Transfer Pricing and Tax Avoidance: A Study on Manufacturing Companies Listed in Indonesia

Tax avoidance (TA) is the practice of taxpayers taking advantage of gaps in tax laws to lower or minimize their tax liability. The purpose of this study is to investigate how transfer pricing (TP) affects TA practices. All manufacturing companies listed on the Indonesia Stock Exchange between 2019 and 2023 make up the research population. Purposive sampling was used to determine the sample, and 17 companies with a 5-year observation period were selected, yielding 85 observations in total. Regression analysis is the method employed. The impact of TP on TA can be managed by factors such as foreign ownership (FO), business complexity (BC), return on assets (ROA), firm size (FS), return on equity (ROE), and total employees (TE). In the meantime, the relationship between TP and TA practices can be moderated by the variable FO. To lessen the possibility that businesses will engage in TA practices, the government, as the tax regulator, must be able to monitor how TP is used by businesses. It is anticipated that affiliated businesses will not use TP to reduce their tax liabilities, as this would be harmful to the state. The government audited TP implementation periodically and strengthened TP documentation requirement to ensure the company compliance to the regulation.