Does Audit Quality Reduce Tax Avoidance?

Abstract

This study aims to provide empirical evidence on the influence of thin capitalization, transfer pricing, and audit quality on tax avoidance. The dependent variable in this study is tax avoidance using Effective Tax Rate (ETR) proxies and dummy tax haven categories. Meanwhile, the independent variables in this study are thin capitalization with MAD ratio proxies and transfer pricing measured using related party receivables proxies. Furthermore, this study also uses a moderation variable, namely audit quality. Audit quality is measured using Big Four KAP proxies and dummy auditors industry specialization. This research uses a sample of 250 manufacturing company listed on the Indonesia Stock Exchange in 2018-2022. The results of this study show that transfer pricing affects tax avoidance, and audit quality can mitigate the influence of thin capitalization and transfer pricing affects tax avoidance.