The Effect Of Tax, Tunneling Incentive, Bonus Mechanisms, And Firm Size On Transfer Pricing (Indonesian Evidence)

Abstract

Transfer pricing is the transaction price in the form of tangible goods, intangible goods or the provision of services between parties that have a special relationship. Transfer pricing used by companies in order to avoid tax payments that can cause problems for the tax authorities in their efforts to maximize revenue from the tax sector. This study aims to analyze the effect of taxes, tunneling incentives, bonus mechanisms, and firm size on transfer pricing in manufacturing sector. This study selected 28 manufacturing companies that were sel purposive sampling technique from a population of 153 companies listed on Indonesia Stock Exchange of the period 2013-2017. The results of the panel data regression with random effect model shows that taxes, bonus mechanisms, and firm size h positive effect on transfer pricing. However tunneling incentives do not affect transfer pricing.

The Determinants of Manufacturing Firms' Transfer Pricing Decisions in Indonesia

“…In the meantime, a study by (Yulia et al, 2019) investigating the international ownership relationship produced the opposite outcome. Research by Nazihah et al (2019) has revealed a positive impact on the bonus mechanism's transfer pricing decisions, which contrasts to Susanti & Firmansyah's study (2018). Merle et al (2019) research shows that debt covenant positively impacted the price of transfers, which is not consistent with Indrasti's study (2016).…”

“…A study from Tang (2016) found that tunneling incentives positively impact tax avoidance. This study is, however, inversely related to research by (Nazihah et al, 2019). Besides, Pratama (2020) found that corporate governance mechanism has a negative impact on transfer pricing.…”

“…H6: Foreign operation has a significant positive effect on transfer pricing through measure of TPI Management uses transfer pricing as a profit shift mechanism between companies to raise management bonuses (Chan et al, 2015). Research by Nazihah et al (2019) has found a substantial positive correlation to the transfer pricing incentive system to optimize bonuses. A study by Nazihah et al (2019) has identified a significant positive relationship between the incentive system and transfer pricing to optimize bonuses.…”

“…Research by Nazihah et al (2019) has found a substantial positive correlation to the transfer pricing incentive system to optimize bonuses. A study by Nazihah et al (2019) has identified a significant positive relationship between the incentive system and transfer pricing to optimize bonuses. In line with the bonus plan hypothesis of Watts & Zimmermann (1986), if managers' bonuses depend on company's net income, they can increase bonuses by reporting the highest possible net profits in certain period to receive an increased bonus.…”

Determinan Praktik Transfer Pricing Dengan Firm Size Sebagai Pemoderasi Pada Perusahaan Pertambangan Yang Terdaftar Di Bursa Efek Indonesia

“…Sementara itu, penelitian Nugroho et al, (2018) mendefinisikan firm size sebagai skala seberapa besar atau kecil suatu perusahaan yang dapat menunjukkan stabilitas, keseimbangan, dan kemampuan perusahaan dalam melakukan aktivitas ekonominya. Proksi pada penelitian ini sama dengan yang digunakan dalam penelitian Nugroho et al, (2018); Septiyani et al, (2018); dan Fuadah dan Nazihah (2019). Variabel firm size diukur menggunakan Log natural Total Assets.…”