Why Large Companies Can Pay Low Taxes but Still Be “Safe”
Many people see it as ironic that large companies generate substantial profits yet appear to contribute low taxes and remain seemingly “safe” from a regulatory and oversight perspective. It turns out this phenomenon isn’t purely due to “cheating,” but rather a combination of legality, strategy, regulations, and exemptions within the tax system. Here are some of the key factors.
Separation between tax avoidance and tax evasion
It is important to understand two terms that are often confused: tax evasion and tax avoidance.
- Tax evasion is an illegal act: hiding income, falsifying documents, or under-reporting.
- Tax avoidance is a legal practice: exploiting interpretations or loopholes in tax laws to reduce the tax burden, while remaining within the legal framework.
Large corporations that “appear to pay little tax” often fall into the realm of avoidance not evasion, which is formally legal, although it may be morally questionable.
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International strategy and transfer pricing
For multinational corporations, the group structure consists of numerous entities in various countries. By utilizing strategies such as transfer pricing (determining the price of transactions between entities internally) or shifting profits to low-tax jurisdictions, the tax burden in high-tax countries can be reduced.
Although rules such as the arm’s length principle have been adopted, their implementation and oversight are much more complex, particularly in developing countries. The result: despite large profits, companies can record lower taxable profits in their domestic jurisdictions, making the tax payable appear low.
Fiscal incentives and government policies
Many countries, including Indonesia, offer tax incentives to attract investment, support strategic sectors, or encourage exports and new technologies. These incentives can take the form of tax holidays, tariff reductions, tax exemptions, or other relief.
Because these incentives are legal and part of government policy, large, eligible companies can legally take advantage of them. For example, in Indonesia, the tax-to-GDP ratio is relatively low, at around 12% in 2023, according to a report by the Organisation for Economic Co- ‑operation and Development (OECD).
Complex regulatory environment and international agreements
In the era of globalization, cross-border tax regulations have become extremely complex: double taxation treaties, tax havens, the OECD’s BEPS (Base Erosion & Profit Shifting) regulations, and the introduction of a global minimum tax.
Due to this complexity, large companies with adequate advocacy resources and tax advisors can safely navigate these regulations provided they comply with the required formalities, documentation, and audit trails.
Documentation, compliance and reputation
“Safe” here doesn’t mean tax-free, but rather: the company has undertaken consultations, has proper documentation (such as transfer pricing documentation), reports within a self-assessment framework, and maintains legally sound practices. Therefore, when a large company “pays little tax,” it doesn’t necessarily mean it’s illegal; it could simply mean they’ve legally structured their operations for tax efficiency while still meeting their obligations.
Meanwhile, the Indonesian government continues to strengthen oversight and modernize the tax administration system to narrow the revenue gap.
Risks to Understand
While many strategies fall within the legal realm, there are still risks to be aware of:
- International regulatory changes may make old strategies irrelevant (e.g. global minimum tax, BEPS regulations, greater transparency)
- If documentation is incomplete or an audit finds that the structure is unreasonable, fines, reputational damage, and even litigation can result.
- For domestic companies, if they lose out in competition because big players use tax efficiency strategies, unfairness and higher regulatory pressure could emerge.
Practical Solutions for Companies and Consultants
For those of you who are business owners, CFOs, or financial consultants, here are some practical steps you can take:
- Internal audit of tax compliance : Review your business entity structure, inter-entity transactions, transfer pricing, incentives used to ensure documentation is adequate and in accordance with principles.
- Take advantage of official incentives strategically : Identify business or investment sectors that receive tax breaks, and structure your activities to qualify with professional tax advice, of course.
- Update global regulations and trends : Because international tax regulations are always changing, especially regarding minimum tax and BEPS, keep an eye on changes to keep your strategy valid and relevant.
- Improve transparency & reputation : Good large companies not only focus on efficiency, but also maintain good tax governance, so that their reputation and stakeholder trust are maintained.
The Role of Great Performance Consulting
Amidst these needs, Great Performance Consulting is here to help large and medium-sized companies in:
- Prepare and review transfer pricing and tax compliance documentation (masterfile, local file)
- Conducting a tax health check: identifying risk areas, optimizing tax structures, and reporting audit readiness.
- Designing a strategy for utilizing legitimate fiscal incentives, so that corporate tax costs can be reduced while still complying with regulations.
- Provide tax governance training and internal outreach so that finance and management teams understand tax risks and mechanisms comprehensively.
With a “compliance-first” approach, we support your company not only in pursuing tax efficiency, but also in ensuring that the structure is robust, the documentation is complete, and the audit risk is minimized.
Conclusion
So, why can large companies pay low taxes while remaining “safe”? Because they utilize legal strategies (tax avoidance), international structures, government incentives, and adequate documentation while remaining compliant with the legal framework. However, this doesn’t mean they’re risk-free: regulatory changes, increased scrutiny, and growing reputational demands make compliance and tax efficiency two sides of the same coin. For companies seeking legal and structured tax efficiency and ensuring a secure process, Great Performance Consulting is ready to help you execute it professionally and accurately.