Determinants of Secondary Adjustment Tax Disputes in Transfer Pricing: An Empirical Study in the Indonesian Context

Abstract

Tax disputes involving secondary adjustments in transfer pricing at the Indonesian
Tax Court have risen, despite a decline in cases filed by the Directorate General of
Taxes between 2021 and 2023. This study examines the underlying causes of these
disputes through Root Cause Analysis (RCA) and Fishbone Diagrams. The analysis
draws on 358 court rulings, a comprehensive literature review, and semi
structured interviews with eight key stakeholders, including judges, tax auditors,
tax objection officers, and tax consultants. The findings highlight several critical
factors contributing to these disputes. These include the lack of a clear definition
for disguised dividends—an issue arising from the application of secondary
adjustments under Indonesian regulations—varying interpretations of Ministry of
Finance Regulation No. 22/2020, limited technical competence among tax auditors,
and aggressive tax audit targets. These factors create legal uncertainty and increase
the likelihood of disputes. To address these challenges, the study recommends
clarifying relevant regulations, strengthening tax auditor training programs, and
shifting the focus of tax audits from quantity to quality. Implementing these
measures is expected to enhance legal certainty, reduce the frequency of disputes,
and contribute to a more robust and effective tax administration system in
Indonesia.