The influence of income tax rate, tunneling incentives, and return on equity on transfer pricing behavior of foreign direct investment enterprises in Vietnam
-
DOIhttp://dx.doi.org/10.21511/imfi.20(4).2023.17
-
Article InfoVolume 20 2023, Issue #4, pp. 194-210
- 393 Views
-
159 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
The utilization of competitive advantages in international trading has fortuitously put transnational manufacturing enterprises in the position of distorting transfer pricing techniques to maximize profits. The paper aims to explore the influence of the determinants on the transfer pricing behavior of foreign direct investment enterprises in Vietnam. The paper collects primary data from the financial statements of 96 foreign direct investment enterprises in Vietnam over six years from 2016 to 2021. The paper gets a final panel data of 576 observations to be processed by the fixed effects model estimation method using EViews 12. Supporting agency theory and positive accounting theory, the results show that the income tax rate negatively influences transfer pricing behavior, while tunneling incentives and return on equity positively affect transfer pricing behavior. The paper highlights that government agencies should reperform and implement fiscal policies synchronously to be able to monitor transfer pricing behaviors of foreign direct investment enterprises in Vietnam.
- Keywords
-
JEL Classification (Paper profile tab)M41, H26, K34
-
References72
-
Tables9
-
Figures0
-
- Table 1. Descriptive statistics
- Table 2. Correlation coefficient matrix
- Table 3. Regression results of ordinary least squares (OLS)
- Table 4. Regression results of fixed effects model (FEM)
- Table 5. Results of F-test
- Table 6. Regression analysis of the random effects model
- Table 7. Results of the Hausman test
- Table 8. Multicollinearity
- Table 9. Hypotheses testing results
-
- Abdullah, R., Mahmuda, D., Malik, E., Pratiwi, E. T., Rais, M., Dja’wa, A., & Tjilen, A.P. (2019). The influence of environmental performance, environmental costs, and firm size on financial performance with corporate social responsibility as intervening variables (empirical study on manufacturing companies listed on the Indonesia stock exchange 2014-2018). Conference Series: Earth and Environmental Science, 343(1), 1-11.
- Alfandia, N. S. (2018). Pajak dan Struktur Modal Perusahaan Manufaktur di Indonesia [Taxes and Capital Structure of Manufacturing Companies in Indonesia]. Jurnal Berkala Akuntansi Dan Keuangan Indonesia, 3(1), 17-34. (In Indonesian).
- Amidu, M., Coffie, W., & Acquah, P. (2019). Transfer Pricing, Earnings Management and Tax Avoidance of Firms in Ghana. Journal of Financial Crime, 26(1), 235-259.
- Anggraeni, N., & Lutfillah, N.Q. (2019). Determinants of Transfer Pricing. Journal of Management and Business,18(2), 46-55.
- Anh, N. H., Hieu, N. T., & Nga, D. T. (2018). Determinants Of Transfer Pricing Aggressiveness: A Case of Vietnam. Southeast Asia Journal of Contemporary Business, Economics and Law, 16, 101-112.
- Anisyah, F. (2018). Pengaruh Beban Pajak, Intangible Assets, Profitabilitas, Tunneling Incentive Dan Mekanisme Bonus Terhadap Transfer Pricing (Studi Empiris Pada Perusahaan Manufaktur Yang Listing di BEI Periode 2014-2016) [The effect of tax expense, intangible assets, profitability, tunneling incentive, and bonus mechanism to transfer pricing (An Empirical Study on Manufacturing companies listed on the Indonesian stock exchange period 2014-2016]. JOM Fekon, 1(1), 1-14. (In Indonesian).
- Arifin, A., Saputra, A. A. D., & Purbasari, H. (2020). Company size, profitability, tax, and good corporate governance on the company’s decision to transfer pricing (empirical study on manufacturing companies listed on the Indonesia Stock Exchange for the 2015-2018 period). Riset Akuntansi dan Keuangan Indonesia, 5(2), 141-150.
- Aryotama, P., & Firmansyah, A. (2019). The effect of corporate diversification, customer concentration on tax avoidance in Indonesia. Jurnal Akuntansi Dan Bisnis, 19(2), 117-125.
- Baistrocchi, E., & Roxan, I. (2013). Resolving Transfer Pricing Disputes: a global analysis. UK: Cambridge University Press.
- Ball, R., & Brown, P. (1968). An Empirical Evaluation of Accounting Income Numbers. Journal of Accounting Research, 6(2), 159-178.
- Barker, J., Asare, K., & Brickman, S. (2017). Transfer pricing as a vehicle in corporate tax avoidance. Journal of Applied Business Research, 33(1), 9-16.
