The Role of Corporate Governance Mechanisms on Earnings Management for Tax Avoidance in Response to the Corporate Tax Rate Changes

Indonesia is a country that has not been ratified tax avoidance act which resulted in companies taking advantage of this situation to do tax avoidance. The aim of this research was to analyze whether companies in Indonesia apply tax avoidance using earnings management (accrual and real) in response to the changes in corporate tax rates. This study also investigated the role of corporate governance mechanism that related to the owner of the company; the board of directors, independent directors, and institutional ownership, to earnings management conducted by companies for the purpose of doing tax avoidance. The samples were companies suspected of doing tax avoidance during the period of rates change taken place in 2009 and 2010. The result of the research proved that (1) the companies apply earnings management (accrual and real) to carry out tax avoidance, (2) the owner of the companies support the tax avoidance practices conducted by the companies indicated by, among the three corporate governance mechanisms used, no negative moderation to the relationship between earnings management (accrual and real) and tax avoidance conducted by the company exists.