Volume 3, No. 6 June 2024 (1207-1222)
p-ISSN 2980-4868 | e-ISSN 2980-4841
https://ajesh.ph/index.php/gp
Transfer
Pricing Audit Policy Design Toward A Fair Tax System In Indonesia
Ginda
Togatorop1*, Haula Rosdiana2, Milla
Sepliana Setyowati3
1,2,3Universitas Indonesia, Central Jakarta, DKI Jakarta, Indonesia
E-mail: ginda.simakui@gmail.com1*, h.rosdiana@ui.ac.id2, milla_setyowati@yahoo.c.om3
ABSTRACT
The
execution of transfer pricing (TP) audit policies, aimed at deterring tax
evasion activities and ensuring adherence to the arm's length principle (ALP)
among affiliated parties, is scrutinized in this investigation. This study
adopts a qualitative research approach encompassing post-positivism and
constructivism, employing data analysis methodologies like triangulation
techniques and utilizing NVivo tools such as Coding. The research seeks to
elucidate and scrutinize the enforcement of transfer pricing audit policies,
pinpoint factors affecting their execution, and devise strategies for managing
transfer pricing audits. Findings reveal that the enforcement of TP audit
policies can be examined from the contextual policy aspect, encompassing
influential interests, decision-making locus, and resource utilization,
alongside considerations of policy content, including actor strategies and
regulatory characteristics. External factors such as perceptions of the
Indonesian tax system and internal factors such as human resource preparedness
impact policy execution. Practical implications include the necessity to update
operational guidelines, stay abreast of business model advancements, and
enhance Customer Relationship Management (CRM) implementation to bolster TP
audit efficacy.
Keywords: Policy Implementation, Audit, Transfer
Pricing.
INTRODUCTION
The
issue of transfer pricing for tax purposes has been a subject of ongoing
debate, encompassing politics, economics, and public opinion, which often
diverge
The
study of transfer pricing in the context of public policy is intended to serve
as a crucial foundation for the development of comprehensive transfer pricing
rules and procedures in Indonesia, with law enforcement playing a key role.
Researchers have the ability to gather perspectives from policymakers,
beneficiaries, and implementers
Meanwhile,
in legal proceedings, DJP has a success rate of about 80% in winning cases.
Approximately 80% of tax litigation cases have a high likelihood of success due
to the DGT's contention that tax collection must adhere to regulatory
guidelines. If the actions taken by tax officials in the process of tax
collection do not adhere to the regulations, it is possible to initiate a legal
case
The
implementation of distribution leads to the determination of appeal and lawsuit
outcomes based on decisions issued by the DJP between 2017 and 2018, which can
exemplify tax conflicts emerging from audit findings. In the Tax Court Decision
of 2018, approximately 71% of taxpayer requests were either partially or
fully approved. This can serve as an example in the implementation of tax
regulations, where numerous issues arise in the practical execution of tax
administration.
This
problem of transfer pricing practice indicates that the current implementation
of the transfer pricing fairness evaluation mechanism remains inadequate. The
methods for testing the fairness of transfer pricing are outlined in the
Circular Letter of the Director General of Taxes No.04/PJ.7/1993 dated 9 March
1993, as well as the Regulation of the Director General of Taxes Number
PER-43/PJ/2010 dated 6 September 2010, which was later amended by Regulation of
the Director General of Taxes Number PER-32/PJ/2011 dated 11 November 2011.
These regulations pertain to the application of fairness and business customs
principles in transactions between taxpayers and parties with special
relationships
This
research aims to analyze the implementation of transfer pricing audit policies
in Indonesia, identify the factors that influence their implementation, and
formulate recommendations based
on field findings for enhancing the effectiveness of policies for conducting
transfer pricing audits.
