Transfer pricing and tax avoidance strategy: The role of foreign ownership

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Abstract

Tax avoidance (TA) is a strategic effort undertaken by companies to legally reduce their tax liabilities by utilizing gaps or ambiguities in existing tax regulations. This study examines the effect of transfer pricing (TP) on TA, with foreign ownership (FOROWN) as a moderating variable. TA is proxied by the cash effective tax rate (CETR), calculated as the ratio of tax expense to pre-tax income. The research targets manufacturing companies listed on the Indonesia Stock Exchange (IDX) during 2019–2023. Using a quantitative approach and purposive sampling, 85 observations were analyzed through secondary data processed with IBM SPSS 26. The hypotheses were tested using moderated regression analysis (MRA). The results indicate that TP has a significant negative effect on TA, suggesting that greater TP practices are linked to lower TA. Moreover, FOROWN is shown to strengthen this negative association, meaning that companies with foreign shareholders tend to exhibit less aggressive TA when utilizing TP. This study contributes to the literature by offering empirical evidence from an emerging market, emphasizing the moderating role of FOROWN in enhancing tax compliance through TP (Hidayah et al., 2025).

Keywords: Transfer Pricing, Tax Avoidance, Foreign Ownership

Authors’ individual contribution: Conceptualization — J.T., M., and L.L.F.; Methodology — J.T., M., and L.L.F.; Formal Analysis — J.T. and L.L.F.; Investigation — J.T.; Writing — Original Draft — J.T.; Writing — Reviewing & Editing — J.T. and M.; Supervision — M. and L.L.F.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: C12, F23, H25, H26, M41

Received: 11.04.2025
Revised: 04.08.2025; 05.10.2025; 23.12.2025
Accepted: 15.01.2026
Published online: 19.01.2026

How to cite this paper: Tanujaya, J., Mukhtaruddin, & Fuadah, L. L. (2026). Transfer pricing and tax avoidance strategy: The role of foreign ownership. Corporate and Business Strategy Review, 7(1), 134–143. https://doi.org/10.22495/cbsrv7i1art12