Exploring Income Shifting Strategy within Mining Firms

Vitriany, Uty Wury Ayu; Fidiana, Fidiana; Handayani, Nur

Revue d'économie et de statistique appliquée
Volume 22, Numéro 2, Pages 08-23
2025-12-09

Exploring Income Shifting Strategy Within Mining Firms

Authors : Vitriany Uty Wury Ayu . Fidiana Fidiana . Handayani Nur .

Abstract

This study investigates how mining multinational enterprises (MNEs) operating in Indonesia engage in base erosion and profit shifting (BEPS) practices that ultimately reduce their effective tax rates. Using a qualitative research design, we draw on insights from two anonymous key informants—a head of accounting and tax as well as a head of shipping—and apply matching-principles analysis to identify thematic patterns. The findings reveal that MNEs strategically shift income across jurisdictions by positioning group entities in low-tax countries, enabling firms with low-tax ultimate owners to exhibit the strongest profit responses to tax incentives, thereby lowering the group’s overall effective tax burden. These practices include setting intra-group prices at unreasonably low levels to move profits abroad, subsequently channeling funds back to Indonesian entities through intra-group loans. To avoid triggering thin capitalization scrutiny, MNEs tightly manage their debt-to-equity ratios to remain within the 2:1 limit, ensuring that interest payments to foreign affiliates remain deductible. These insights underscore the need for tax authorities to strengthen risk assessment of group structures and transfer pricing arrangements. The study contributes to the literature by demonstrating how transfer pricing mechanisms—anchored in arm’s-length principles embedded in double tax treaties—are operationalized by MNEs to navigate multiple tax jurisdictions while shaping their taxable income