RESEARCH METHODS
The
sampling technique utilized in research bears resemblance to the qualitative
approach commonly employed, known as purposeful sampling
Table 1. Informant
|
Actor |
Code |
Informant |
Reasons for Selection
of Informants |
|
Implementor |
I-1 |
PRY |
Policy
implementers and transfer pricing audit decision-makers |
|
I-2 |
ED |
Auditor/transfer
pricing audit implementer and decision maker |
|
|
I-3 |
RST |
Auditor/transfer
pricing audit implementer and decision maker |
|
|
I-4 |
RH |
Auditor/transfer
pricing audit implementer and decision maker |
|
|
I-5 |
BYU |
Auditor/transfer
pricing audit implementer and decision maker |
|
|
I-6 |
SGY |
Auditor/transfer
pricing audit implementer and decision maker |
|
|
I-7 |
WHY |
Auditor/transfer
pricing audit implementer and decision maker |
|
|
Taxpayer/ Proxy/
Affected |
TP1 |
BLM |
Tax
consultant |
|
TP2 |
PH |
Tax
consultant |
|
|
TP3 |
KRM |
Tax
consultant |
|
|
Academics |
SC1 |
MSD |
Tax
Academic, Former Director General of Taxes |
|
SC2 |
DS |
Tax
Academic |
|
|
SC3 |
PBS |
Tax
Academic t |
|
|
SC4 |
FER |
Tax
Academic |
This
study primarily utilizes Grindle's
The
process of data analysis commences with organizing the information derived from
interviews, which can be articulated through verbal descriptions or written
statements by categorizing and correlating pertinent elements. These data are
then condensed to differentiate between essential research data and
non-research data sourced from the interview outcomes. Subsequently, the data
is presented and conclusions are drawn to address the research objectives.
Implementation of the
Transfer Pricing Audit Policy
At
the policy implementation
stage, the government carries out the enacted policy per
legislative requirements or policy directives. Currently, implementation is
formally the responsibility of the numerous government agencies and departments
tasked with overseeing their respective policy domains. Policy implementation occurs after a measure is signed
into law
Political
and administrative efforts are required to execute the transfer pricing audit
policy. Through the policy content and implementation context, which in this
instance is the transfer pricing audit, Grindle's
Policy
implementation is the phase in which the government puts into effect the enacted policy
in accordance with legal requirements or policy action. Various government
agencies and departments tasked with the implementation of their respective
policy areas are formally accountable at this juncture. The process of policy
implementation commences once a measure is signed into law
The
transfer pricing audit policy is implemented through an administrative and
political procedure. The impact of policy implementation outcomes on society,
individuals, and groups, as well as the adoption and reception of change, is
evident when considering the policy content and implementation
context—specifically, the transfer pricing audit—in accordance with Grindle's
Content
Policy
In Grindle's
theory, content policy or policy content comprises the following elements:
influencing interests, benefit type, desired degree of change, decision-making
location, program implementer, and resources involved. In contrast, the context
of implementation comprises elements such as the influence, strategies, and
interests of the involved actors, as well as institutional characteristics,
compliance, and responsiveness. The NVIVO hierarchical map analysis consists of
the following:
Figure 1. Hierarchy Chart
pada Node Content Policy
The
analysis of interviews with research informants concerning the substance of the
transfer pricing audit policy is predominately governed by the
interest-affected node, as indicated by the hierarchy chart. Sub-node
concerning taxpayers interested in transfer pricing audits has the most
substantial area of any node; accommodating taxpayers' interests follows suit. The second most prominent node in content policy
concerns the intended scope of change. The majority of the statements provided
by academic informants, WPs, and implementers concern the satisfaction of WPs'
sense of justice and the establishment of a collective comprehension regarding
the necessity of TP audits. Additionally, it seems that a sub-node serves to
thwart tax evasion.
In
general, research findings in terms of policy content of transfer pricing audit
policies can be presented in the following table:
Table 2. Summary of Research
Findings on Content Policy
|
Node |
Research FInding |
|
I.
