Exploring the Opportunities for Tax Avoidance Through the Thin Capitalization, Transfer Pricing, and Foreign Ownership

This study examines the implications of Thin Capitalization, Transfer Pricing, and Foreign Ownership on Tax Avoidance within LQ45 companies during the period from 2019 to 2023. A purposive sampling method was employed to obtain a sample of 180 observations from a total of 225 companies. Panel data regression analysis was conducted utilizing Stata 18. The results indicate that Thin Capitalization exerts a negative influence on Tax Avoidance, whereas Transfer Pricing demonstrates a positive effect. Additionally, Foreign Ownership was found to have no significant impact on Tax Avoidance. This study offers a new insight into tax avoidance among Indonesian companies, highlighting how the corporate governance structure can influence tax strategies. It finds that the thin capitalization strategy and transfer pricing of a company are more influenced by management factors than by the structure of its shareholders. Investors should focus on the transparency of company tax policies, as managerial decisions have a greater impact on tax avoidance than ownership structure. Meanwhile, stricter oversight and clearer regulations are needed to prevent tax avoidance and profit shifting.

Authors

Publication Details

Journal
Saudi Journal of Economics and Finance
Published
2025-09-19
DOI
https://doi.org/10.36348/sjef.2025.v09i09.002
Primary Topic
Corporate Taxation and Avoidance
Type
article
Field-Weighted Citation Impact
0.00
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article

Exploring the Opportunities for Tax Avoidance Through the Thin Capitalization, Transfer Pricing, and Foreign Ownership

Deden Tarmidi, Kevin Imannuel
Saudi Journal of Economics and Finance
Corporate Taxation and Avoidance
article

Exploring the Opportunities for Tax Avoidance Through the Thin Capitalization, Transfer Pricing, and Foreign Ownership

Deden Tarmidi, Kevin Imannuel
article en

Abstract

This study examines the implications of Thin Capitalization, Transfer Pricing, and Foreign Ownership on Tax Avoidance within LQ45 companies during the period from 2019 to 2023. A purposive sampling method was employed to obtain a sample of 180 observations from a total of 225 companies. Panel data regression analysis was conducted utilizing Stata 18. The results indicate that Thin Capitalization exerts a negative influence on Tax Avoidance, whereas Transfer Pricing demonstrates a positive effect. Additionally, Foreign Ownership was found to have no significant impact on Tax Avoidance. This study offers a new insight into tax avoidance among Indonesian companies, highlighting how the corporate governance structure can influence tax strategies. It finds that the thin capitalization strategy and transfer pricing of a company are more influenced by management factors than by the structure of its shareholders. Investors should focus on the transparency of company tax policies, as managerial decisions have a greater impact on tax avoidance than ownership structure. Meanwhile, stricter oversight and clearer regulations are needed to prevent tax avoidance and profit shifting.

Saudi Journal of Economics and FinanceVol. 9(09)
Openalex Percentile: Top 62%
Corporate Taxation and Avoidance
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Exploring the Opportunities for Tax Avoidance Through the Thin Capitalization, Transfer Pricing, and Foreign Ownership — Deden Tarmidi, Kevin Imannuel · Saudi Journal of Economics and Finance (2025) | TGRS Research Map | TGRS