Analysis of Multinational Company Transfer Pricing Schemes and Strengthening Corporate Income Tax Policies in Indonesia

Oct 13, 2025 by leolavanderia.com.br 81 views

Analysis of Multinational Company Transfer Pricing Schemes and Strengthening Corporate Income Tax Policies in Indonesia

Introduction

In the midst of the rapid development of digitalization and the global economy, increasing business activities have encouraged the Indonesian tax authority to make policy adjustments. One of the main challenges is how to impose taxes on the latest business innovation. Accounting records of companies that often ignore tax regulations have weakened the government's ability to collect taxes from every business activity. This is mainly due to the practice of recording affiliate transactions that occur between group companies operating outside the Indonesian Tax Authority.

The Purpose of the Study

The purpose of this study is to understand the implementation of the transfer pricing scheme policy in Indonesia, the practice of transfer pricing carried out by multinational companies, as well as efforts made to overcome these transfer pricing activities. The method used in this study is qualitative research with literature study approaches and interview techniques to obtain relevant information. The research location is the Medan Polonia Pratama Tax Office, which is located on Jl. Suka Mulia No.17A, A U R, Medan Maimun, Medan City, North Sumatra 20151. This study was conducted from April to June 2023.

The Results of the Study

The results showed that various policies issued in Indonesia were triggered by regulations that were considered inadequate in handling every case that emerged during the tax year. In addition, Indonesia's participation in multilateral relations also demands compliance with every decision set. Based on the case raised, the transfer pricing practical scheme in multinational manufacturing companies is caused by an affiliate transaction between subsidiaries operating in Indonesia and the parent company operating outside the Indonesian tax jurisdiction.

Analysis of the Pricing Transfer Scheme

Transfer pricing or transfer price refers to the pricing used in affiliated transactions between companies, including multinational companies. This practice is often used to move profits from one country to another with the aim of reducing tax burden. In Indonesia, this transfer pricing scheme is an important issue, given the complexity of tax law and uncertainty that surrounds it.

Multinational companies often take advantage of differences in tax rates between countries by conducting non-transparent affiliate transactions. For example, a company that has a factory in Indonesia may sell semi-finished products to parent companies abroad at a much lower price than market prices. This practice allows companies to reduce the tax owed in Indonesia, while the income earned is actually transferred to the country with a lower tax rate.

The Indonesian tax authority must strengthen tax policies and regulations to deal with this problem. One effort that can be made is to increase supervision of the company's financial statements and ensure that the transfer price applied is in accordance with market value. Implementation of tighter tax regulations, as well as strict sanctions for companies that violate, can be a strategic step to reduce the practice of transfer pricing that harms state income.

Strengthening Corporate Income Tax Policy

Strengthening corporate income tax policy in Indonesia also requires a comprehensive approach. In addition to strict regulations, the government needs to increase the capacity of human resources in the tax authority environment to better understand the practice of transfer pricing and can conduct accurate assessments of the financial statements of multinational companies.

In addition, the government can also carry out international cooperation to overcome transfer pricing. Joining an international agreement governing the transfer price and information cooperation between countries can help Indonesia to be more effective in combating tax avoidance by multinational companies.

The Importance of Adaptation and Responsiveness

In facing existing challenges, it is important for the Indonesian government to remain adaptive and responsive to the development of the global economy and digital innovation. Thus, existing tax regulations are not only able to pursue lost taxes from the practice of transfer pricing, but can also support sustainable economic growth in Indonesia.

Conclusion

In conclusion, the practice of transfer pricing by multinational companies is a significant issue in Indonesia, given the complexity of tax law and uncertainty that surrounds it. The Indonesian tax authority must strengthen tax policies and regulations to deal with this problem. One effort that can be made is to increase supervision of the company's financial statements and ensure that the transfer price applied is in accordance with market value. Implementation of tighter tax regulations, as well as strict sanctions for companies that violate, can be a strategic step to reduce the practice of transfer pricing that harms state income.

Recommendations

Based on the results of this study, the following recommendations are made:

The Indonesian government should increase the capacity of human resources in the tax authority environment to better understand the practice of transfer pricing and can conduct accurate assessments of the financial statements of multinational companies.
The government should carry out international cooperation to overcome transfer pricing. Joining an international agreement governing the transfer price and information cooperation between countries can help Indonesia to be more effective in combating tax avoidance by multinational companies.
The government should implement tighter tax regulations, as well as strict sanctions for companies that violate, to reduce the practice of transfer pricing that harms state income.