Content Policy |
|
|
1. Interest
Affected |
TP audits accommodate the interests of
taxpayers and also taxpayers with an interest in TP audits. Ideally, a
transfer pricing audit must accommodate taxpayers' interests. This means that
the audit is carried out not only for the benefit of government income but
also as a going concern for taxpayers. Business continuity (going concern) in
a company is important for interested parties (stakeholders), especially
investors |
|
2. Type
of Benefits |
The types of benefits obtained from
transfer pricing audits are efficient audits and taxpayers passing TP audits.
An efficient audit will save the use of time and cost resources for both tax
auditors and taxpayers. Meanwhile, the status of a taxpayer who has passed a
TP audit is for a good company reputation |
|
3. Extent
of Change Envision |
The degree of change to be achieved is
preventing tax avoidance, a common understanding of the need for TP audits
and the fulfillment of a sense of justice for taxpayers. |
|
4. Site
of Decision Making |
WP feels that the transfer pricing audit
does not fulfill a sense of justice because it focuses more on the interests
of the state. However, there are also those who argue that transfer pricing
audits fulfill a sense of justice in terms of not differentiating treatment
between taxpayers. |
|
5. Program
Implementor |
The location for TP audit decision making
is with taxpayers and tax auditors. Taxpayers can follow directions from the
tax officer but can also direct them to question the basis of the tax
examiner's assumptions and then bring these differences to court. Meanwhile,
tax auditors have the authority to interpret tax regulations and decide
whether there are violations in transfer pricing transactions carried out by
the company |
|
6. Resourcess Committed |
In the implementation of the TP audit, it
was found that the DJP was pursuing targets, the inspectors were less firm
and, therefore still needed a more detailed inspection guide. Even though
there is a Regulation of the Director General of Taxes Number PER-22/PJ/2013
and a Circular Letter of the Director General of Taxes Number SE -
50/PJ/2013, tax auditors still need further and more detailed guidance
regarding the list of documents that must be provided and checked by
taxpayers. as well as the inspection steps |
Context
Policy
The
context is a multifaceted setting that shapes the policy-making process through concurrent engagements among different
stakeholders. Interviews reveal a prevalent high level of taxpayers' adherence
to tax payment. Nevertheless, a challenge arises from taxpayers' resistance to
the SKP imposed by tax inspectors, which is
deemed unjustifiable. The hierarchical map analysis generated by NVIVO is
presented as follows.
Figure 2. Hierarchy Chart of
Context Policy
Node
According
to the hierarchical chart, the examination of interviews conducted with
research informants concerning the framework of transfer pricing audit policies
is predominantly influenced by node institutions and regime characteristics
The
second most prominent node within the policy context pertains to the Power,
Interest, and Strategy of Engaged Stakeholders
In
general, the results of research pertaining to the policy framework of transfer
pricing audit procedures can be effectively showcased in a tabular format.
Table 3. Summary of
Research Findings in Policy Context
|
Node |
Research Finding |
|
II.
Context Policy |
|
|
1. Power, Interest, and Strategy of Actor Involved |
In implementing the transfer pricing audit
policy, tax auditors should look more broadly, not ignore the facts of the
company's condition, formulate strategies to prevent tax avoidance, and test
tax avoidance indicators. Tax auditors must look at the broader figure. This
means that the TP audit process does not only consider obtaining state income
in the form of tax payments, but must also consider that the WP audited are
investors who have worked hard to find the desire to invest in Indonesia. |
|
2. Institution and Regime Characteristic |
Characteristics of institutions and regimes
in power in the form of policy support, regulatory updates, potential
differences in interpretation. The potential for differences in
interpretation of Indonesian tax regulations between taxpayers and tax inspectors,
especially regarding transfer pricing practices, is very large. This is
because one of the principles of a TP transaction that leads to tax avoidance
is the fairness of the transaction. However, the fairness of transactions is
very relative in nature and the range is very long, so it can give rise to
large differences in interpretation. |
|
3. Compliance and responsiveness |
The level of compliance expected from the
TP audit policy is recognition of all facts and a high level of compliance.
