Al andia, Nu li a Sukma
A icle
How do coun ies cu b hei deb o p o i shi ing: a
sys ema ic li e a u e e iew
Cogen Business & Managemen
P o ided in Coope a ion wi h:
Taylo & F ancis G oup
Sugges ed Ci a ion: Al andia, Nu li a Sukma (2024) : How do coun ies cu b hei deb o p o i
shi ing: a sys ema ic li e a u e e iew, Cogen Business & Managemen , ISSN 2331-1975, Taylo &
F ancis, Abingdon, Vol. 11, Iss. 1, pp. 1-17,
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How do coun ies cu b hei deb o p ofi
shi ing: a sys ema ic li e a u e e iew
Nu li a Sukma Al andia
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ACCOUNTING, CORPORATE GOVERNANCE &
BUSINESS ETHICS | REVIEw ARTIClE
Cogen Business & ManageMen
2024, VoL. 11, no. 1, 2344032
How do coun ies cu b hei deb o p o i shi ing: a sys ema ic
li e a u e e iew
Nu li a Sukma Al andia
axa ion s udy P og am, Facul y o adminis a i e science, uni e si y B awijaya
ABSTRACT
Companies o en a o deb inancing o e equi y inancing due o i s ax bene i s,
allowing mul ina ional companies o exploi in e nal deb o ans e p o i s o ju isdic ions
wi h lowe ax a es. Al hough he BEPS Ac ion Plan p o ides go e nmen s wi h guidelines
o cu b in e es deduc ions and comba p o i shi ing linked o inancing a angemen s,
i s implemen a ion a ies ac oss na ions. Mo eo e , mul ina ional co po a ions le e age
in e nal deb o ax planning and p o i -shi ing pu poses. This esea ch conduc s a
Sys ema ic li e a u e Re iew on he ax ea men o inancial ansac ions, ocusing on
deb . Th ough an examina ion o pape s a ailable on he OECD websi e, pa icula ly
hose analyzing hin capi aliza ion ules and ans e p icing p ac ices wo ldwide, we
collec ed 43 empi ical publica ions om h ee jou nal sys em publishe s: ScienceDi ec ,
Sp inge link, and P oques . The s udy sc u inizes ax planning ac ics adop ed by
mul ina ional i ms, pa icula ly p o i shi ing, deb manipula ion, and ans e p icing, o
educe ax liabili ies and boos p o i s. I in es iga es he e ec s o hin capi aliza ion
egula ions, highligh ing disc epancies be ween coun ies. Al hough hese p ac ices
comply wi h legal amewo ks, ax au ho i ies o en pe cei e hem as e hically
ques ionable, p omp ing coun e measu es. Tax egula ions p o oundly in luence he
s a egic dis ibu ion o mul ina ional co po a ions’ p o i s. Relaxed en o cemen leads o
heigh ened income shi ing, pa icula ly wi hin p i a ely owned mul ina ional co po a ions
(MNCs), necessi a ing legisla i e adjus men s o p omo e ai e inancing p ac ices. G oup
a ios and an i-a oidance egula ions a e implemen ed o mi iga e p o i shi ing, a ec ing
ax e enue, in es men dynamics, and economic s abili y.
1. In oduc ion
The company’s capi al s uc u e is de i ed om bo h equi y and deb inancing. The capi al s uc u e
e e s o he combina ion o long- e m inancing me hods employed by he company. Companies exhibi
a p e e ence o deb inancing o e equi y inancing (Desai & Dha mapala, 2015). Mul ina ional co po-
a ions can employ in e nal deb o di e p o i s om coun ies wi h high ax a es. Two app oaches can
be employed o accomplish his objec i e: ac ically assessing he amoun o domes ic deb and es ab-
lishing in e es a es (G esik e al., 2017). The decisions ega ding a company’s capi al s uc u e a e ypi-
cally g ea ly in luenced by ax conside a ions (Faccio & Xu, 2015). The in e play be ween capi al s uc u e
and axes can impac he cos o capi al, cash low, and he o e all inancial pe o mance o a company.
en e p ises si ua ed in na ions wi h low e ec i e ax a es exhibi less le e age compa ed o en e p ises
ope a ing in na ions wi h high e ec i e ax a es (Faulkende & Smi h, 2016).
The company’s desi e o educe ax liabili ies, he eby inc easing a e - ax income o co po a e ax-
paye s, in luences companies o inc ease hei deb inancing because in e es expenses educe in o -
ma ion asymme y and educe he le el o ax bu den (Sani e al., 2024). when a i m g an s a loan, i
© 2024 he au ho (s). Published by in o ma uK Limi ed, ading as aylo & F ancis g oup
CONTACT nu li a sukma al andia [email p o ec ed].id axa ion s udy P og am, Facul y o adminis a i e science, uni e si y
B awijaya
h ps://doi.o g/10.1080/23311975.2024.2344032
his is an open access a icle dis ibu ed unde he e ms o he C ea i e Commons a ibu ion License (h p://c ea i ecommons.o g/licenses/by/4.0/), which
pe mi s un es ic ed use, dis ibu ion, and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly ci ed. he e ms on which his a icle has been
published allow he pos ing o he accep ed Manusc ip in a eposi o y by he au ho (s) o wi h hei consen .
