Tax is a Double-Edged Sword: Transfer Pricing Opens the Door to Tax Avoidance, Moderated by CEO and Foreign Ownership
Year: 2026
Type: article
Abstract: Background: Transfer pricing remains a persistent tax-governance concern because related-party arrangements may shift taxable income across jurisdictions, while governance and ownership characteristics can alter executives’ incentives to pursue aggressive tax positions. Objective: The study investigates the relationship between transfer pricing and tax avoidance and evaluates whether CEO narcissism, CEO financial expertise, and foreign ownership change the strength of that relationship among Indonesian energy-sector companies. Methods: The research used a quantitative explanatory approach with 70 firm-year observations obtained through purposive sampling. Secondary financial and corporate-governance information was processed using PLS-SEM in WarpPLS 8.0, and an alternative proxy for tax avoidance was applied as a robustness assessment. Results: Transfer pricing was significantly associated with tax avoidance (β = −0.381; p < 0.001). CEO narcissism (β = −0.186; p = 0.018) and foreign ownership (β = −0.332; p < 0.001) significantly moderated this relationship, whereas the robustness model indicated that the strength of selected effects depends on the tax-avoidance proxy. Conclusion: The findings show that the transfer-pricing–tax-avoidance relationship is contingent on executive and ownership characteristics, supporting the need for risk-based monitoring that jointly considers related-party transactions and corporate-governance attributes.
Author: Mustafhimatul Ilma
Institution: Universitas Pekalongan
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: hybrid
OpenAlex ID: W7225313275