Universitas Gadjah Mada
Faculty of Economics and Business

Friday (9/06), the Master of Science and Doctoral Study Program (MD) of the Faculty of Economics and Business, Universitas Gadjah Mada (FEB UGM) held a public lecture on transfer pricing. Conducted through the Zoom Meetings platform, this lecture was presented by Dr. Yadyn Palebangan, S.H., M.H. (Head of the East Luwu District Prosecutor's Office, South Sulawesi) and Dr. Dian Kartika Rahajeng, S.E., M.Sc. (Lecturer in the Department of Accounting, FEB UGM). The session began with an explanation by Dr. Yadyn about transfer pricing as a corporate instrument in money laundering.

Numerous multinational companies use transfer pricing to avoid tax payments in their home countries. Companies intentionally move financial records to other countries with lighter tax burdens (often known as tax havens). Dr. Yadyn then explained the legal processing stages for cases of transfer pricing manipulation as a means of tax evasion. The process starts with complaint (information collection), followed by pre-investigation, investigation, prosecution, and execution.

For investigation, procedures can be carried out using two methods: the direct method and the indirect method. The direct process involves analyzing financial record databases, interviewing relevant parties (such as the board of directors, financial and accounting departments, as well as marketing departments), tracing suspicious transactions, along with analyzing financial transactions involving foreign currency, online gambling, and cryptocurrencies. Meanwhile, the indirect method involves tracing lifestyle, legitimate income, family profiles, and companies used as money laundering instruments.

Furthermore, Dr. Dian explained the accounting aspect of transfer pricing. Companies often have subsidiaries in various countries that engage in cross-border transactions to optimize tax liabilities, costs, and profits. Transfer pricing refers to the pricing of goods, services, and intangible assets traded between related entities within a multinational company, such as divisions or subsidiaries.

In its implementation, transfer pricing must adhere to the principle of fair pricing. Reasonable and customary business practices are crucial aspects. Additionally, transfer pricing must consider the methods used. These methods include the Comparable Uncontrolled Price (CUP) method, Resale Price Method (RPM), Cost Plus Method (CPM), Profit Spill Method, and Transactional Net Margin Method (TNMM) or Comparable Profits Method (CPM).

However, in practice, companies often exploit transfer pricing to evade taxes. They shift profits to low-tax countries or transfer losses by moving deductible costs to high-tax countries. Taxable income should not be artificially shifted to jurisdictions with low taxes.

Therefore, Dr. Dian then presented alternatives as solutions to this issue. First, reinforcement of transfer pricing regulations and guidelines is needed. This can be achieved through harmonizing tax-related laws, Advance Pricing Agreements (APAs), and Mutual Agreement Procedures (MAPs) among authorized tax authorities.

Second, efforts to prevent tax avoidance need to be strengthened. This is manifested through the implementation of Specific Anti Avoidance Rules (SAAR), such as rules related to transfer pricing, thin capitalization, Controlled Foreign Company (CFC), and General Anti Avoidance Rule (GAAR). Third, a good-faith approach is needed in tax management, especially regarding responsible reporting. Lastly, anti-fraud education needs to be conducted as a form of anticipation against financial report manipulation.

In conclusion, it's essential to understand that transfer pricing is complex. Its purpose is to ensure the equitable allocation of profits among entities within a multinational company. However, it's crucial to be cautious as transfer pricing can harm a country's revenue due to manipulation leading to tax evasion.

Reportage: Rizal Farizi 
Watch the full video https://youtu.be/pqXum25pvbU