Related Party Transactions and Tax Avoidance: Study on Mining Company in Indonesia

Abstract

This study aims to provide empirical evidence of the effect of related party transactions on tax avoidance on mining sector companies listed on the Indonesia Stock Exchange. The research sample consists of 73 observations. We used Discretionary Permanent Book Tax Differences to measure the ratio of tax avoidance. We used the composite value of merging sales, purchase, liability, and receivables to related parties through principal component analysis to measure related party transactions variables. The results of panel regression analysis show that related party transactions have a positive and significant effect on Discretionary Permanent Book Tax Differences. After re-testing, these results are consistent using a variable measurement of different tax avoidance, namely the Cash Effective Tax Rate. Furthermore, the analysis result per component of related party transactions shows that only receivable transactions significantly affect tax avoidance. This study results indicate that company policy in related party transactions is not conducted partially per component in the taxation context. Company management is likely to use all related party transactions methods so that stakeholders, particularly revenue officers, do not easily detect the tax avoidance practices.