The Moderating Role of Corporate Governance in the Relationship Between Transfer Pricing and Tax Avoidance
Abstract
This study investigates the relationship between transfer pricing (TP) and tax avoidance (TA), with corporate governance (CG) serving as a moderating variable. The research focuses on manufacturing firms listed on the Indonesia Stock Exchange (IDX) from 2017 to 2022. The sample comprises 180 observations derived from 30 multinational manufacturing companies, selected through a purposive sampling technique based on specific criteria. Panel data regression analysis was employed, utilizing models both with and without the moderating variable. The findings indicate that TP positively influences TA, suggesting that transfer pricing practices are associated with higher levels of tax avoidance. However, the study also reveals that strong CG can mitigate the positive impact of TP on TA, thereby underscoring the moderating role of effective governance mechanisms. These results highlight the importance of robust CG in reducing tax avoidance practices facilitated through transfer pricing. This study offers practical recommendations for strengthening corporate governance and implementing stricter regulatory oversight of transfer pricing activities. By enhancing governance frameworks, policymakers and companies can better address the ethical and financial implications of tax avoidance in multinational enterprises.
Keywords: transfer pricing, tax avoidance, corporate governance, multinational manufacturing compani
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References
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Sikka, P., & Willmott, H. (2010). The dark side of transfer pricing: Its role in tax avoidance and wealth retentiveness. Critical Perspectives on Accounting, 21(4), 342–356.
Sitanggang, R., & Firmansyah, A. (2021). Transaksi dengan pihak berelasi dan praktik transfer pricing di Indonesia. Jurnal Pajak Dan Keuangan Negara (PKN), 2(2), 34–52.
Tomedi, A. C., & Schreiber, D. (2014). Transfer pricing in the context of the management of earnings. Business Management Dynamics, 3(7), 28.
Wahyudi, D. E., Sutrisno, T., & Rusydi, M. K. (2021). Determinants of transfer pricing aggressiveness with the moderation of corporate governance in Indonesia and Malaysia. Journal of Economics, Business, and Accountancy Ventura, 24(1), 23–33.
Amidu, M., Coffie, W., & Acquah, P. (2019). Transfer pricing, earnings management and tax avoidance of firms in Ghana. Journal of Financial Crime, 26(1), 235–259. https://doi.org/10.1108/JFC-10-2017-0091
Aryotama, P., & Firmansyah, A. (2020). The Association Between Related Party Transaction And Tax Avoidance In Indonesia. AFEBI Accounting Review, 4(02), 117. https://doi.org/10.47312/aar.v4i02.243
Asih, K. L., & Darmawati, D. (2021). The Role of Independent Commisioners in Moderating the Effect of Profitability, Company Size and Company Risk on Tax Avoidance. Asia Pacific Fraud Journal, 6(2), 235–248.
Astuti, T. P., & Aryani, Y. A. (2017). TREN PENGHINDARAN PAJAK PERUSAHAAN MANUFAKTUR DI INDONESIA YANG TERDAFTAR DI BEI TAHUN 2001-2014. Jurnal Akuntansi, 20(3). https://doi.org/10.24912/ja.v20i3.4
Chen, S., Chen, X., Cheng, Q., & Shevlin, T. (2010). Are family firms more tax aggressive than non-family firms? Journal of Financial Economics, 95(1), 41–61. https://doi.org/10.1016/j.jfineco.2009.02.003
Christy, L., Julianetta, V., Excel, A., Tantya, F., Kristiana, S., & Salsalina, I. (2022). Pengaruh Transfer Pricing dan Profitabilitas terhadap Penghindaran Pajak Perusahaan Publik Sektor Pertambangan di Indonesia. Jurnal Akuntansi, Manajemen, Bisnis Dan Teknologi (AMBITEK), 2(1), 59–69. https://doi.org/10.56870/ambitek.v2i1.37
Comprix, J., Graham, R. C., & Moore, J. A. (2011). Empirical evidence on the impact of book-tax differences on divergence of opinion among investors. Journal of the American Taxation Association, 33(1), 51–78.
Dara, R. R., Subekti, I., & Andayani, W. (2019). The effect of corporate governance and ceo’s reputation on financial distress with financial performance as a mediation variable. South East Asia Journal of Contemporary Business, Economics and Law, 18(5), 297–305.
El-Helaly, M. (2018). Related-party transactions: a review of the regulation, governance and auditing literature. Managerial Auditing Journal, 33(8/9), 779–806. https://doi.org/10.1108/MAJ-07-2017-1602
Fasita, E., Firmansyah, A., & Irawan, F. (2022). Transfer Pricing Aggressiveness, Thin Capitalization, Political Connection, Tax Avoidance: Does Corporate Governance Have A Role in Indonesia? Riset Akuntansi Dan Keuangan Indonesia, 7(1), 63–93.