ARTICLE HISTORY
Recei ed 1 Decembe
2023
Re ised 7 Ap il 2024
Accep ed 13 Ap il 2024
KEYWORDS
Deb shi ing; p o i
shi ing; in e es
limi a ion; wel a e;
agg esi e ax planning
REVIEWING EDITOR
Collins N im, Uni e si y o
Sou hamp on, Uni ed
Kingdom o G ea B i ain
and No he n I eland
SUBJECTS
Business, Managemen
and Accoun ing; Finance;
Economics
2 N.S. AlFANDIA
will incu in e es paymen s. In e es paymen s can be deduc ed as an expense based on co po a e
income ax. As he deduc ible in e es expendi u e inc eases, he axable income o he company’s
p o i dec eases. Concu en ly, inancing h ough sha es will p oduce di idends ha a e liable o be
axed as income. Consequen ly, co po a ions ha e a p e e ence o u ilizing deb inancing op ions
o e s ocks.
le e age, in inancial e ms, e e s o he u iliza ion o bo owed cash (deb ) o inance a company’s
ope a ions o in es men s. A low le e age a io signi ies ha he company possesses a compa a i ely
small amoun o deb in ela ion o i s equi y o asse s (Hussan, 2016). The company exhibi s less eliance
on bo owed capi al, esul ing in a diminished deb bu den and lowe le e age. Consequen ly, he o ga-
niza ion exhibi s g ea e inancial s abili y and adap abili y. Reducing le e age can lead o dec eased
in e es expenses and inancial ulne abili y as he company has a smalle amoun o deb o epay.
Companies ha e a p e e ence o o he unding me hods a he han loans, such as aising sha e capi al
o selling ixed asse s o in en o ies.
Mul ina ional companies has he abili y o secu e unding h ough deb wi hin he amewo k o he
in e na ional ax sys em. The sys em also enables Mul ina ional companies o ans e hei p o i s o
ju isdic ions wi h lowe ax a es in o eign coun ies. The OECD has es ablished an all-encompassing
sys em o guidelines and sugges ions aimed a ackling he use o agg essi e ax planning ac ics
employed by MNC (Ouelhadj & Bouche a a, 2021). The e m used o e e o his amewo k is he BEPS
P ojec . The objec i e o he BEPS P ojec is o mi iga e ax e asion by mul ina ional co po a ions by he
ec i ica ion o exis ing loopholes in in e na ional ax legisla ion (Kobe sky, 2020). The OECD eleased he
Ac ion Plan on Base E osion and P o i Shi ing (BEPS) in 2013. I has exe ed a subs an ial in luence on
global ax policies, shaping ax sys ems wo ldwide. Se e al na ions ha e implemen ed o adjus ed hei
na ional legisla ion o con o m wi h OECD guidelines, enhancing openness and collabo a ion among ax
au ho i ies in o de o add ess p o i shi ing and gua an ee equi able axes (C i elli e al., 2016). The
implemen a ion and execu ion o hese measu es may di e ac oss di e en coun ies. Con inued endea -
o s a e being made o ackle obs acles and e alua e he e icacy o he BEPS Ac ion Plan in mi iga ing
p o i -shi ing ac ics.
The Ac ion Plan on BEPS has 15 ac ion i ems ha ackle di e en ace s o in e na ional ax planning
and p o i ans e . The key ac ion poin s pe aining o p o i ans e a e Ac ion 2, Ac ion 3, Ac ion 4,
and Ac ions 7 o 10. Acco ding o BEPS Ac ion 4, i is ecommended o c ea e egula ions ha would
p e en he educ ion o axable income h ough in e es paymen s and he a oidance o axa ion om
bo h o eign and domes ic pe spec i es (Cence ado e al., 2015). E ec i e execu ion o Ac ion 4 neces-
si a es he synch oniza ion and collabo a ion among na ions o gua an ee uni o m implemen a ion and
a oid ans e s o he ax ounda ion ac oss di e en ju isdic ions.
The BEPS Ac ion Plan p o ides guidelines o go e nmen s o es ablish legisla ion ha e ec i ely
es ic in e es deduc ions and educe he chances o p o i shi ing ela ed o inancing a angemen s.
I is impo an o acknowledge ha he implemen a ion o Ac ion 4 and o he BEPS Ac ions migh di e
ac oss na ions, wi h speci ic ules and p ac ices a ying based on indi idual ju isdic ions. Each na ion is
accoun able o adop ing and execu ing measu es ha align wi h he OECD BEPS p inciples, while con-
side ing he speci ic legisla i e and adminis a i e s uc u e o hei own coun y.
The co ela ion be ween deb and axes is a complex and mul i ace ed inancial issue. Mul iple s udies
ha e examined his co ela ion and o e ed aluable insigh s in o he impac o axes on co po a e deci-
sions abou deb inancing. Mul ina ional company ha e he abili y o u ilize in e nal deb as a means
o shi hei p o i s away om ju isdic ions wi h high ax a es (G esik e al., 2017). By c ea ing nume ous
ope a ional and non-ope a ional businesses, holdings, and sub-holdings in di e en ju isdic ions, includ-
ing ax ha ens, MNCs can also pa icipa e in ax op imiza ion schemes. Due o he complexi y o hei
s uc u es, mul ina ional company can capi alize on di e ences in na ional axa ion policies and a es
(Me le e al., 2019). They may choose o assign deb o ju isdic ions wi h high ax a es due o he ac
ha loan in e es can be deduc ed (Goldbach e al., 2021). This enables hem o educe hei axable
e enue in egions wi h high ax a es while ans e ing p o i s o egions wi h lowe ax a es. This
possibili y s imula ed he eme gence o a shi in ea nings by le e aging lending p og ams. In e nal deb
is u ilized by MNCs as a s a egy o ax planning and p o i shi ing. This in ol es he p o ision o loans
om i ms si ua ed in low- ax ju isdic ions o subsidia ies in high- ax ju isdic ions (Bue ne e al., 2016).
