Abstract:
This Study aims to determine how much influence of tax, affiliated tax rate tunneling incentives, bonus scheme, and debt covenant against the management’s decision in doing transfer pricing mechanism. Tax is the most avoided expenses by some companies. One effort to minimize the tax expenses is doing transfer pricing mechanism. Transfer pricing is carried out by related parties. The differences in tax rates in affiliated countries encouraging company management to take advantage of the different tax rates. Company management will choose the destination country for taxation to determine the country that becomes the profit center and the cost center, so that the benefits of the corporate entity will increase. One of them is by using of transfer pricing mechanism. The majority shareholders usually make methods to be able to control the minority shareholders. One of them is doing transfer pricing mechanism. The majority shareholders usually conducting transaction with affiliates, such as selling assets under the market price. The others who make management make transfer pricing mechanism is bonus scheme. If the owner or shareholder of the company establish a management bonus based on company profits, one the efforts made by the management is by implementing a transfer pricing mechanism. The high debt contract of a company, the closer the company is to violating the debt agreement boundaries. In accordance with the debt covenant hypothesis, the high of company debt, management will make various effort to increase the profits company. One of them is by transfer pricing mechanism.
