The purpose of this study is to investigate the utilization of derivative financial instruments in tax aggressiveness activities. The study is conducted by analyzing the fair value of derivative financial assets and liabilities in total and categorized it into hedging and speculative (non-hedging) designations to identify which type of derivatives are used for tax avoidance. The results of the analysis reveal that cash effective tax rate (Cash ETR) is negatively associated with the fair value of hedging derivative assets. This indicates that firms are reducing tax payment by delaying the realization of derivative gains designated for hedging. Furthermore, Cash ETR is found to be negatively (positively) associated with the fair value of non-hedging derivative assets (liabilities). This indicates that firms are delaying the realization of gains while accelerating the realization of losses on non-hedging derivatives to reduce tax payment. Moreover, GAAP ETR is positively associated with the fair value of the non-hedging derivative liabilities, indicating that there is a reduction of income tax expense through accelerating the realization of non-hedging derivative losses thus it can be implied that firms are utilizing derivative financial instruments in earning management activity to minimize their tax burden. This study contributes to the existing literature and public policy by providing evidence on the use of financial derivatives in tax aggressiveness along with policy recommendations related to tax implications of financial derivative transactions since, up to the time of this publication, Indonesia has not had specific tax provision which regulate taxation on financial derivative transactions.

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