Analysis Method of Transfer Pricing Used by Multinational Companies Related to Tax Avoidance and its Consistencies to the Arm's Length Principle

Authors

  • Nuraini Sari Bina Nusantara University
  • Ririn Susanti Hunar Bina Nusantara University

DOI:

https://doi.org/10.21512/bbr.v6i3.944

Keywords:

transfer pricing, multinational companies, tax avoidance, arm’s length principle

Abstract

The purpose of this study is to evaluate about how Starbucks Corporation uses transfer pricing to minimize the tax bill. In addition, the study also will evaluate how Indonesia’s domestic rules can overcome the case if Starbucks UK case happens in Indonesia. There are three steps conducted in this study. First, using information provided by UK Her Majesty's Revenue and Customs (HMRC) and other related articles, find methods used by Starbucks UK to minimize the tax bill. Second, find Organisation for Economic Co-Operation and Development (OECD) viewpoint regarding Starbucks Corporation cases. Third, analyze how Indonesia’s transfer pricing rules will work if Starbucks UK’s cases happened in Indonesia. The results showed that there were three inter-company transactions that helped Starbucks UK to minimize the tax bill, such as coffee costs, royalty on intangible property, and interest on inter-company loans. Through a study of OECD’s BEPS action plans, it is recommended to improve the OECD Model Tax Convention including Indonesia’s domestic tax rules in order to produce a fair and transparent judgment on transfer pricing. This study concluded that by using current tax rules, although UK HMRC has been disadvantaged because transfer pricing practices done by most of multinational companies, UK HMRC still cannot prove the transfer pricing practices are not consistent with arm’s length principle. Therefore, current international tax rules need to be improved.

Dimensions

Plum Analytics

Author Biographies

Nuraini Sari, Bina Nusantara University

Accounting Department

Ririn Susanti Hunar, Bina Nusantara University

Accounting Department

References

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Kleinbard, Edward D. (2013). Through a Latte, Darkly: Starbucks's Stateless Income Planning. Tax Notes, June 24, 2013, pp. 1515-1535; USC CLEO Research Paper No. C13-9; USC Law Legal Studies Paper No. 13-10.

Nurhayati, Indah Dewi. (2013). Evaluasi Atas Perlakukan Perpajakan terhadap Transaksi Transfer Pricing pada Perusahaan Multinasional di Indonesia. Jurnal Manajemen dan Akuntansi, 2(1), 31-46.

Organization for Economic Co-operation and Development. (2008). OECD Model Tax Convention on Income and on Capital.

Organization for Economic Co-operation and Development. (2010). OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.

Organization for Economic Co-operation and Development. (2013). Action Plan on Base Erosion and Profit Shifting.

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Suandy, Erly. (2011). Perencanaan Pajak. Edisi ke-5. Jakarta: Salemba Empat.

Surat Direktur Pemeriksaan dan Penagihan No.S-153/PJ.04/2010 tanggal 31 Maret 2010 tentang Panduan Pemeriksaan Kewajaran Transaksi Afiliasi.

Tom Bergin. (2012). “Special Report: How Starbucks avoids UK taxes.”http://www.reuters.com/article/2012/10/15/us-britain-starbucks-taxidUSBRE89E0EX20121015

Access Date: 04 April 2014

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Published

2015-12-01
Abstract 1587  .
PDF downloaded 996  .