COGENT BUSINESS & MANAGEMENT 3
The alloca ion o income and expenses wi hin mul ina ional co po a ions, o en aims o educe axable
income, leading o base e osion and p o i shi ing (Sebele-Mpo u e al., 2021).
Resea ch on how he ax code ea s inancial ansac ions like deb has su aced ecen ly. As echnol-
ogy ad ances, global co po a ions employ many ways o e ou e hei po en ial ax liabili ies. P io s ud-
ies ha e looked a how mul ina ional co po a ions manage hei capi al s uc u e. P io s udies ha e only
looked a agg essi e ax planning echniques. Aside om ha , no p io s udy has examined how he
BEPS Ac ion Plan is being implemen ed, mainly how in e es is limi ed and wha laws a e in e ec in
each na ion. SlR was no used in ea lie s udies ei he . The Sys ema ic li e a u e Re iew (SlR) me hod-
ology is used in his s udy as pa o a e iew esea ch app oach. This s udy ies o syn hesize and
e alua e he e olu ion o echniques used by mul ina ional co po a ions using SlR. This s udy a emp s
o compile, using he BEPS Ac ion Plan 4 ecommenda ions om he OECD, he s a egies o policies
employed o educe ax base e osion using deb schemes.
This esea ch in es iga es mul ina ional co po a ions’ (MNCs’) ax planning p ac ices, ocusing on p o i
shi ing, deb manipula ion, and ans e p icing o minimize ax liabili ies and inc ease p o i s. This
esea ch also aims o analyze he impac o implemen ing egula ions ega ding hin capi aliza ion,
including sa e ha bo ules (SHR) and ea nings s ipping ules (ESR), as well as how hese egula ions a y
in a ious coun ies.
2. Resea ch me hodology
This s udy u ilizes a quali a i e esea ch me hodology. The esea ch selec ion echnique was desc ibed in
compliance wi h he ecommended epo ing i ems in Sys ema ic Re iews and Me a-Analyses (PRISMA)
s anda ds (Mohe e al., 2010). The a icles we e ca e ully chosen and inalized. To ex ac he ele an
da a om he chosen publica ions, a numbe o echnologies we e used. The da a needed o his
esea ch was collec ed using manual ex ac ion me hods, Mic oso Excel, and con en analysis. Figu e 1
shows each s ep ca ied ou based on he PRISMA s anda d. Table 1 is an exhaus i e compila ion o he
jou nals employed in he conduc ed esea ch.
This esea ch adop s esea ch me hodology (lu e al., 2022). The SlR subjec is de ined as he ax
ea men o inancial ansac ions, pa icula ly deb , by eading a icles on he OECD websi e ha dis-
cuss he mos commonly e e enced hin capi aliza ion laws and ans e p icing p o iles o na ions
wo ldwide. we ob ained speci ic pape s om h ee publishe s o jou nal pla o ms – ScienceDi ec ,
Sp inge link, and P oques . Jou nal publishe pla o ms equen ly o e di ec access o jou nals and
Figu e 1. Flow o in o ma ion h ough he di e en phases o sys ema ic e iew.
sou ce: Resea che , 2023.
4 N.S. AlFANDIA
Table 1. he lis o jou nal.
no Yea au ho i le Publishe
1 2013 Ma hias W ede Mul ina ional inancial s uc u e and ax compe i ion sp inge Link
2 2013 Philip g. Cohen es ing hin capi aliza ion unde sec ion 163(j): a lawed
sa e ha bo
P oques
3 2013 ul ich scheibe in e na ional business axa ion and he business cash
low ax
sp inge Link
4 2014 Jim Fulle , Da id Fo s us inbound: inbound deb limi a ions P oques
5 2014 Ma hias Dischinge , Bodo Knoll, nadine
Riedel
he ole o headqua e s in mul ina ional p o i shi ing
s a egies
sp inge Link
6 2014 Michael o e esch, geo g Wamse Bila e al in e nal deb inancing and ax planning o
mul ina ional i ms
sp inge Link
7 2014 homas Hemmelga n, Daniel eichmann ax e o ms and he capi al s uc u e o banks sp inge Link
8 2015 Bo isas seminogo as axa ion hyb id ins umen s scienceDi ec
9 2015 Ch is o Beuselink, Ma c Deloo , ann
Vans aelen
C oss-ju isdic ional income shi ing and ax en o cemen :
e idence om public e sus p i a e mul ina ionals
sp inge Link
10 2015 g ace Weishi gu, Ruud de Mooij, ig an
Poghosyan
axa ion and le e age in in e na ional banking sp inge Link
11 2015 Kay Blau us, Ma ocs K einacke, B i a
Man ei
in e es deduc ibili y es ic ions and o ganiza ional o m P oques
12 2015 Mihi a. Desai, Dhammika Dha mapala in e es deduc ion in mul iju isdic ional wo ld P oques
13 2015 Molly J. saunde s-sco subs i u ion ac oss me hods o p o i shi ing P oques
14 2016 ann Kayis-Kuma Wha ’s BePs go o do wi h i ? explo ing he
e ec i eness o hin capi aliza ion ules
P oques
15 2016 Da id Fo s , Jim Fulle us inbound: us p oposes new deb -equi y egula ions
ega ding in e es in a co po a ion
P oques
16 2016 F ank M. Fossen, Ma in simme Pe sonal axa ion o capi al income and he inancial
le e age o i ms
sp inge Link
17 2016 hiess Bue ne , Michaelo e esch, geo g
Wamse
Res ic ed in e es deduc ibili y and mul ina ionals’ use o
in e nal deb inance
sp inge Link
18 2017 Mohammed Ma dan Why coun ies di e in hin capi aliza ion ules: he Rule
o inancial de elopmen
scienceDi ec
19 2017 Pe e Bi ch so ensen axa ion and he op imal cons ain on co po a e deb
inance: why a comp ehensi e business income ax is
subop imal
sp inge Link
20 2017 homas a. g esik, Di k schindle ,
gu o m schjelde up
immobilizing co po a e income shi ing: should i sa e o
s ip in he ha bo ?
