Abstract
<p>This study aims to examine the association between related party transaction and tax avoidance in Indonesia’ Non-Financial Companies. Related-party transactions, as its name implies, are transactions conducted by companies with its related parties. Meanwhile, tax avoidance is a reduction in corporate tax liability, which is conducted by the company legally. This study employs a quantitative method using linear regression analysis and uses panel data of companies listed under the Indonesia Non-Financial Companies on IDX from 2014 to 2017. The result of this study suggests that related party transaction is negatively associated with tax avoidance.</p>
Highlights
Governments will always try to enforce tax regulation for more revenue and compliance from businesses
The fact that this research uses the abnormal book-tax difference as a measure of tax avoidance, and that final tax is taken into account as a non-discretionary item to arrive at the residual for abnormal BTD, is another evidence that companies prefer to engage in related-party sales within Indonesia to shift income
The hypothesis examination suggests that the related-party transaction is negatively related to tax avoidance
Summary
Governments will always try to enforce tax regulation for more revenue and compliance from businesses. Businesses, on the other hand, always try to exploit loopholes in the regulation to try and minimize or even avoid paying taxes. This act by businesses to minimize or avoid paying tax can be classified as tax avoidance or tax evasion. Kirchler (2007) distinguished the difference through legal means (tax avoidance) or illegal means (tax evasion). Firms try to exploit the loopholes that exist in the tax regulation to minimize or avoid paying taxes. By illegal means, companies blatantly disregard the tax regulation and unlawfully avoids paying taxes altogether. By illegal means, companies blatantly disregard the tax regulation and unlawfully avoids paying taxes altogether. Guenther et al (2017) went even further by distinguishing legal tax planning based on the fact whether management deemed it would likely be overturned by the tax authority (tax aggressiveness) or not (tax avoidance)
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