Determinants of Transfer Pricing Practices in Indonesia: The Moderating Role of Leverage

Abstract

Transfer pricing practices in Indonesia are commonly used by taxpayers to reduce tax liabilities by shifting profits to countries with lower tax rates. This study investigates the determinants of transfer pricing decisions among multinational companies, with leverage serving as a moderating variable. The research focuses on multinational firms listed on the Indonesia Stock Exchange (IDX) from 2019 to 2022, excluding those in the financial, construction, shipping, and aviation sectors. Using purposive sampling, 88 companies (222 observation units) were selected. Secondary data were obtained from financial reports and analyzed using panel data regression and moderated regression analysis with EViews 12. The results show that tax minimization has a significant negative effect on transfer pricing, while tunneling incentives show no effect. The exchange rate, however, has a significant positive influence. Leverage is found to strengthen the effects of tax minimization and tunneling incentives, but to weaken the effect of the exchange rate on transfer pricing. This study highlights the moderating role of leverage and provides insights based on multinational companies listed on the IDX during the 2019–2022 period, excluding selected sectors.