scienceDi ec
21 2018 and eas Hau le , Mohammed Ma dan,
Di k schindle
Double ax disc imina ion o a ac FDi and igh p o i
shi ing: he Role o CFC Rule
scienceDi ec
22 2018 Di k Kiesewe e , obias s eigenbe ge ,
Ma ias s ie
Can o mula appo ionmen eally p e en mul ina ional
en p ises om p o i shi ing? he ole o asse
alua ion, in ag oup deb , and leases
sp inge Link
23 2018 Jose a. Clemen e-almend os, F ansisco
sogo b-Mi a
Cos s o deb , ax bene i s and a new measu e o
non-deb ax shields: examining deb conse a ism in
spanish lis ed i ms
scienceDi ec
24 2018 Ma in homsen, Ch is oph Wa in ax a oidance o e ime: a compa ison o eu opean and
us Fi ms
scienceDi ec
25 2018 Pie e Van De Zwan, Daniel P. schu e,
Waldo K ugell
an e alua ion o in e es deduc ion limi a ions o coun e
base e osion in sou h a ica
P oques
26 2018 hiess Bue ne , Michaelo e esch, geo g
Wamse
an i-p o i shi ing ules and o eign di ec in es men sp inge Link
27 2019 i ena s ejskalo a, Pe a Kozako a, Jana
Pe na
ax Deduc ibili y o in e es unde he a aD in
in es men decisions
P oques
28 2020 Cos as sa a, Demis ioannou, axa elie oeCD F Repo : a po en ial solu ion o excessi e deb
inancing
P oques
29 2020 Da e goy ae s, annelies Roggeman he impac o hin capi aliza ion ules on subsidia y
inancing: e idence om Belgium
sp inge Link
30 2020 Ka ha ina schul e sasse, Ch is oph
Wa in, Falko Weib
he alignmen be ween epo ed p o i s and eal ac i i y
in imes o he BePs ac ion Plan
scienceDi ec
31 2020 Pie o Dalla i, nicolas end, Fedo
Mi yugin
Pou ing oil on i e: in e es deduc ibili y and co po a e
deb
sp inge Link
32 2020 sabine schenkelbe g he Cadbu y schweppes judgmen and i s implica ion on
p o i shi ing ac i i ies wi hin eu ope
sp inge Link
33 2020 Xue ui (es elle) Li and al ed an an empi ical s udy on c oss-bo de p o i shi ing in
aus alia
P oques
34 2020 Za ko Y. Kalamo sa e ha en o ea nings s ipping ules: a p isione ’s
dilemma
P oques
35 2021 anna Leszylowska, Jan-Hend ik Meie Do ea ning s ipping ules hampe in es men ? e idence
om Ci e o ms in eu opean Coun ies
scienceDi ec
36 2021 F anz Rei e , Dominika Langenmay , s ea
Hol man
a oiding axes: bank’s use o in e nal deb P oques
37 2021 Je go don Cohe en capi al s uc u e policy: be ween bailou s and
he in e es deduc ion
P oques
38 2022 aleksi ee ola, a jen H. L. slangen a e iew o in e na ional managemen esea ch on
co po a e axa ion
sp inge Link
(Con inued)
COGENT BUSINESS & MANAGEMENT 5
hei published pape s, ensu ing supe io con en quali y and g ea e ele ance o a speci ic subjec .
Jou nal da abases, on he o he hand, compile in o ma ion om se e al publica ions, which can be
ad an ageous o conduc ing comp ehensi e sea ches bu may equi e mo e p ecise c i e ia. (Koley e al.,
2022; laakso e al., 2011).
we ga he da a using a se o keywo d s ings. The ini ial sea ch u ilized he ollowing keywo ds: ‘deb
shi ing’, ‘p o i shi ing’, ‘in e es limi a ion me hod’, ‘ hin capi aliza ion ules’, and ‘ea nings s ipping ules’.
These keywo ds we e compa ed o he mos commonly used ones in TCR- ela ed a icles and he h ee
publishe s’ pla o ms. In addi ion, hese keywo d s ings we e sea ched along wi h hei synonyms and
singula and plu al e sions o p e en p ejudice.
