Detection of Income Shifting Strategy and Determining Factors

: The Indonesian government reduces the corporate income tax rate to 22%, effective in 2020 and 2021, and will decrease again to 20%, effective starting in 2022. This research aims to investigate the strategies implemented by public companies in dealing with the corporate income tax rate reduction and the determining factors. By using a sample of 343 Indonesian public companies, this study finds that the mean value of discretionary book tax differences in 2019 is positive and is significantly different from zero. These results prove that Indonesian public companies are implementing an income shifting strategy one year before the lower tax rates are imposed. Furthermore, this study also investigated determinant factors that influence on income shifting. Income shifting strategy is influenced by the company characteristic and the corporate governance mechanism. Using the multiple regression method this research found that interest expense can produce tax saving so the use of the higher debt in the structure of the company financing can limit income shifting. In terms of the role of the external auditor, this study has not been able to prove the role of the external auditor as an effective monitoring mechanism against opportunistic management to do income shifting