- Baroroh, N., Malika, S., & Jatia, K.W. (2021). The role of profitability in moderating the factors affecting transfer pricing. Growing Science, Accounting, 7(5), 1203-1210.
- Bava, F., & Trana, M.G. (2015). Revenues From Related Parties: A Risk Factor in The Italian Listed Company’s Financial Statements. International conference “Corporate and Institutional Innovations in Finance and Governance” (pp. 883-894).
- Brigham, E. F., & Houston, J.F. (2010). Dasar-dasar Manajemen Keuangan [Basics of Financial Management]. Jakarta: Salemba Empat. (In Indonesian).
- Depari, A. B. U. S., Ramadhan, R., & Firmansyah, A. (2020). Transfer pricing decisions at multinational companies in Indonesia: tax expenses, foreign ownership, intangible assets. Jurnal Terapan Manajemen dan Bisnis, 6(2), 46-59.
- Devi, D. K., & Suryarini, T. (2020). The Effect of Tax Minimization and Exchange Rate on Transfer Pricing Decisions with Leverage as Moderating. Accounting Analysis Journal, 9(2), 110-115.
- Dyreng, S. D., Hanlon, M., & Maydew, E. L. (2008). Long-Run Corporate Tax Avoidance. The Accounting Review, 83(1), 61-82.
- Firmansyah, A., & Yunidar, A. (2020). Financial Derivatives, Financial Leverage, Intangible Assets, and Transfer Pricing Aggressiveness: Evidence from Indonesian Companies. Jurnal Dinamika Akuntansi dan Bisnis, 7(1), 1-14.
- Grubert, H. (2003). Intangible income, intercompany transactions, income shifting, and the choice of location. National Tax Journal, 56(1), 221-242.
- Hartono, J. (2014). Metode Penelitian Bisnis [Business Research Methods]. Yogyakarta: Universitas Gadjah Mada. (In Indonesian).
- Healy, P. (1985). The Effect of Bonus Schemes on Accounting Decision. Journal of Accounting and Economics, 7(1-3), 85-107.
- Hikmatin, R., Suryarini, T. (2019). Transfer Pricing of Manufacturing Companies in Indonesia. Accounting Analysis Journal, 8(3), 165-171.
- Holtzman, Y., & Nagel, P. (2014). An Introduction to Transfer Pricing. Journal of Management Development, 33(1), 57-61.
- Indriaswari, Y. N., & Aprilia, R. (2017). The influence of tax, tunneling incentive, and bonus mechanisms on transfer pricing decisions in manufacturing companies. The Indonesian Accounting Review, 7(1), 69-78.
- Jaafar, A., & Thornton, J. (2015). Tax Havens and Effective Tax Rates: An Analysis of Private versus Public European Firms. International Journal of Accounting, 50(4), 435-457.
- Jacob, J. (1996). Taxes and transfer pricing: Income shifting and the volume of intrafirm transfers. Journal of Accounting Research, 34(2), 301-312.
- Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: management behavior, agency costs, and ownership structure. Journal of Financial Economics, 3(4), 305-360.
- Johnson, S., Porta, R. L., Lopez-de-Silanes, F., & Shleifer, A. (2000). Tunneling. American Economic Review, 90(2), 22-27.
- Kalra, K. & Afzal, M. N. I. (2023). Transfer pricing practices in multinational corporations and their effects on developing countries’ tax revenue: a systematic literature review. International Trade, Politics and Development.
- Khasanah, I. (2015). Pengaruh Kompensasi Manajemen Eksekutif Terhadap Kinerja Keuangan Perusahaan [The Influence of Executive Management Compensation on Company Financial Performance]. Jurnal Akuntansi UNESA, 3(2), 1-25. (In Indonesian).
- Khotimah, S. K. (2018). Pengaruh Beban Pajak, Tunneling Incentive, dan Ukuran Perusahaan Terhadap Keputusan Perusahaan Dalam Melakukan Transfer Pricing (Studi Empiris pada Perusahaan Multinasional yang Listing di Bursa Efek Indonesia Tahun 2013-2017) [The Influence of Tax Burden, Tunneling Incentive, and Company Size on Company Decisions in Carrying Out Transfer Pricing (Empirical Study of Multinational Companies Listed on the Indonesian Stock Exchange 2013-2017)]. Jurnal Ekobis Dewantara, 1(12), 125-138. (In Indonesian).
- Li, J. (2005). International transfer pricing practices in New Zealand. University of Auckland Business Review, 7(1), 59-65.