A icles we e included based on selec ion c i e ia. A o al o 564 a icles we e published wi h he
speci ied keywo ds on h ee pla o ms be ween 2013 and 2023, acco ding o he ini ial sea ch. A e
manually elimina ing pape s ha we e no a ailable, duplica es, and a icles wi h missing in o ma ion, a
o al o 508 s udies we e le in he ele an ields. In addi ion, we employed many inclusion c i e ia
based on he guidelines p o ided by Alhossini e al. (2021) o e alua e he a icle’s quali y. E e y jou nal
a icle is composed in English and con ains he comple e ex —262 i ems comple ed his p ocess.
Examine i les, abs ac s, and keywo ds manually o gene a e mo e comp ehensi e wo d equency lis s
ha exclude a icles ha con ain inaccu a e keywo ds. Subsequen ly, he a icle unde goes a ho ough e al-
ua ion, conside ing he i le, keywo ds, and abs ac , o de e mine i s ele ance o he s udy heme. The
ea u ed a icles solely ocus on deb shi ing, p o i shi ing, and he limi a ions o in e es deduc ion schemes.
Fo example, we will emo e he a icle abou ea nings managemen ha does no di ec ly add ess agg es-
si e ax a oidance om he lis . Fu he mo e, we excluded any esea ch ha did no mee he c i e ia o a
scien i ic pape om he lis . The ul ima e compila ion comp ised 43 empi ical publica ions.
Figu e 2 shows da a isualiza ion using VOS iewe wi h he analysis ype "co-occu ence: and he uni
o analysis ‘keywo d’.
Resea ch on deb shi ing and hin capi aliza ion ules has been conduc ed since 2013. As seen in he
isualiza ion esul s abo e, he colo o he keywo d’s hin capi aliza ion ule and deb shi ing is da ke
han he o he keywo ds. P e ious esea ch linking hin capi aliza ion ules wi h di e en opics, such as
ea nings s ipping ules, p o i shi ing, and co po a e axa ion, eme ged in 2017–2018. This opic s ill
needs o be discussed in academic esea ch in Indonesia, especially p o i shi ing, which began o be
widely esea ched in 2018–2019. I can be caused by many mul ina ional companies ying o shi p o i
due o a ious gaps in ax egula ions in each coun y.
3. Analysis and discussion
The opics o deb and p o i e osion ha e been he ocus o bo h quan i a i e and quali a i e esea ch.
Iden i ying e ec i e s a egies o hal his ansi ion emains a ough ask in esea ch. The OECD has
addi ionally p esen ed ecommenda ions o he BEPS Ac ion Plan. This sec ion p o ides a concise o e -
iew o se e al p e ious s udies conduc ed be ween 2013 and 2023 ha examined he s a egies
employed by mul ina ional co po a ions o manipula e hei deb and p o i s. Mo eo e , he p esence o
a BEPS ac ion plan will unques ionably impac a coun y’s app oach o mi iga ing deb and p e en ing
no Yea au ho i le Publishe
39 2022 ama a. ahene-Codjoe, angela a. alu,
Rahul Meh o a
abno mal p icing in in e na ional commodi y ading:
e idence om ghana
scienceDi ec
40 2022 egidijus Kundelis, Rena a Legenzo a,
Julijonas Ka anas
Deb o p o i shi ing? assessmen o co po a e ax
a oidance p ac ices ac oss Li huanian companies
P oques
41 2022 goe d gideon, Wol gang egge subs i u ion ac oss p o i shi ing me hods and he
impac on hin capi aliza ion ules
P oques
42 2023 a ia a dalan, sebas ian g. Kessing,
salmai Qa i, Mal e Zoubek
Does capi al bea he bu den o local co po a es axes?
e idence om ge many
scienceDi ec
43 2023 Ha ald J. ambe ge , saskia Kohlhase in e na ional axa ion and he o ganiza ional o m o
o eign di ec in es men
sp inge Link
sou ce: Resea che , 2023.
Table 1. Con inued.
6 N.S. AlFANDIA
he manipula ion o p o i s in he ealm o global axa ion. we will endea o o o ganize e e y hing in
acco dance wi h he pe inen empi ical me hodology.
The agg essi e ax planning s a egies o mul ina ional co po a ions
Deb and equi y ge dispa a e ea men in he con ex o co po a e income ax. In mos coun ies,
in e es is subjec o axa ion o can be deduc ed om axes. Con a ily, di idends a e disbu sed om
ea nings ha ha e al eady been subjec ed o axa ion and do no educe he axable income o a com-
pany. Mul ina ional co po a ions commonly u ilize s a egic ax planning s a egies ha ake ad an age
o he ax implica ions o in e es expenses. Companies endea o o delay paymen s o a ious easons.
Mul ina ional co po a ions ha e he abili y o dis ibu e hei p o i s among he se e al coun ies whe e
hei subsidia ies a e based h ough he u iliza ion o ans e p icing, ex e nal and/o in a-company
deb , and o he s a egic me hods. Co po a e ax a oidance encompasses se e al ac ics employed by
mul ina ional co po a ions such as p o i o deb manipula ion o achie e a ax a e ha is lowe han
he o icially manda ed ax a e (Kundelis e al., 2022).