Limitations of the Study

This study has several limitations. Firstly, the study only focuses on the transfer pricing scheme in multinational manufacturing companies. Secondly, the study only uses qualitative research methods, which may not provide a comprehensive understanding of the issue. Finally, the study only uses data from the Medan Polonia Pratama Tax Office, which may not be representative of the entire country.

Future Research Directions

Future research should focus on the following areas:

The impact of transfer pricing on the Indonesian economy.
The effectiveness of tax regulations in dealing with transfer pricing.
The role of international cooperation in overcoming transfer pricing.

By addressing these research gaps, future studies can provide a more comprehensive understanding of the issue and inform policy decisions to strengthen corporate income tax policies in Indonesia.
Frequently Asked Questions (FAQs) on Transfer Pricing and Corporate Income Tax Policies in Indonesia

Q: What is transfer pricing?

A: Transfer pricing refers to the pricing used in affiliated transactions between companies, including multinational companies. This practice is often used to move profits from one country to another with the aim of reducing tax burden.

Q: Why is transfer pricing a problem in Indonesia?

A: Transfer pricing is a problem in Indonesia because it allows multinational companies to reduce their tax burden in the country. This can lead to a loss of revenue for the government and undermine the fairness of the tax system.

Q: What are the consequences of transfer pricing for Indonesia?

A: The consequences of transfer pricing for Indonesia include a loss of revenue for the government, a reduction in the competitiveness of domestic businesses, and a decrease in the country's tax base.

Q: How can the Indonesian government address the issue of transfer pricing?

A: The Indonesian government can address the issue of transfer pricing by strengthening tax regulations, increasing supervision of company financial statements, and implementing stricter sanctions for companies that violate tax laws.

Q: What role can international cooperation play in addressing transfer pricing?

A: International cooperation can play a significant role in addressing transfer pricing by providing a framework for countries to share information and coordinate their efforts to combat tax avoidance.

Q: What are the benefits of strengthening corporate income tax policies in Indonesia?

A: Strengthening corporate income tax policies in Indonesia can help to increase government revenue, promote economic growth, and improve the fairness of the tax system.

Q: How can the Indonesian government increase its capacity to deal with transfer pricing?

A: The Indonesian government can increase its capacity to deal with transfer pricing by investing in human resources, improving its tax administration, and increasing its international cooperation.

Q: What are the challenges facing the Indonesian government in addressing transfer pricing?

A: The challenges facing the Indonesian government in addressing transfer pricing include the complexity of tax laws, the lack of resources, and the need to balance the interests of different stakeholders.

Q: How can the public help to address the issue of transfer pricing?

A: The public can help to address the issue of transfer pricing by being aware of the risks and consequences of transfer pricing, reporting suspicious transactions to the authorities, and supporting efforts to strengthen tax regulations and enforcement.

Q: What are the next steps for the Indonesian government in addressing transfer pricing?

A: The next steps for the Indonesian government in addressing transfer pricing include implementing new tax regulations, increasing supervision of company financial statements, and providing training and capacity-building programs for tax officials.

Q: How can the Indonesian government ensure that its tax policies are fair and effective?

A: The Indonesian government can ensure that its tax policies are fair and effective by engaging with stakeholders, conducting regular reviews and assessments, and making adjustments as needed to address emerging issues and challenges.

Q: What is the role of the Indonesian tax authority in addressing transfer pricing?

A: The Indonesian tax authority plays a critical role in addressing transfer pricing by enforcing tax laws, conducting audits and investigations, and providing guidance and support to taxpayers.

Q: How can the Indonesian tax authority improve its capacity to deal with transfer pricing?

A: The Indonesian tax authority can improve its capacity to deal with transfer pricing by investing in human resources, improving its tax administration, and increasing its international cooperation.

Q: What are the benefits of international cooperation in addressing transfer pricing?

A: The benefits of international cooperation in addressing transfer pricing include the sharing of information and best practices, the coordination of efforts to combat tax avoidance, and the promotion of a level playing field for businesses.

Q: How can the Indonesian government promote international cooperation in addressing transfer pricing?

A: The Indonesian government can promote international cooperation in addressing transfer pricing by participating in international forums and organizations, engaging with other countries and jurisdictions, and sharing its experiences and expertise.

Q: What are the next steps for Indonesia in addressing transfer pricing?

A: The next steps for Indonesia in addressing transfer pricing include implementing new tax regulations, increasing supervision of company financial statements, and providing training and capacity-building programs for tax officials.

Q: How can the Indonesian government ensure that its tax policies are aligned with international standards?

A: The Indonesian government can ensure that its tax policies are aligned with international standards by engaging with international organizations and forums, participating in international tax agreements, and making adjustments as needed to address emerging issues and challenges.