company’s profit levels remained within the industry’s arm’s length range. Consequently, the tax correction was entirely annulled as it lacked a strong evidentiary basis.

In conclusion, this ruling reaffirms that the CUP method cannot be automatically applied just because market price data is available. Taxpayers must remain proactive in maintaining robust and detailed transfer pricing documentation to protect themselves against unilateral corrections that ignore commercial and operational realities on the ground.