Factors causing tax avoidance practices in multinational companies: Evidence from Indonesia

Abstract

Tax avoidance by the multinational company has been at the top of the international tax policy agenda since the global financial crisis in 2008. This level of tax evasion raises concerns that large multinational corporations pay meager effective tax rates. Therefore, this study aims to obtain empirical evidence of the influence of transfer pricing, thin capitalization, and tax heaven utilization on corporate tax avoidance. This paper aims to examine the effects of factors that cause tax avoidance practices in multinational companies. This study used 37 multinational companies listed on the Indonesia Stock Exchange (IDX) for 2018-2020. This study used a purposive sampling method that produced 111 suitable samples. The analytical method used is multiple linear regression analysis through Stata 12 software. Main findings of the study demonstrate that (i) Transfer pricing has a positive effect on the practice of Tax Avoidance (ii) Thin capitalization does not affect the practice of Tax Avoidance, and finally (iii) Tax heaven utilization has a positive effect on the practice of Tax Avoidance.

The Impact of Changes in Tax Regulations on Corporate Tax Avoidance Practices in Indonesia

“…Examining the legal tactics used by businesses to maximize their financial position in response to tax laws is vital to getting a greater knowledge of corporate tax evasion. Numerous characteristics, such as profitability (Elshifa et al, 2023;Lokanan, 2023;Putra & Zahroh, 2023), capital intensity (Nurdiansyah, 2023;Safitri & Widarjo, 2023;Yahya et al, 2023), inventory intensity, earnings management, solvency, transfer pricing, thin capitalization, and use of tax havens, have been studied about tax avoidance. These elements may have an impact on a business's capacity to cut expenses and minimize tax obligations.…”

Analysis of the Effect of Tax Compliance, Tax Avoidance, and Financial Reporting Quality on Company Financial Performance: A Case Study on a Manufacturing Company in Indonesia

“…It is believed that tax planning can benefit shareholders by increasing financial performance [35]. However, excessive tax avoidance can lead to reputational risk and increased government scrutiny, which can negatively affect a company's long-term financial viability [36]. It is important for companies to strike a balance between tax planning and maintaining a positive reputation and relationship with the government [37].…”