Is TCR effective in reducing tax avoidance in Indonesia?

Ranindya Hendrastuti; Eko Ganis   Sukoharsono; Syaiful  Iqbal

doi:10.14414/tiar.v14i1.4226

Vol. 14 No. 1 (2024), Articles

Vol. 14 No. 1 (2024)

Is TCR effective in reducing tax avoidance in Indonesia?

Articles

DOI: 10.14414/tiar.v14i1.4226

Published 2024-06-08

Ranindya Hendrastuti⁺⁻
Eko Ganis Sukoharsono⁺⁻
Syaiful Iqbal⁺⁻

Ranindya Hendrastuti

Brawijaya University, Malang, East Java, Indonesia

Eko Ganis Sukoharsono

Brawijaya University, Malang, East Java, Indonesia

Syaiful Iqbal

Brawijaya University, Malang, East Java, Indonesia

pdf

Keywords

Tax avoidance
Thin capitalization
Thin capitalization rule
DER rule
Interest to EBITDA rule

How to Cite

Hendrastuti, Ranindya, et al. “Is TCR Effective in Reducing Tax Avoidance in Indonesia?”. The Indonesian Accounting Review, vol. 14, no. 1, June 2024, pp. 85-102, https://doi.org/10.14414/tiar.v14i1.4226.

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

Abstract

Thin capitalization is a tax avoidance technique using funding sources that prioritize debt over capital. Thin capitalization can be used as a technique to avoid taxes because there is a difference in treatment between debt and capital as a source of funding in tax regulations. Thin capitalization rule (TCR) is domestic tax system to reduce thin capitalization. This study aims to examine the effect of implementing thin capitalization rules on reducing tax avoidance in Indonesia. This study is a quantitative study. The data used are secondary data obtained from multinational companies listed on the IDX from 2013 to 2020 by excluding companies that are excluded from PMK-169: bank companies, financing institutions, insurance, reinsurance, operating in the oil and gas mining sector, companies whose entire income is subject to final tax, and infrastructure. The data analysis method used in this study is regression using the eviews 12.0 program. The results show that the implementation of thin capitalization rule (TCR) does not reduce tax avoidance. These results provide empirical evidence that the government need to consider using thin capitalization rule with the interest to Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA) rule mechanism rather than the Debt-to-Equity Ratio (DER) rule mechanism and arm’s length rule mechanism.

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Is TCR effective in reducing tax avoidance in Indonesia?

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