Base erosion and profit shifting in Indonesia

Multinational enterprises are alleged to shift profits from both developed and developing countries. However, empirical studies that use a developing country's tax return data are almost none. This article fills the gap by investigating whether foreign owned Indonesian companies (FOICs) shift profits out of Indonesia by examining the impact of difference in statutory tax rates (STR) between Indonesia and the source country of investment on taxable income reported by FOICs in their Indonesian tax returns. The results show that the lower the parent's STR, the lower is the taxable income reported by FOICs, indicating that FOICs shift profits to parents located in low tax countries.