Transfer Pricing as a Moderator: Impact on Effective Tax Rate and ROA in Indonesia's Manufacturing Sector (2021-2025)

Abstract

This study investigates the direct effect of Effective Tax Rate (ETR) on Return on Assets (ROA) and evaluates whether Transfer Pricing moderates this relationship among manufacturing companies listed on the Indonesia Stock Exchange (IDX) during the 2021–2025 period. The research adopts a quantitative approach using secondary panel data from financial statements of manufacturing firms listed on the IDX. The study employs Moderated Regression Analysis (MRA) and Conditional Process Analysis (Simple Slope Analysis) to test the hypothesized direct and moderating relationships across low, medium, and high levels of transfer pricing. The empirical results reveal that Effective Tax Rate exerts a statistically significant negative direct influence on ROA (coeff = -0.5747, p = 0.0003), whereas Transfer Pricing independently demonstrates a direct positive relationship with ROA (coeff = 0.0672, p = 0.0002). However, the interaction term between ETR and Transfer Pricing yields a statistically significant negative moderating effect (coeff = -1.9954, p = 0.0008), contributing an additional 20.28% of explanatory power to the model (ΔR² = 0.2028). Conditional process analysis further shows that while ETR does not significantly impact ROA at low transfer pricing levels, higher levels of transfer pricing significantly intensify the negative impact of tax burdens on profitability. Thus, Transfer Pricing acts as an enhancing moderator that exacerbates the adverse performance effects of higher tax rates. For corporate decision-makers, the findings indicate that utilizing extensive transfer pricing under high tax rate environments creates operational and compliance friction that ultimately harms profitability. For tax authorities and regulators, the study highlights key audit risk indicators, showing that firms combining high transfer pricing exposure with elevated tax rates display heightened operational vulnerability. This study offers novel empirical insights by positioning Transfer Pricing as an enhancing moderator within the Indonesian manufacturing sector during a post-pandemic economic period (2021–2025), clarifying the boundary conditions under which tax rates impact corporate financial performance.