The dynamics of transfer pricing optimization practice in an Indonesian mining company: a reflection of behavioural view on the economy, environment, and society

Most Multinationals Enterprises (MNEs) implement transfer pricing and maximize its usage for various management and tax-related objectives, particularly tax evasion. Cross-border transfer pricing is a problem that many countries are struggling to solve. Transfer pricing tax evasion can result in several economic and social issues, such as a reduction in tax revenue for the host country and a broader array of societal problems. Several transfer pricing policies have been developed in several nations, but many obstacles arise, such as transparency, human resources, and other ethical concerns. To overcome those problems, a multi-dimensional approach is strongly needed. Therefore, this study used a behavioural perspective, specifically the theory of planned behaviour (TPB), with three constructs, including the differential organizational perception of the benefit of transfer pricing optimization, the differential perception of transfer pricing regulation and business environment, and the differential perceived control over behaviour. The three research stages employed using three-layer unit analysis consist of MNEs or taxpayers, tax consultants, and tax authorities. The finding shows that transfer pricing is part of normal business activities aimed at managerial and taxation purposes. Indonesian MNEs are not aware of national and international regulations. They use tax consultants and utilize several internal and external factors to optimize their transfer pricing. This study enriches the literature on the role of behavioural aspects on transfer pricing optimization by Indonesian MNE, including an in-depth analysis of MNE, tax consultants, and tax authorities’ perceptions of transfer pricing optimization behaviours. This study also gives practical implications, specifically the need for improvement, in transfer pricing guidance for the tax authorities to minimize abusive transfer pricing. The proposed framework and findings from the three-layer unit analysis were used to develop transfer pricing guidelines. The proposed model will be useful for monitoring and detecting transfer pricing optimizations that lead to tax avoidance.