TPcases

PT Hino Motors Manufacturing Indonesia is a subsidiary of a Chinese Group in the automotive industry.

Following an audit, the tax authorities issued an assessment for FY 2015 where the benchmark that had been used to determine the income of PT Hino Motors was dismissed and replaced with another. According to the tax authorities Hino Motors had not been subjected to the same economic conditions as the comparables in benchmark provided by the company

The Company disagreed and brought the case to the Tax Court where, in a decision issued 11 November 2020, the court set aside the assessment.

An appeal was then filed by the tax authorities with the Supreme Court.

Judgement of the Supreme Court

The Supreme Court ruled in favor of PT Hino Motors and upheld the decision of the Tax Court to set aside the assessment.

Excerpts

“(…)
– That the correction of Corporate Income Tax for Fiscal Year 2015 with a positive correction on the positive fiscal adjustment item amounting to Rp127,749,174,678.00 cannot be maintained, because the positive correction on the positive fiscal adjustment item that has been calculated by the Appellant to its affiliated parties has fulfilled the principles of reasonableness and business prevalence;
– The selection of the Appellant’s four comparables in terms of characteristics and function is closer to the Appellant’s business function. The five-year multi-year period (2011-2015) was appropriate because using a three-year multi-year period as the Appellant did was not appropriate because in 2013-2014 the economy in the automotive sector was in a state of declining sales;
– The fact that the impact of foreign exchange rates (forex adjustment) in 2013 did not affect the Appellant’s condition because most of the Appellant’s companies were located in China where the fluctuations in the CYN economy did not have a major effect;
(…)
– That based on the transfer pricing analysis with 11,4,6 and 13 comparators as a whole, the weighted average value of the Appellant’s ROTOC for 2011-2015 of 3.72% was always between the weighted average inter quartile ranges of the comparable companies for 2011-2015. Thus, it can be concluded that the Appellant’s controlled transactions were in accordance with the arm’s length principle;
Based on the above considerations, the request for reconsideration filed by the Applicant is unwarranted and must be rejected;
(…)”

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