The determinant of transfer pricing in Indonesian multinational companies: Moderation effect of tax expenses


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In calculating the transfer price of a transaction for goods, services, intangible assets, or financial transactions, a corporation has a policy known as transfer pricing. Due to its widespread abuse, transfer pricing is frequently associated with negative connotations. For example, this practice manipulates prices so that it has the potential to harm state revenues. This study uses tax expenses as a moderating variable to evaluate how intangible assets, debt covenants, and bonus systems affect the company’s decisions to use transfer pricing. This paper uses quantitative research approach with multiple linear regression analysis. The data used are panel data, consisting of cross-section data from 23 international manufacturing businesses on the Indonesian Stock Exchange, and time-series data from 2017 to 2019. Based on the tests, only the debt covenant variable significantly positively affects the transfer pricing action (sig. 0.000). In contrast, the intangible asset and the bonus mechanism variables are insignificant for transfer pricing. Furthermore, tax charges cannot mitigate the impact of intangible assets on transfer pricing decisions. However, tax charges may be able to mitigate the debt covenant in a way that makes the company’s decision to use transfer pricing stronger (sig. 0.024). Additionally, the bonus mechanism may be negatively moderated by tax expenses, weakening the company’s decisions to use transfer pricing (sig. 0.045).

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    • Table 1. Research sample criteria
    • Table 2. Operational definition of variable
    • Table 3. Descriptive statistical analysis
    • Table 4. Absolute difference value test results
    • Table 5. Hypotheses testing
    • Conceptualization
      Maylia Pramono Sari
    • Data curation
      Maylia Pramono Sari
    • Formal Analysis
      Maylia Pramono Sari
    • Funding acquisition
      Maylia Pramono Sari, Alfan Budiarto, Risanda A. Budiantoro
    • Writing – original draft
      Maylia Pramono Sari, Alfan Budiarto
    • Investigation
      Alfan Budiarto, Nanik Sri Utaminingsih, Risanda A. Budiantoro
    • Resources
      Alfan Budiarto, Nanik Sri Utaminingsih, Risanda A. Budiantoro
    • Software
      Alfan Budiarto, Risanda A. Budiantoro
    • Supervision
      Surya Raharja
    • Validation
      Surya Raharja
    • Visualization
      Surya Raharja
    • Writing – review & editing
      Surya Raharja
    • Methodology
      Nanik Sri Utaminingsih
    • Project administration
      Nanik Sri Utaminingsih