Hanlon, M., & Heitzman, S. (2010). A review of tax research. Journal of Accounting and Economics, 50(2–3), 127–178.
Haque, T., Pham, T. P., & Yang, J. (2023). Geopolitical risk, financial constraints, and tax avoidance. Journal of International Financial Markets, Institutions and Money, 88, 101858.
Hendi, H., & Hadianto, H. (2021). Pengaruh harga transfer, manajemen laba dan tanggung jawab sosial perusahaan terhadap penghindaran pajak. FORUM EKONOMI: Jurnal Ekonomi, Manajemen Dan Akuntansi, 23(3), 570–581.
Ibrahim, R., Sutrisno, T., & Rusydi, M. K. (2021). The influence factors of tax avoidance in Indonesia. International Journal of Research in Business and Social Science (2147-4478), 10(5), 1–10.
Irawan, F., Kinanti, A., & Suhendra, M. (2020). The impact of transfer pricing and earning management on tax avoidance. Talent Development & Excellence, 12(3), 3203–3216.
Jung, K., Kim, B., & Kim, B. (2009). Tax motivated income shifting and Korean business groups (Chaebol). Journal of Business Finance & Accounting, 36(5‐6), 552–586.
Kim, S., & Yoo, J. (2017). Does R&D Expenditure with Heavy Related Party Transactions Harm Firm Value? Sustainability, 9(7), 1216.
Klassen, K. J., Lisowsky, P., & Mescall, D. (2013). Transfer Pricing: Strategies, Practices, and Tax Minimization. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2216870
Kumar, S., Pandey, N., Lim, W. M., Chatterjee, A. N., & Pandey, N. (2021). What do we know about transfer pricing? Insights from bibliometric analysis. Journal of Business Research, 134, 275–287.
Lietz, G. M. (2013). Tax avoidance vs. tax aggressiveness: A unifying conceptual framework. Tax Aggressiveness: A Unifying Conceptual Framework.
Lin, C., & Chang, H. (2010). Motives of transfer pricing strategies–systemic analysis. Industrial Management & Data Systems, 110(8), 1215–1233.
Noviari, N., & Agung Suaryana, I. G. N. (2019). Mampukah Corporate Governance Mengurangi Eksekutif Risk Taker Melakukan Penghindaran Pajak. Jurnal Ilmiah Akuntansi Dan Bisnis, 14(2), 265.
Nugroho, R. P., Sutrisno, S. T., & Mardiati, E. (2020). The effect of financial distress and earnings management on tax aggressiveness with corporate governance as the moderating variable. International Journal of Research in Business and Social Science (2147-4478), 9(7), 167–176.
Nugroho, W. C. (2022). Peran Kualitas Audit pada pengaruh Transfer Pricing dan Capital Intensity terhadap Tax Avoidance. E-Jurnal Akuntansi, 32(6), 1578.
Nurhidayah, L. I., & Rahmawati, I. P. (2022). Menguak Praktik Penghindaran Pajak pada Perusahaan Nonkeuangan. Jurnal Akuntansi Multiparadigma, 13(2), 393–403.
Park, S. (2018). Related party transactions and tax avoidance of business groups. Sustainability, 10(10), 3571.
Rossing, C. P., Cools, M., & Rohde, C. (2017). International transfer pricing in multinational enterprises. Journal of Accounting Education, 39, 55–67.
Sikka, P., & Willmott, H. (2010). The dark side of transfer pricing: Its role in tax avoidance and wealth retentiveness. Critical Perspectives on Accounting, 21(4), 342–356.
Sitanggang, R., & Firmansyah, A. (2021). Transaksi dengan pihak berelasi dan praktik transfer pricing di Indonesia. Jurnal Pajak Dan Keuangan Negara (PKN), 2(2), 34–52.
Tomedi, A. C., & Schreiber, D. (2014). Transfer pricing in the context of the management of earnings. Business Management Dynamics, 3(7), 28.
Wahyudi, D. E., Sutrisno, T., & Rusydi, M. K. (2021). Determinants of transfer pricing aggressiveness with the moderation of corporate governance in Indonesia and Malaysia. Journal of Economics, Business, and Accountancy Ventura, 24(1), 23–33.
Published
2025-01-24
How to Cite
DHARMAWAN, Nyoman Ari Surya; SAPUTRA, Komang Adi Kurniawan; WIGARBA, I Gede Arya.
The Moderating Role of Corporate Governance in the Relationship Between Transfer Pricing and Tax Avoidance.
Jurnal Ilmiah Akuntansi dan Bisnis, [S.l.], v. 19, n. 2, p. 293-305, jan. 2025.
ISSN 2303-1018.
Available at: <https://ojs.unud.ac.id/index.php/jiab/article/view/118094>. Date accessed: 30 jan. 2025.
doi: https://doi.org/10.24843/JIAB.2024.v19.i02.p07.
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