In Indonesia, agg essi e ax planning e e s o he delibe a e ac ions aken by co po a ions o indi id-
uals o minimize hei ax obliga ions legally. Howe e , ax au ho i ies ypically iew his ac i i y as
une hical despi e i s legali y. One o he p ima y ac ics employed in his p ac ice is known as ans e
p icing, which in ol es i ms manipula ing he p ices a which hey sell goods o se ices amongs hei
subsidia y companies in o de o shi p o i s o ju isdic ions wi h lowe ax a es. In addi ion, i ms can
exploi ax incen i es o loopholes p o ided by Indonesian ax legisla ion, such as ax discoun s o spe-
ci ic in es men s. Addi ional s a egies include he u iliza ion o in ica e business o ma ions, inco po a -
ing en i ies loca ed ab oad o in egions wi h educed ax a es, and using deb o c ea e in e es ha
can be sub ac ed om axable e enue.
P o i shi ing e e s o he ac o mo ing p o i s o a di e en ju isdic ion wi h he aim o minimizing
ax liabili ies (Dowd e al., 2017). To minimize hei ax obliga ions and enhance hei ea nings, mul ina-
ional co po a ions can exploi p o i -shi ing s a egies (Bue ne e al., 2016; Schindle & Schjelde up,
2016). E en wi h a consis en in e es a e, mul ina ional co po a ions ha e he oppo uni y o dec ease
hei ax obliga ions by shi ing deb o a ilia es in coun ies wi h highe ax a es. Coun ies wi h high
ax a es bene i om educed in e es a es, leading o ax sa ings ha exceed he ax liabili ies o he
pa en company. This incen i e sugges s ha a ilia es in coun ies wi h high ax a es a e equi ed o
main ain highe le els o deb in ela ion o hei asse s and claim disp opo iona e deduc ions o in e -
es expenses, as compa ed o a ilia es in o he coun ies (Schjelde up, 2016).
Figu e 2. ne wo k isualiza ion keywo d co-occu ence in hin capi aliza ion.
sou ce: ex ac ion om Vos iewe , 2024.
COGENT BUSINESS & MANAGEMENT 7
Mul ina ional co po a ions employ deb shi ing as a s a egy o ax planning, whe eby hey ans e
deb o inancing a angemen s ac oss linked en e p ises si ua ed in di e en coun ies (Dalla i e al.,
2020). Shi ing ope a ions occu no solely om he main i m o he subsidia y. The ax- ela ed co po-
a e ac s can be classi ied in o ou ca ego ies: income shi ing, o e seas eloca ions o headqua e s,
in e naliza ion o ope a ional ac i i ies, and ax e asion (Ee ola & Slangen, 2022). Shi s can also anspi e
in he opposi e di ec ion, whe eby hey mo e om subsidia ies o pa en businesses. when he pa en
business is loca ed in a coun y wi h a lowe ax a e, he p o i s will be mo ed o he pa en i m
(Dischinge e al., 2014). Mul ina ional co po a ions ha ope a e in mul iple ju isdic ions ha e he abili y
o es ablish deb a angemen s o in e company loans among hei subsidia ies. These loans can be
s uc u ed o educe axable income in ju isdic ions wi h low ax a es and inc ease in e es deduc ions
in a eas wi h high ax a es (Goldbach e al., 2021).
Mos coun ies commonly p o ide ax deduc ions o deb in e es (Schjelde up, 2016). Businesses a e
inclined o choose deb inancing o e equi y due o he ax ad an ages associa ed wi h deb in e es .
The e m ‘deb bias’ is used o desc ibe his o ganiza ional p ac ice. This bias could po en ially a ec he
inancial amewo k o a company, leading o a ise in indeb edness (Dalla i e al., 2020). Companies can
minimize hei axable income and ax liabili ies in ju isdic ions wi h high ax a es by op imizing in e es
expense deduc ions h ough he expansion o in a-g oup deb o he eo ganiza ion o cu en deb .
while bo h concep s ela e o he u iliza ion o deb in a company’s inancial amewo k, deb bias and
deb shi ing a e undamen ally di e en no ions.
Mul ina ional co po a ions may al e hei o ganiza ional s uc u e in esponse o ax-d i en s a egies
aimed a shi ing income. Mul ina ional co po a ions ha e he au onomy o choose om many o ganiza-
ional amewo ks o hei o e seas subsidia ies, including op ions like subsidia ies o low- h ough o ga-
niza ions. These o ganiza ional o ms ha e di e se ax implica ions. Subsidia ies a e obliga ed o pay
co po a e income ax due o hei sepa a e legal s a us as di e en co po a ions. Mul ina ional co po a-
ions can educe hei o al ax liabili y by channeling hei ea nings o subsidia ies loca ed in ju isdic-
ions wi h lowe ax a es. The o ganiza ional s uc u e employed by he MNC can po en ially a ec he
dis ibu ion o weal h. A mul ina ional co po a ion may incu highe ax liabili ies i i op s o subsidia -
ies loca ed in coun ies wi h ele a ed ax a es. Al e na i ely, he mul ina ional co po a ion can educe
i s ax obliga ions by shi ing income o low- h ough en i ies si ua ed in ju isdic ions wi h lowe ax
a es. The selec ion o o ganiza ional s uc u e by mul ina ional co po a ions can lead o a edis ibu ion
o income, since i allows hem o alloca e p o i s o en i ies si ua ed in many ju isdic ions wi h lowe
ax a es, hence educing hei o e all ax liabili y (Ambe ge & Kohlhase, 2023).