In general, taxpayers' compliance with paying taxes is high. However, the
problem is the objection to the SKP imposed by tax inspectors on taxpayers,
which is considered unreasonable. |
Factors Influencing
Transfer Pricing Audit Policy
Research results reveal that factors influencing
transfer pricing audit policies can be categorized into two main groups:
internal factors stemming from the tax authority (DJP) and the government
and external factors originating from taxpayers and investors. The hierarchical
map analysis conducted using NVIVO is presented as follows.
Figure 3. Hierarchy Chart Node
Context Policy
The
hierarchy chart reveals that the examination of interviews conducted with
research participants on the determinants impacting transfer pricing audits is
predominantly influenced by external factors
The
subsequent substantial node pertains to internal factors, with a majority of
insights stemming from academic informants, WP, and implementers highlighting
variations in perceptions of transfer pricing practices
In
general, research findings in terms of factors influencing TP audit policies
can be presented in the following table:
Table
4. Summary of Research Findings on Factors that
Influence the Implementation of Transfer Pricing Audit Policy
|
Node |
Research Finding |
|
1.
External Factor |
|
|
a. Perception of the
Indonesian Taxation system |
If the transfer pricing audit policy
imposed on investors who have invested their capital in Indonesia is
considered to be a heavy burden, then they can move to another country that
is more profitable in terms of tax rates. |
|
b. Efforts to attract
investors |
If foreign investors think that our tax
policies, one of which is the transfer pricing audit, can be burdensome for
them, investors will think again about investing capital in Indonesia. On the
other hand, if the transfer pricing audit policy carried out by tax auditors
is less firm, the potential for lost state revenue from aggressive tax
avoidance practices will also be large |
|
2. Internal Factors |
|
|
a. HR readiness and
capability |
Qualified human resources from tax
authorities are needed to better understand aspects of economics, business
and taxation as one unit in analyzing company affiliate transaction schemes
in accordance with the principles of fairness and business practices. |
|
b. lack of inspection time |
When conducting transfer pricing audits,
tax auditors often lack the time to carry out quality audits |
|
c. differences in
perceptions of TP practices |
The practice of transfer pricing is more
subjective with different angles between taxpayers and tax inspectors. The
greater the difference in perception between taxpayers and tax auditors
regarding TP provisions, the greater the potential for disputes so that
effective audits cannot be achieved. |
Transfer Pricing Audit
Policy Design
Transfer pricing
audits typically consume a significant amount of time and resources. The
revenue boost resulting from such audits may pertain to the collection of
revenue over a one to two-year period. The arduous efforts involved in
conducting a transfer pricing audit can lead to substantial revenue adjustments
that may prove advantageous for developing nations
The
effectiveness of an audit heavily relies on meticulous case selection. Thus, it
is crucial to allocate sufficient time and resources to risk evaluation and
subsequent case selection, while also ensuring appropriate resources are
allocated for the actual audit process. Various indicators can be utilized to
identify a transaction as high risk, and these will be elaborated upon later
Figure 4. Hierarchy Chart Node Recommendations for increasing the effectiveness of
TP Audits
Based on the
hierarchical chart, it is evident that the examination of interviews with
research participants concerning suggestions for enhancing the efficiency of
transfer pricing audits is predominantly influenced by the CRM implementation
optimization node, which is indicated by the most substantial area.
Subsequently, the subsequent node consistently focuses on the advancement of
the business model, followed by the node that determines the priority of
testing subjects and individuals, establishing operational directives for
transfer pricing audits, simplifying tax regulations, and ultimately
restricting the discretionary powers of the tax authority.
