Multinationality, Transfer Pricing, and Tax Avoidance in Consumer Staples Sector

Abstract

Research aims: This study aims to examine the effect of multinationality, transfer pricing, and foreign ownership on tax avoidance in consumer non-cyclicals companies listed on the Indonesia Stock Exchange.

Design/Methodology/Approach: This study employs a quantitative approach using panel data from 20 consumer non-cyclicals companies during 2020–2024 (100 firm-year observations). Tax avoidance is measured using Cash Effective Tax Rate (CETR). Multinationality is measured using a dummy variable, transfer pricing by the ratio of related-party receivables to total receivables, and foreign ownership by the percentage of foreign shareholding. Data are analyzed using multiple linear regression.

Research findings:  The results show that multinationality, transfer pricing, and foreign ownership significantly affect tax avoidance. Firms with multinational operations, higher related-party transactions, and greater foreign ownership tend to exhibit lower CETR, indicating higher tax avoidance.

Theoretical contribution/ Originality: The study reinforces and expands the agency theory in the context of Indonesian taxation, particularly by showing that multinationality, transfer pricing, and foreign ownership are key mechanisms that amplify agency conflicts related to tax policies in Consumer Non-Cyclicals companies.

Practitioner/Policy implication: The findings provide insights for tax authorities in strengthening transfer pricing supervision and monitoring multinational firms, particularly under the Global Minimum Tax regime.

Research limitation/Implication: This study is limited to one industrial sector and uses CETR as a cash-based proxy of tax avoidance