Breaking Down the Transfer Pricing Implications Behind the ASDP Corruption Case
The corruption case on the acquisition of PT Jembatan Nusantara by PT ASDP Indonesia Ferry (Persero) (ASDP) presents a complex and multidimensional legal debate.
This case is not merely about the state’s losses figure, but rather a conceptual clash between corporate business discretion and state financial accountability.
At the core, this issue brings together two major legal doctrines, namely the Business Judgment Rule (BJR) and the Arm’s Length Principle (ALP).
BJR is frequently used to shield the board of directors’ decisions. Meanwhile, the ALP is commonly applied in taxation (including under PMK 172/2023) and forensic audits as a tool to test the validity of a transaction.
This article analyzes how ALP reasoning may be applied to test BJR claims, and how this dynamic aligns with practices in the Tax Court.
Acquisition of an Aging Fleet as the Root of the Issue
The case started with ASDP’s strategic corporate action between 2019 and 2022. ASDP acquired PT Jembatan Nusantara in a transaction valued at approximately IDR 1.3 trillion. From the business perspective, the acquisition was intended to significantly expand ASDP’s fleet and secure strategic commercial ferry routes.
However, the measure eventually attracted legal scrutiny. Investigators alleged abnormalities in the acquisition process. The primary issue concerns the condition of PT Jembatan Nusantara’s assets (vessels), which were considered aging, and the specification of which was inconsistent with the price paid. Allegations include acquisition value mark-ups and manipulation during the due diligence process, potentially resulting in state financial losses.
The central question is whether an investment decision at a ‘premium’ price may still be justified as a rational business strategy (under BJR) when assessed against ALP parameters as stipulated in PMK 172/2023.
Risks and Responsibilities under the Business Judgment Rule
To address the question, BJR must be properly situated as a legal doctrine protecting the board of directors from corporate losses arising from business decisions, provided that those decisions were made within proper authority limitations and procedures.
Based on the Indonesian Company Law, the board of directors may not be held criminally liable for corporate losses if the following can be proven:
- The loss did not result from personal faults or negligence;
- The board of directors acted in good faith and with due care;
- No conflict of interest existed; and
- Risk mitigation measures were undertaken.
However, this protection may lapse if these elements are violated. Hence, the ALP becomes an analytical instrument to test whether the “good faith” claim is valid.
Preliminary Analysis: Testing Rationality before Figure
Public attention often focuses immediately on whether the purchase was “pricey”. Within the ALP analytical framework, however, a Preliminary Analysis is the crucial step before entering into price calculations.
The preliminary stage examines the fundamental foundation of BJR, namely business rationality.
Existence and Benefit Test
The fundamental question concerns the commercial motive: did the acquisition of aging vessels have strong strategic justifications?
If a transaction lacks a clear economic benefit or is undertaken primarily to rescue the seller’s financial position (e.g., through debt assumption) without adding value to the acquiring company, the transaction fails the initial stage of the arm’s length test.
In the context of transfer pricing, such a motive test may be reinforced by exploring options realistically available.
For instance, with the significant sum of funds, has the management compared the benefits of acquiring older vessels with other options, such as ordering new vessels (build) or entering into long-term leasing arrangements?
If alternative options are found to offer higher net present values, yet the management opted to acquire aging assets with substantial maintenance burdens, reliance on BJR protection may be difficult to sustain.
Substance over Form
Under the substance-over-form analysis, the focus shifts to inspecting the rationale behind the transaction scheme selection. For example, why was a share deal chosen instead of a direct asset deal?
Theoretically speaking, share acquisitions are commonly performed to preserve business continuity, e.g., for route license purposes. The consequence of this scheme, however, is the shift of liabilities from the target company to the buyer.
Accordingly, under the arm’s length principle, the pricing mechanism must be analyzed. The matter at hand is whether the acquisition value paid had considered the liabilities assumed.
If the purchase price remains high despite substantial debt assumption, the valuation must be reassessed to determine whether it truly reflects market conditions.
Valuation Complexity and Hindsight Bias Challenges
Once passing the rationality test, the analysis proceeds to price valuation. Here, the “aging vessels with premium price” becomes the main problem.
In the ASDP case, the principal challenge lies in avoiding hindsight bias.
Ex-post perspective: Valuation is biased if the judgment of the past decision uses the present conditions of the assets (e.g., the vessels have deteriorated or the business is in a losing condition).
Ex-ante perspective: BJR emphasizes the conditions at the time the decision is made. If, in 2019, the valuation had been supported by independent valuers who had used valid data, the subsequent value decline should have been regarded as a business risk rather than state loss.
Dissenting Opinions Phenomenon: The Grey Area
In disputes on investment related to valuation, dissenting opinions among judges commonly occur. This underscores that business valuation is not an exact science but rather an estimation within the arm’s length range.
Differences between valuers do not automatically indicate non-arm’s length mark-ups, provided that the figures remain within professionally defensible assumptions.
Reflection and Relevance for the Tax Court
Methodologically, the evidentiary dynamics in the ASDP case are closely related to the practices in the Tax Court, specifically the transfer pricing disputes under the provisions of PMK 172/2023. This case validates the principles historically applied in tax disputes.
The Relevance Between Preliminary Analysis and Economic Substance
The case approach defends the importance of substance over mere formal documentation. This parallels Tax Court practice, where the existence of formal documents (such as the transfer pricing documentation/TP Doc) does not eliminate the need for substantive proof. Benefit tests and economic reality of the transaction remain the key in assessing deductibility.
Ex-Ante Perspective in a Valuation
The issue of hindsight bias in ASDP’s case resonates strongly with transfer pricing disputes. The case highlights the principle of ideal arm’s length analysis based on data and conditions available at the time of the transaction (ex-ante). Using comparable data that match with the transaction period is crucial in preserving objectivity.
Arm’s Length Range Concept
Differing valuation views or dissenting opinions in corporate disputes support the principle that fair market value is not singular, consistent with the application of the arm’s length range principle in tax.
Based on this principle, price variation, as long as within the arm’s length range, is generally accepted as business risk or market dynamics, rather than automatically deemed a non-arm’s length mark-up.
Objective Comparables and Robust Argumentation
Reflecting on this complexity, risk mitigation for decision-makers becomes critical. Ideally, strategic asset valuation should not rely solely on a single-valuer report. Obtaining a comparable valuation (a second opinion) is advised to obtain an objective determination for a more accurate market value range.
Moreover, valuation outcomes should not be accepted without critical assessment. Pricing negotiations must reflect physical conditions and material facts available when the transaction is going to be conducted (ex-ante). Consequently, the business decision has a robust argumentation basis and is protected from future dispute risk.
Balanced Analysis as the Key to Legal Certainty
The ASDP acquisition becomes a significant case study for legal and financial practitioners. The case demonstrates that the application of the arm’s length principle, whether in state-owned corporations or a taxation context, requires analytical balance.
A thorough assessment is required to prove whether losses arising represent business risk consequences (within BJR scope). The validity and reliability may be tested and mitigated through the application of arm’s length principles under PMK 172/2023.
Ultimately, compliance with transfer pricing standards is not merely about tax obligation fulfillment. The standards constitute a strategic safeguard in demonstrating the accountability of corporate business decisions.
Disclaimer! This article is a personal opinion and does not reflect the policies of the institution where the author works.
