Bapepam investigates Inco for alleged transfer pricing practice

The Capital Market Supervisory Agency (Bapepam) is investigating publicly listed nickel producer PT Inco Tbk for alleged transfer pricing practices in the sales of its nickel product to its buyers the agency's senior executive has said.

Indarto, the head of the financial assessment department of the agency, said last week that Bapepam was investigating if Inco had manipulated the pricing of its nickel and other products to its buyers.

"If the transfer pricing is made due to its close relations with its buyers, such a conflict of interest transactions should be stipulated in the company's prospectus issued when the company made its initial public offering (IPO) some years ago, he said.

Indarto said that if the sale contracts, which could cause conflicts of interests, were signed after the company's IPO, such transactions should first receive approval from independent shareholders.

The Directorate of Taxes of the Ministry of Finance has accused the nickel producer, a subsidiary of the Canada-based Inco International, of conducting transfer-pricing practices in a bid to cut tax payment.

Inco, which operates nickel mines in Sulawesi, sells its mineral products to Inco Limited and Sumitomo Metal Mining Co, which are both major shareholders in the company.

In addition to nickel in matte, Inco also sells cobalt, one of precious metal.

According to the tax office, Inco sells its cobalt products at the same price as Inco. This practice has raised suspicion that the nickel producer conducted transfer pricing with its buyers because in international market, the price of cobalt is ten folds the price of nickel.

Inco director Andre C. Daenuwy acknowledged that there was a different interpretation in the tax payment with the tax office. But he added that the dispute had been settled with the tax arbitrary office. (*)