In general, the
research outcomes related to recommendations for enhancing the effectiveness of
transfer pricing audit procedures can be outlined in the subsequent table:
Table 5. Summary of Research Findings Recommendations
for increasing the effectiveness of the TP Audit Policy
|
Node |
Research Finding |
|
(1) simplification of tax
regulations |
TP audit regulations must be designed to be
simpler so that there will be no conflicting regulations. Apart from that, it
will also be easier for taxpayers to comply with existing regulations and
avoid aggressive tax avoidance practices. |
|
(2) determine in advance
what is ready and what will be audited |
The need for careful planning before
conducting a TP audit. This planning involves determining what and who will
be tested first. This is to be able to optimize the use of both WP and DJP
resources to create effective TP audits. |
|
(3) limiting the tax
authority's discretion |
The discretion given to the examiner in
following up on the results of the examination is a bounded discretion where
the law stipulates several alternative decisions and the examiner is free to
choose one of the alternative decisions provided by statutory regulations,
however, discretion as a free authority requires limitations and procedures
for its use. discretion so that the use of discretion can be accounted for. |
|
(4) always follow
developments in business models |
Indonesia's transfer pricing audit policy
is considered not up to date so it is feared that it cannot be used as a
regulatory reference for transactions from new business models and in the end
the government cannot do anything about the status of these transactions. |
|
(5) create operational
guidelines for TP audits and |
The existing transfer pricing regulations
are only general in nature and do not provide detailed guidance on TP audit
steps and what documents need to be prepared by taxpayers. |
|
(6) Optimizing CRM
implementation |
One of the results of CRM is an
extensification function compliance map, namely a map that illustrates
taxpayer compliance risks. The higher the level of possible Taxpayer
non-compliance and the higher the possible contribution to revenue is the
main priority as an extensification target. |
CONCLUSION
This
study's conclusion, derived from the analysis and discussion outcomes, is that
the TP Audit Policy Content implementation of the transfer pricing audit policy
is intended to accommodate the interests of both taxpayers and taxpayers with
an interest in TP audits. Efficient audits and taxpayers passing transfer
pricing audits are the outcomes of such audits. The objectives are to achieve a degree of change that
satisfies taxpayers' sense of justice, a consensus regarding the necessity of
TP audits, and the prevention of tax evasion. An
audit of DJP's implementation by TP revealed that the organization was pursuing
objectives. With regard to the policy context, tax auditors implementing the
transfer pricing audit policy ought to adopt a more comprehensive approach,
refrain from disregarding factual information regarding the company's state,
devise strategies to thwart tax avoidance and examine indicators of tax
avoidance. Achieving a high level of compliance and acknowledging all facts are
the TP audit policy's anticipated standards of compliance.
External
and internal factors influence the implementation of audit policies pertaining
to transfer pricing. Efforts to attract investors and perceptions of the
Indonesian tax system as a result of transfer pricing audit policies are
examples of external factors. HR readiness and capability, insufficient
inspection time during transfer pricing audits, and divergent perceptions of TP
practices are internal factors.
The
policy for managing transfer pricing audits is formulated through the
simplification of tax regulations, pre-determination of auditable and
non-auditable items, restriction of the tax authority's discretion, and
continuous monitoring of business model advancements. This is in light of the
fact that Indonesia's transfer pricing audit policy is deemed obsolete and
cannot serve as a regulatory benchmark. The government ultimately lacks the
ability to intervene in the status of a transaction originating from a novel
business model, establish operational guidelines for TP audits, or optimize CRM
implementation.
One
drawback and suggestion of this study is that it exclusively conducts a
qualitative analysis of the execution of transfer pricing audit policies.
Future researchers are advised to begin their investigations with a
quantitative approach, wherein they develop models to assess the efficacy of
transfer pricing audit policies and the various determinants that impact them.
By employing Grindle's policy
implementation theory in this investigation, it becomes feasible to conduct
problem analysis employing diverse theoretical frameworks,
yielding varying outcomes.
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|
Copyright holder: Ginda Togatorop, Haula Rosdiana,
Milla Sepliana Setyowati
(2024) |
|
First publication right: Asian Journal of Engineering, Social and Health (AJESH) |
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