Can Thin Capitalization And Transfer Pricing Activities Reduce The Tax Burden
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Abstract:
The purpose of this research is to examine the effect of thin capitalization and transfer pricing as a vehicle for companies to reduce their corporate tax burden. The research method used is a quantitative-explanation, with the proxy of tax avoidance is ETR. This research found that thin capitalization activities and transfer prices have a negative and significant effect on tax avoidance. This research also found that institutional ownership strengthens the effect of thin capitalization and transfer pricing on tax avoidance. This research contributes to the literature on using the PLI ratio, namely ROCE as a measurement tool for transfer pricing activity, which provides a new methodological contribution to tax avoidance research through transfer pricing activities in Indonesia's manufacturing companies. This study proves that Return On Capital Employed can be used as a transfer pricing activity measure.Keywords:
Transfer Pricing
Capitalization
Proxy (statistics)
In recent years, with the continuous development of the global economy, multinational corporations allocate resources in various ways to reduce the overall tax burden of the group to achieve the business goal of profit maximization. The transfer pricing method is one of the most common international tax avoidances means used by multinational corporations. Although transfer pricing tax avoidance does not constitute an illegal act in form, in substance, it causes serious capital loss in the host country and infringes on the tax sovereignty of the host country. However, there are still many research gaps in international anti-avoidance regulation, so it is necessary to analyze and recommend the regulation of transfer pricing tax avoidance by multinational companies. This paper introduces a typical case of transfer pricing tax avoidance by Apple, introduces the principles and hazards of transfer pricing tax avoidance, and analyzes the current situation and shortcomings of transfer pricing tax avoidance regulation from three levels: multinational corporations, home countries, and host countries, and then propose suggestions to improve the regulation at the national, multinational corporation and social management levels.
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This article considers the interaction of thin capitalization rules and transfer pricing rules in Australia, including the current position of the Australian Taxation Office. The potential impact of income tax treaties is also examined.
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This article discusses the issues of thin capitalization and secondary adjustments in relation to the transfer pricing of intra-group lending transactions. The article focuses on the Director General of Taxation’s guidelines for handling transfer pricing cases, known as Circular Letter SE-04/PJ.7/1993 and its application in recent tax court cases.
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The authors describe the development of recent amendments to the Malaysian Income Tax Act with regard to transfer pricing, thin capitalization and advance pricing arrangements. They also explain the difficulties faced in practice due to delays by the tax authorities in issuing implementing regulations to cover transfer pricing and thin capitalization issues.
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Purpose: This study aim to examine leverage, institutional ownership and transfer pricing, tax avoidance: profitability as moderating variablesMethod: The method in this study using purposive sampling method and obtained 40 companies with data processed 160 annual financial statements. This research technique uses multiple linear analysis and Moderated Analysis ModeratedFinding: The findings in this study that leverage has a negative effect on tax avoidance, institusional ownership has a positive effect on tax avoidance, and transfer pricing has a positive effect on tax avoidance. Profitability can weaken the negative effect of leverage on tax avoidance, profitability cannot moderate the positive effect of institutional ownership on tax avoidance, and profitability cannot significantly moderate the effect of transfer pricing on tax avoidance. Novelty: The difference between this study and previous research is that this research tries to integrate several topics regarding the variable of tax avoidance practices which are influenced by three variables including leverage, institutional ownership, and transfer pricing, using the moderating variable of profitability.
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Tax is an important tool for any country’s development. The collection of tax depends on the effectiveness of the tax legislation of a country, among other things. The taxation of domestic income poses fewer problems when it is dealt with through local legislation. The problems are likely to increase when dealing with tax with foreign elements. This is apparent in the taxation of associated multinational corporations operating across countries, where goods and services are transferred through transfer pricing. The intercompany transactions may offer transfer pricing manipulation with a view to maximizing profit. In response to this concern, the arm’s length principle is used to curb transfer pricing manipulation. This article examines transfer pricing provisions as provided for in the Tanzania Income Tax Act and identifies legal gaps that are likely to impede the application of the arm’s length principle. It calls for amendment of the act to address existing concerns.
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Transfer pricing is the cor e of related transaction.Companies often dodge tax by abusing transfer pricing.I t becomes an international convention to regulate transfer pricing by tax author ities.This paper puts forward some sugge stions to improve tax regulation in China,based on the discussions and comparisons of relevant rules of other countries.
Transfer Pricing
Variable pricing
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In order to minimize tax burden, multinational corporations often transfer profits between each other. It is one of the ways of international tax avoidance, which reduces the tax burden of multinational corporations at the expense of relevant countries' tax revenues. Tax authorities would adjust transfer pricing of associated enterprises to safeguard the national tax revenues. This causes the international double taxation which in turn increases the tax burden of multinational corporations. This issue must be resolved properly; otherwise it would surely have a negative impact on the international economic exchanges. The paper defines relevant concepts, such as associated enterprises and transfer pricing, analyses the arm's length principle, which is the core principle of transfer pricing system, interprets the cause of international double taxation connected with the adjustment of transfer pricing by case. Then, we propose two problem-solving modes, that is, negotiation mechanism and arbitration mechanism, and make the evaluation.
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South African income tax provisions dealing with transfer pricing and thin capitalization were recently completely overhauled by the introduction of new transfer pricing and thin capitalization legislation as part of the 2010 Taxation Laws Amendment Act. This article discusses the current rules and some of the practical issues encountered upon assessment under the current rules, and provides an overview of the new rules.
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Transfer Pricing
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The study was conducted to obtain empirical evidence testing the moderating effect of sales growth on the effect of transfer pricing, thin capitalization, profitability and bonus plans on tax avoidance. Tax avoidance is a tax planning practice to reduce the company's tax burden by taking advantage of imperfections in the law. The research population is multinational companies in the manufacturing sector which are listed on the Indonesia Stock Exchange in 2016-2020. The data analysis technique used is Moderated Regression Analysis (MRA). The results of the analysis provide evidence that thin capitalization and profitability have a positive effect on tax avoidance, while transfer pricing and bonus plans have no effect on tax avoidance, then sales growth is able to weaken the effect of thin capitalization, profitability and bonus plans but is unable to weaken the effect of transfer pricing on tax avoidance.
Keywords: Tax Avoidance; Transfer Pricing; Thin Capitalization; Profitability; Bonus Plans; Sales Growth.
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