Abstract:

This research aimed at investigating whether differences between the tax rates applied in Indonesia and those applied in the home countries of related parties encourage transfer pricing practices at multinational companies in Indonesia. This research also examined the influence of audit committee quality on the execution of the transfer pricing scheme by the multinationals in Indonesia. This research was conducted on 53 IDX-listed multinational corporations for the period 2010–2017 by panel data methods. Audit committee quality was measured based on an index with three components: audit committee activity, audit committee size, and audit committee competency. The results showed some indications of the application of the transfer pricing scheme in the purchase transactions between the companies and their related parties. It was also revealed that audit committee quality undermined the transfer pricing scheme implementation in the purchase transactions with related parties.