A pa en i m domiciled in a ju isdic ion wi h high ax a es es ablishes a subsidia y known as a con-
olled o eign company in a di e en coun y ha o e s a lowe ax a e. The subsidia y i m is subjec
o he con ol o i s sha eholde s. I di idends a e alloca ed o sha eholde s, speci ically he pa en busi-
ness in his ins ance, he subsidia y company’s e enue may be subjec o axa ion. I he pa en com-
pany decides o delay he dis ibu ion o income (di idends), he di idends will no be axed in he
coun y whe e he subsidia y is loca ed. CFCs can se e as a subs i u e o mul ina ional co po a ions o
ans e hei p o i s o e enue. Mul iple subsidia y i ms possess he capabili y o exclude in e es pay-
men s on in e nal deb om hei axable income. Mul ina ional co po a ions possess he capaci y o
shi hei ea nings away om he hos coun y by employing ax ha ens o c ea e domes ic deb . They
ha e au ho i y o e he amoun o deb hey issue, and he in e es a es hey cha ge (G esik e al., 2017).
Condui en i ies o special pu pose ehicles a e al e na i e o ganiza ional o ms employed by mul i-
na ional co po a ions, in addi ion o CFCs. Condui en i ies ha e a subs an ial impac on he p ac ice o
deb shi ing. These a e subo dina e companies ha unc ion as middlemen, ans e ing deb om one
a ilia e o ano he inside a global co po a ion. This enables he ans e o p o i s om a eas wi h high
ax a es o a eas wi h low ax a es, wi hou inc easing he o e all deb o he g oup. Condui en i ies
ha e he abili y o ul ill se e al unc ions, including he coo dina ion o capi al dis ibu ion, he consol-
ida ion o deb om a ious subsidia ies, and he ob usca ion o he sou ce o in e nal loans. Condui
businesses enable mul ina ionals o enhance he opaci y o hei ax a oidance s a egies and dec ease
he p obabili y o ho ough sc u iny by ax au ho i ies. Con e sely, he u iliza ion o condui en i ies
migh complica e he de e mina ion o how in e nal deb luc ua es in ela ion o ax a es, as i a i i-
cially in la es he le els o in e nal deb in hese businesses (Rei e e al., 2021).
14 N.S. AlFANDIA
s ipping ule. The ESR is ad an ageous as i e icien ly es ic s he exploi a ion o deb inancing and
ans e p icing me hods. The SHR speci ically a ec s he deb -shi ing s a egy u ilized by mul ina ional
companies. The ESR ou pe o ms he SHR, indica ing ha na ions shouldn’ a o hyb id laws as hei
p e e ed cou se o ac ion (G esik e al., 2017). The compa a i e e icacy o one legisla ion in ela ion o
ano he depends on he ex en o which mul ina ional companies can employ di e en s a egies o
p o i shi ing, in addi ion o p ac ices in ol ing deb shi ing (Ma dan, 2017).
Gi en he p esence o o he p o i -shi ing ac ics, mul ina ional companies ha e wo op ions when
aced wi h hyb id legisla ion. Hyb id egula ions can inc ease he o e all cos o capi al, leading mul ina-
ional businesses o educe hei capi al holdings. The second op ion is implemen ing s ic e hyb id
ules, which would equi e mul ina ional companies o inc ease hei capi al in o de o add ess he
eme ging limi a ions. Coun ies wi h a ne in low o o eign di ec in es men ha e a es ed in e es in
sa egua ding ax paymen s om mul ina ional companies h ough he implemen a ion o supplemen a y
sa e ha bo legisla ion. In con as , coun ies wi h a low a io o incoming o eign di ec in es men el-
a i e o ou going in es men p io i ize hei domes ic ax and wage income.
Ex a-sa e ha bo es ic ions a e exclusi ely implemen ed when mul ina ional companies inc ease hei
capi al holdings. Many coun ies obse e a dispa i y be ween he conduc o MNCs and hei claimed
bene icial cha ac e is ics. The e o e, i is impe a i e o hese coun ies o adop policies ha p e en he
e osion o e enue as a di ec and e ec i e esponse. wel a e esea ch indica es ha hyb id ins umen s
possess he capaci y o enhance he o e all wel a e o a na ion. Howe e , i is no obliga o y o all coun-
ies o implemen hyb id egula ions. I is impo an o cus omize hese policies o add ess impo an
conce ns ela ed o a coun y’s desi ed wel a e objec i es, such as in es men (Goe d & Egge , 2022).
The in e es limi a ion app oach can a ec a coun y, a ec ing s a e ax e enues, in es men le els,
economic g ow h, co po a e capi al s uc u e, global compe i i eness, and inancial ma ke s abili y.
S ingen in e es limi a ion egula ions can enhance s a e ax e enues by cu bing co po a ions’ capaci y
o minimize ax obliga ions h ough in e es expenses. Howe e , hese policies can impede economic
expansion by es ic ing en e p ises’ abili y o secu e unding h ough deb . Companies will modi y hei
capi al s uc u es in esponse o in e es a e cap egula ions, explo e mo e a o dable inancing op ions,
and adjus hei deb - o-equi y a ios o op imize ax ad an ages. Howe e , hey will also conside he
s abili y o inancial ma ke s and he coun y’s global compe i i eness.
