TRANSFER PRICING SCHEME AS A TOOL FOR TAX AVOIDANCE AT MULTINATIONAL COMPANY IN INDONESIA

Abstract

The focus of this study are the practices of tax avoidance through transfer pricing
schemes undertaken by multinational companies in Indonesia. In addition, this study
also explore the preventing program taken by government of Indonesia in order to
reduce tax avoidance practices. This is a qualitative study with in depth interviews
as a technique to collect the data. The key informants for this study are government
official from Directorate General of Taxes (DGT), academicians and tax consultant.
The results revealed that multinational company in Indonesia practice some tax
avoidance scheme such as overstates costs, understates sales, intangible property,
contractual agreements, and also uses the services of tax consultants to utilize
existing loopholes. This study suggest that the government of Indonesia should be
more proactive in assuring that exchanging information with other countries is run
effectively, so that the purpose of OECD which is to minimize or even to prevent tax
avoidance practices will occur. Beside that government of Indonesia also need to
strengthen the regulation related with transfer pricing practices. In accordance with
the suggestion above, government of Indonesia also need to practice the good
human resources management system, so that every tax government official is
position in a proper job. With the good human resources management system it will
cause the practice of reward and punishment. The exchange of information has a
significant role especially for tax payers database. The database can be expand
access to data and information about tax payers.