- Liana, S., Poulus, S. & Pratama, A. (2020). The Effect of Share Ownership Concentration and Company Operation Complexity towards Transfer Pricing Decisions. Journal of Accounting Auditing and Business, 3(1), 52-61.
- Lo, A. W. Y., Wong, R. M. K., & Firth, M. (2010). Tax, Financial Reporting, and Tunneling Incentives for Income Shifting: An Empirical Analysis of The Transfer Pricing Behavior of Chinese-Listed Companies. Journal of the American Accounting Association, 32(2), 1-26.
- Majid, J., Mediaty, Habbe, A. H., Herryanto, & Possumah, B. T. (2019). Factors affecting director remuneration: A study of manufacturing companies listed on ASEAN state stock exchanges. International Journal of Innovation. Creativity and Change, 7(9), 238-250.
- Marfuah, M., & Azizah, A. P. N. (2014). Pengaruh pajak, tunneling incentive dan exchange rate pada keputusan transfer pricing perusahaan [The influence of taxes, tunneling incentives and exchange rates on company transfer pricing decisions]. Jurnal Akuntansi dan Auditing Indonesia, 18(2), 156-165. (In Indonesian).
- Menchaoui, I., Jean-Luc, R., & Mohamed Ali, O. (2017). Fiscal management practices and their impact on corporate groups’ Fiscal performance. Revista Internacional Administracion & Finanzas, 9(1), 73-86.
- Merle, R., Al-Gamrh, B., & Ahsan, T. (2019). Tax havens and transfers pricing intensity: Evidence from the French CAC-40 listed firms. Cogent Business & Management, 6(1), 1-12.
- Merliyana, M., & Saodah, E.S. (2019). Tunneling Incentive, Mechanism Bonus Against Transfer Pricing Decision. Advances in Economics, Business and Management Research, 127, 146-151.
- Munawir. (2014). Analisis Laporan Keuangan [Financial Report Analysis]. Yogyakarta: Liberty.
- Nazihah, A., Azwardi., & Fuadah, L. L. (2019). The Effect Of Tax, Tunneling Incentive, Bonus Mechanisms, And Firm Size On Transfer Pricing (Indonesian Evidence). Journal of Accounting, Finance and Auditing Studies, 5(1), 1-18.
- Nofryanti, & Arsjah, R. J. (2019). The Factors Affecting Transfer Pricing Evidence from Indonesia. International Journal of Business, Economics, and Law, 19(5), 280-285.
- Nosyk, N. P., Borkovska, V., Bacho, R., Loskorikh, G., Hanusych, V. Cherkes, R. (2023). The role of digitalization of transfer pricing in the company’s management accounting system. International Journal of Applied Economics, Finance and Accounting, 17(1), 176-185.
- Nurazi, R., Santi, F., & Usman, B. (2015). Tunneling: evidence from Indonesia stock exchange. Asian Academy of Management Journal of Accounting and Finance, 11(2), 127-150.
- Organization for Economic Co-operation and Development (OECD). (2020). Transfer pricing guidance on financial transactions.
- Purnomo, T., Pristiwantiyasih., & Setyawan, M. A. (2021). The effect of bonus mechanism tax and tunneling incentive on indications of transfer pricing in manufacturing companies registered in the Indonesia stock exchange for 2017-2019. Media Mahardhika, 19(3), 578-591.
- Rachmat, R. A. (2019). Pajak, Mekanisme Bonus dan Transfer Pricing [Taxes, Bonus Mechanisms and Transfer Pricing]. Jurnal Pendidikan Akuntansi Dan Keuangan, 7(1), 21-30. (In Indonesian).
- Rego, S. O. (2003). Tax avoidance activities of U.S. multinational corporations. Contemporary Accounting Research, 20(4), 805-833.
- Richardson, G., Taylor, G., & Lanis, R. (2013). Determinants of Transfer Pricing Aggressiveness: Empirical Evidence from Australian Firms. Journal of Contemporary Accounting and Economics, 9(2), 136-150.
- Riyanto, B. (2008). Dasar-dasar Pembelanjaan Perusahaan [Corporate Spending Basics]. Yogyakarta: GPFE.
- Rizkya, Y. S., & Isnalita. (2020). The Determinants of Transfer Pricing Intensity of Multinational Non-Financial Firms in Indonesia. Cuadernos de Economía, 43(122), 435-441.