Conclusion
This esea ch in es iga es mul ina ional co po a ions’ (MNCs’) ax planning p ac ices, ocusing on p o i
shi ing, deb manipula ion, and ans e p icing o minimize ax liabili ies and inc ease p o i s. This
esea ch also aims o analyze he impac o implemen ing egula ions ega ding hin capi aliza ion, includ-
ing sa e ha bo ules and ea nings s ipping ules, as well as how hese egula ions a y in a ious coun-
ies. In conclusion, Mul ina ional i ms u ilize many ax planning echniques, including deb shi ing, p o i
shi ing, ans e p icing, and he implemen a ion o o ganiza ional s uc u es, o minimize hei ax liabil-
i ies and op imize hei ea nings. These echniques en ail capi alizing on he a iances in ax a es and
egula ions among coun ies. Ne e heless, al hough hese ac ics a e legal, ax au ho i ies pe cei e hem
as mo ally w ong and a e implemen ing s a egies o coun e ac agg essi e ax planning.
The implemen a ion o ax egula ions has a pi o al ole in shaping he ac ions o mul ina ional co -
po a ions (MNCs) as hey s a egically eloca e hei ea nings o na ions wi h mo e a o able ax a es.
The s udy emphasizes ha lenien ax en o cemen esul s in heigh ened income shi ing by mul ina-
ional co po a ions (MNCs), mainly p i a ely owned ones. I unde sco es he necessi y o policymake s
o ec i y dispa i ies in he axa ion o deb and equi y o educe ax bene i s and p omo e a mo e
equi able app oach o inancing.
Ul ima ely, disc epancies in in e es -limi ing measu es among coun ies a e shaped by dispa i ies in
ax egula ions, economic ci cums ances, and policy goals. S a egies o p e en p o i shi ing and loss
o ax e enue include he implemen a ion o g oup a ios, sa e ha bo ules, hyb id ac ics, ixed a io
egula ions, and an i-a oidance laws. The impac o hin capi aliza ion laws, ea nings s ipping es ic-
ions, and hyb id egula ions on mul ina ional i ms’ p o i shi ing and deb inancing s a egies a y,
a ec ing ax collec ions, in es men le els, economic g ow h, and inancial ma ke s abili y.
COGENT BUSINESS & MANAGEMENT 15
The e a e se e al implica ions om his esea ch. This s udy is ex emely pe inen o in e na ional
economic policy ha demons a es he necessi y o na ions o ha e comp ehensi e and well-coo dina ed
policies o deal wi h p o i -shi ing and deb issues. The s udy esul emphasizes how c ucial i is o
na ions o wo k oge he and de elop equi able policies o s op p o i -shi ing beha io s and educe
he dange o aking on oo much deb . In o de o p e en ax manipula ion and success ully es uc-
u e deb , he go e nmen mus ake in o accoun measu es equi ing s ingen ules, inancial open-
ness, and c oss-bo de collabo a ion. This esea ch o e s c ucial in o ma ion ha policymake s may use
o de elop sensible deb managemen plans and s op p o i -shi ing ac ics ha ha m he na ion’s
economy.
I is impo an o acknowledge he limi a ions o he s udy. Fi s , his s udy ocusing on p o i shi ing,
deb manipula ion, and ans e p icing o minimize ax liabili ies and inc ease p o i s. Second, his
esea ch only explains s a egic choices ha limi he impo ance o ha ing a di ec impac on he le el
o wel a e o a na ion. Fu he in es iga ion is ecommended o examine he e icacy o di e en policy
ools ha na ions employ o deal wi h luc ua ions in deb and p o i . Analyzing case s udies om
di e se na ions wi h a ying economic cha ac e is ics can help esea ch each a wide audience. The
scope could also be expanded o conside he eal-wo ld e ec s o in e na ional ax laws and iscal pol-
icy on deb and p o i ans e s and how hey a ec in es men , economic expansion, and income
inequali y. In o ma ion echnology’s unc ion and cu en ad ancemen s in moni o ing and en o cing ax
laws could also be examined in u u e esea ch. The e o e, g ea e esea ch in his a ea can o e a mo e
comp ehensi e and con ex ualized unde s anding o he bes app oaches o deal wi h issues abou
p o i and deb shi s on a na ional and global scale.
Au ho s a emen s
All au ho s o his manusc ip ha e me all ou c i e ia o au ho ship in he ICMJE Recommenda ions.
Au ho con ibu ions
The au ho ac i ely pa icipa es in he concep ualiza ion and design, analysis and in e p e a ion o da a, he d a ing
o he pape , he c i ical e ision o i s in ellec ual con en , and he inal app o al o he e sion o be published.
The au ho accep s esponsibili y o all pa s o he wo k.
Disclosu e s a emen
The au ho decla es ha he e is no inancial, p o essional, o pe sonal compe i ion in e es wi h o he pa ies.
Abou he au ho
Nu li a Sukma Al andia, Mas e o Accoun ing a B awijaya Uni e si y. He esea ch in e es s a e accoun ing, in e na-
ional ax, educa ion, and inance.
Funding
The au ho epo s ha he esul s o his esea ch a e manda o y ou pu s om non-compe i i e esea ch ac i i ies
o ganized by he Resea ch and Communi y Se ice Agency, Facul y o Adminis a i e Sciences, B awijaya Uni e si y.
ORCID
Nu li a Sukma Al andia h p://o cid.o g/0000-0003-2878-6298
Da a a ailabili y s a emen
All da a unde lying he esul s a e a ailable as pa o he a icle and no addi ional sou ce da a equi ed.
16 N.S. AlFANDIA
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