PT Acer Indonesia is an Indonesian distributor of computer and electronics products. For 2019 it had controlled transactions with related parties that it tested under TNMM using return on sales as the profit level indicator, alongside third party sales where it granted settlement discounts and channel rebates reflected at invoice level.
The tax authority accepted TNMM in principle but rejected most of the taxpayer’s selected comparable companies and replacing them with a new set of comparables it considered more appropriate. On that basis it concluded that the taxpayer’s profitability was not arm’s length. Separately, it also increased turnover by treating settlement discounts and channel rebates as income due to alleged lack of substantiation.
The taxpayer appealed and argued that the authority applied an overly rigid and unsupported comparability standard, while its own comparables were appropriate for a TNMM analysis and the authority’s replacement set was not shown to be better. It also argued that, on the results, its return on sales was within an arm’s length range based on its reliable set, so there was no basis for a correction. On turnover, it argued the discounts and rebates were genuine price reductions supported by agreements and transactional documents.
Judgment
The Tax Court granted the appeal in full. It held the discounts and rebates were supported and could reduce turnover, so the turnover correction failed. On transfer pricing, it preferred the taxpayer’s comparable selection, found the taxpayer’s return on sales to be within a reasonable arm’s length range, and therefore cancelled the assessment because the authority did not have a justified basis to adjust the results once arm’s length was demonstrated within the range.
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