UNRAVELING TRANSFER PRICING AGGRESSIVENESS: THE MODERATING ROLE OF TAX AVOIDANCE IN THE EFFECTS OF TUNNELING INCENTIVES AND EXCHANGE RATES

Abstrak

Background: This study examines the factors influencing transfer pricing aggressiveness in multinational companies. Transfer pricing has become a major concern in international taxation because multinational firms may shift profits across jurisdictions to reduce their tax liabilities. Previous studies suggest that ownership structures and macroeconomic factors influence transfer pricing decisions; however, empirical evidence remains inconclusive. Therefore, this study investigates the effects of tunneling incentives and exchange rates on transfer pricing aggressiveness, with tax avoidance as a moderating variable.   Methods: This study employs a quantitative research design using secondary data from the annual reports and financial statements of manufacturing companies listed on the Indonesia Stock Exchange during the period 2020–2023. The sampling technique used was purposive sampling, yielding 30 companies and 120 observations. Data analysis was conducted using panel data regression. Results: The results indicate that tunneling incentives have a significant positive effect on transfer pricing aggressiveness, whereas exchange rates do not have a significant effect. Furthermore, tax avoidance strengthens the positive relationship between tunneling incentives and transfer pricing aggressiveness but does not moderate the relationship between exchange rates and transfer pricing aggressiveness. Conclusions: This study contributes to the transfer pricing literature by providing empirical evidence on the determinants of transfer pricing aggressiveness among Indonesian manufacturing firms. The findings emphasize the role of ownership incentives in shaping transfer pricing practices and provide useful insights for policymakers seeking to strengthen transfer pricing regulations.