- Rosa, R., Andini, R., & Raharjo, K. (2017). Pengaruh Pajak, Tunneling Insentive, Mekanisme Bonus, Debt Covenant dan Good Corperate Gorvernance (GCG) Terhadap Transaksi Transfer Pricing [The Influence of Taxes, Tunneling Incentives, Bonus Mechanisms, Debt Covenants and Good Corporate Governance (GCG) on Transfer Pricing Transactions]. Jurnal Ilmiah Mahasiswa S1 Akuntansi Universitas Pandanaran, 3(3), 1-19.
- Rugman, A., & Eden, L. (2017). Multinationals and Transfer Pricing. London: Routledge.
- Saraswati, R., & Sujana, I. (2017). Pengaruh Pajak, Mekanisme Bonus, dan Tunneling Incentive Pada Indikasi Melakukan Transfer Pricing [The Influence of Taxes, Bonus Mechanisms, and Tunneling Incentives on Indications for Transfer Pricing]. E-Jurnal Akuntansi Universitas Udayana, 19(2), 1000-1029.
- Sari, D., Hermawan, A., & Fitriana, U. (2021). Influence of Profitability, Company Size and Tunneling Incentive on Company Decisions of Transfer Pricing (Empirical Studies on Listed Manufacturing Companies Indonesia Stock Exchange period 2012-2019). Turkish Journal of Computer and Mathematics Education, 12(4) 796-805.
- Scott, W. R. (2015). Financial Accounting Theory, (7th ed.). USA, Pearson.
- Septiyani, R. P. P., Ramadhanti, W., & Sudibyo, Y. A. (2018). Some factors that affect transfer pricing decisions. Soedirman Accounting Review, 3(1), 21-38.
- Setiawan, H. (2014). Transfer Pricing dan Risikonya Terhadap Penerimaan Negara.
- Solikhah, B., Aryani, D. D., & Widiatami, A. K. (2021). The Determinants of Manufacturing Firms’ Transfer Pricing Decisions in Indonesia. Jurnal Keuangan dan Perbankan, 25(1),175-190.
- Suandy, E. (2011). Perencanaan Pajak [Tax Planning]. Jakarta: Salemba Empat. (In Indonesian).
- Sulistyowati, S., & Kananto, R. (2018). The Influences of Tax, Bonus Mechanism, Leverage and Company Size Through Company Decision on Transfer Pricing. Advances in Economics, Business and Management Research, 73, 207-212.
- Surbakti, R. A. S., Purwanto, E., & Himmah, E. F. (2020). The Influence of Tax Planning and Tunneling Incentive on Transfer Pricing Decisions in Multinational Food and Beverage Companies Sub-Sector Listed on IDX from 2010-2018 Period. Advances in Social Science, Education and Humanities Research, 536, 149-155.
- Susanti, A., & Firmansyah, A. (2018). Determinants of transfer pricing decisions in Indonesian manufacturing companies. Jurnal Akuntansi dan Auditing Indonesia, 22(2), 81-86.
- Tang, T. Y. H. (2016). Privatization, tunneling, and tax avoidance in Chinese SOEs. Asian Review of Accounting, 24(3), 274-294.
- Thinh, T. Q., Uoc, T. M., & Danh, L. C. (2021). The Effect of Ownership Structure on Transfer Pricing Decisions: Evidence from Foreign Direct Investments in Vietnam. Journal of Asian Finance, Economics, and Business, 8(12), 183-189.
- Tjandrakirana, R., & Ermadiani. (2019). Factors That Influence Companies to Transfer Pricing. Advances in Economics, Business and Management Research, 142, 376-384.
- Vietnam Government. (2020). Decree No. 132/2020/ND-CP dated November 5, 2020. Regulations on tax administration for enterprises having associated transactions.
- Watts, R. L., & Zimmerman, J. L. (1979). The demand for and supply of accounting theories: the market for excuses. The Accounting Review, 54(2), 273-305.
- Watts, R.L., & Zimmerman, J. L. (1986). Positive Accounting Theory. Englewood Cliffs, New Jersey: Prentice Hall, Inc.
- Waworuntu, S. R., & Hadisaputra, R. (2016). Determinants of Transfer Pricing Aggressiveness in Indonesia. Social Sciences & Humanities, 24(1), 95-110.
- Widiasmara, A., & Purwaningsih, I. (2020). Transfer pricing decision: manufacturing companies with special transactions on the Indonesian stock exchange. Studies and Scientific Researches, 32, 102-117.
- Wijaya, F.V., & Widianingsih, L.P. (2020). The impact of tax, exchange rate, tunneling incentive, and firm size on transfer pricing (Empirical Study of Manufacturing Companies Listed on the Indonesian Stock Exchange for Years 2014–2018). Journal of Accounting, Entrepreneurship, and Financial Technology, 1(2), 149-166.