The Effect of Taxes, Tunneling Incentives, and Bonus Mechanisms on Transfer Pricing Decisions

Abstract

Transfer pricing refers to a company’s approach in determining transaction values for goods, services, and other financial dealings conducted with subsidiaries or affiliated entities that share a special relationship. This research seeks to examine the impact of tax obligations, tunneling incentives, and bonus mechanisms on transfer pricing practices. The study adopts a quantitative methodology, focusing on mining sector firms listed on the Indonesia Stock Exchange (IDX) during the 2020–2024 period. From a population of 72 companies, a sample of 16 was selected purposively, resulting in 80 panel data based on five years of financial statements. The data, sourced from annual reports accessed via the official IDX website, were analyzed using panel data regression with the Random Effect Model (REM), utilizing EViews version 12. The findings reveal that while tunneling incentives and bonus mechanisms do not significantly affect transfer pricing decisions, the tax variable exhibits a statistically significant negative relationship with transfer pricing behavior