The Effect of Tax Minimization and Exchange Rate on Transfer Pricing Decisions with Leverage as Moderating

Trisni Suryarini,Diah Kumala Devi

doi:10.15294/aaj.v9i2.36469

Abstract

The aims of this research are to analyze and to find empirical evidence about the effect of tax minimization and exchange rate on company decision of transfer pricing with leverage as moderating variable. The population of this research was mining companies which listed in Indonesia Stock Exchange (IDX) over the period 2013 to 2018 from 45 companies. The sampling technique used purposive sampling. Eighteen companies were selected with 65 units analysis were obtained. In addition, data was analyzed using descriptive statistics and inferential statistics using Moderated Regression Analysis (MRA). The data was processed by IBM SPSS Statistics 21 software. The results show that tax minimization and exchange rate have positive and significant effect on transfer pricing. Leverage does not moderate the effect of tax minimization on transfer pricing but leverage significantly moderate the effect of exchange rate on transfer pricing. The conclusion of this research is transfer pricing decision will be higher when tax minimization and exchange rate be higher, but leverage can moderate the effect of exchange rate to transfer pricing.

Highlights

Company is a profit-oriented entity, so all activities carried out will aim to obtain maximum profit
Transfer pricing can be done by companies by selling goods and / or services resulting from production to affiliated companies operate in countries with low tax jurisdiction at lower prices, so the profits of companies with high tax jurisdictions become low and the profits of companies with low tax jurisdictions become high (Barker et al, 2017)
The result of the multicollinearity test indicates that the tolerance value of each variable is more than 0.1, meaning that there is no correlation between variables

Summary

Introduction

Company is a profit-oriented entity, so all activities carried out will aim to obtain maximum profit. Efforts to realize this goal, company does tax planning, according to (Zatun & Kiswanto, 2015) high tax burden will encourage companies to make efficient their tax payments, because tax is one element of profit reduction. Transfer pricing is one of the methods of corporate tax planning. Suandy (2017) defined transfer pricing as an effort to save tax burden by tactics among others shifting profits to countries with low tax rates. Different tax rates between countries make a gap for companies to do transfer pricing. The overall profit earned by companies become higher because the total amount of tax paid

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