Harmonization of Transfer Pricing Tax Provisions in the Enforcement of Double Taxation Avoidance Agreements (DTAs) in Response to Base Erosion and Profit Shifting (BEPS) in Accordance with the Principles of Pancasila

Abstract

Economic globalization has increased the intensity of cross-border transactions conducted by multinational corporations, thereby amplifying the potential for transfer pricing practices exploited to engage in Base Erosion and Profit Shifting (BEPS). These practices erode national tax bases, give rise to cross-jurisdictional tax disputes, and create legal uncertainty in the application of Double Taxation Avoidance Agreements (DTAs). The issue is further complicated by the ongoing disharmony between national tax laws and international tax norms, particularly regarding the interpretation of the arm’s-length principle, beneficial ownership, and permanent establishment. This study aims to analyze the harmonization of tax provisions regarding transfer pricing and DTAs in law enforcement, identify the causes of disharmony in the resolution of tax disputes, and formulate a legal harmonization model capable of providing legal certainty and fiscal justice in addressing BEPS. This study employs a normative legal research method using legislative, conceptual, historical, comparative, and case-based approaches. A qualitative analysis was conducted on primary, secondary, and tertiary legal materials, including legislation, tax treaties, the OECD Transfer Pricing Guidelines, the Multilateral Instrument (MLI), Tax Court decisions, as well as legal doctrines and literature.  The results of the study indicate that the disharmony between national and international legal norms leads to differences in interpretation, inconsistencies in the application of the law, and disparities in rulings in transfer pricing disputes. This study produced a legal harmonization model that integrates the strengthening of regulations, tax administration, tax audits, dispute resolution through Advance Pricing Agreements (APAs) and Mutual Agreement Procedures (MAPs), the implementation of the MLI, and the institutional strengthening of the Tax Court. The novelty of this study lies in the formulation of an integrated legal harmonization model that combines normative, administrative, institutional, and judicial aspects as the foundation for strengthening legal certainty, fiscal justice, and the effectiveness of Indonesia’s tax law enforcement in addressing BEPS practices.