Page 107 - SUSTAINABILITY ISSUES & COVID-19

The author analyzes the calculation of the Corporate Income Tax on dividend payment transactions, and the dividend
scheme causes tax payment of COMPANY XXX became 16.32% greater, compared to the scheme of royalty payments.
Likewise with the management fee payment, it will reduce the tax obligation of Company XXX become 12.51% smaller,
compared to this transaction being recognised as dividend payment. The author also found that Company PPP was in a
loss condition in 2012, while Company XXX is in a profit condition, so there is a possibility of a profit shifting motives in
this transaction, which could be considered as tax avoidance in the practice of transfer prices carried out by Company
XXX.

The fact that Company XXX did not request an appeal to the 2012 tax underpayment, also terminated the agreement of
payment of management fees to Company PPP, and the payment was made by Company XYZ up until now, is support
the assumption that there is indication of tax avoidance in this management fee transaction. Payment of management
fees to Company PPP is now conducted by Company XYZ who has never been exposed to tax audit, and have no direct
relationship with Company PPP agreed to an indication that Company XXX paid a disguised dividends to Company PPP
through Company XYZ, where Company XXX holds the ownership of Company XYZ by 20%.

From the facts collected that the royalty payment transaction is still carried out by Company XXX, and payment for
management fee is also carried out by Company XYZ, The authors performed a calculation analysis to determine the
exposure for the Corporate Income Tax of PT. XXX and PT. XYZ tax year 2016, 2017 and 2018, and the results show that
the exposure of PT. XXX for transfer pricing practices conducted for the 2016, 2017 and 2018 tax years amounting to
Rp5,175,698,160, -, while the exposure of PT. XYZ for transfer pricing practices conducted for the 2016, 2017 and 2018
tax years amounting to Rp 13,842,401,552.

ORIGINALITY/VALUE

Tax authority should issue regulations governing profit shifting, as well as making official regulations governing
transactions with related parties within the country, focusing on certain factors. These factors need to be considered
when the company’s profit or loss condition.

For the Company XXX, it is recommended to maintain complete documentation of transactions with related parties, so
that they could be prooved the existence and benefits in front of the tax authorities. In addition, PT. XXX should make
detailed and separate agreements for each transaction object, making it easier for the tax authorities to analyze the
existence, benefits, and reasonableness of the transfer price. By entering into separate agreements, the tax authorities
will only correct transactions with value agreements that are not fair, while transactions under other agreements are
not corrected. This benefits the company, because corrected expenses tend to be smaller than if the company included
all transaction objects in one contract, as did PT. XXX with PT. PPP. PT. XXX should also file an objection to the correction
in management service payments, in accordance with Article 25 KUP.

Taxpayers are expected to always increase their awareness of the law, especially tax regulations and laws in Indonesia,
bearing in mind that 82.49% of Indonesia’s state revenue comes from tax revenue. By increasing awareness of tax laws,
people will tend to obey paying taxes, so that tax avoidance behavior can be minimized.

Keywords
tax avoidance, related party, transfer pricing, arm’s length principle.

JEL Classification
H26 – Tax avoidance

106 International Conference on Sustainability
(5 Sustainability Practitioner Conference)
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