| Summary: | The rate of corporate income tax which is determined by each country creates a
variation that allowing multi national companies to take advantage of the
differences by minimize its global tax in order to maximize its global profit. This
activity may include the use of transfer pricing activities by way of using mark-up
or mark-down prices of goods transfers between affiliates located in different
countries. Thus there will be transfer of income (income shifting) from companies
located in countries with high corporate income tax rates to a country with lower
corporate income tax rates. The rate gap between corporate income tax in one
country and another is called transfer pricing incentives.
Based on previous literature, a change in the transfer pricing incentive is
significantly and positively influencing the transfer price of goods . This study will
examine and analyze the effect of transfer pricing incentives on transfer prices of
imported goods. The data used is panel data contains Indonesia�s import data,
both the value and quantity, of goods from China, Japan, South Korea, Singapore
and the United State, the data of corporate income tax rates, average imports
tariff, gross domestic product per capita and inflation data from each of these
countries within the period of 2005 to 2010. These datas are then processed using
a Fixed Effect model analysis. The samples were taken from 70 groups of goods
(classified by 2 -digit HS code).
The results of this study showed that changes in corporate income tax rate
significantly affect the reported transfer price of goods by importers in Indonesia,
but the relationship is negative. This can be explain by the country samples. This
study�s sample were taken from 5 countries where 3 of them have a higher tax
rate than Indonesia so as to increase the company's global income, the
multinational enterprises will be prefer to be taxed in Indonesia rather than in
their home country.
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