Transfer pricing is often considered as a tax avoidance practice, such point of view might be both true and false. Transfer pricing is one of many tax planning steps which might lead into tax evasion if it is done incorrectly.

The literature on transfer pricing develops in line with global economic conditions. The major difference from the development of transfer pricing literature lies in the motivation for the use of transfer pricing schemes for tax avoidance. However, some literatures actually show the big role of transfer pricing for tax compliance which has a major impact on the regional economy.

Prem Sikka and Hugh Willmott (2010) argue in their journal entitled The Dark Side of Transfer Pricing: Its Role in Tax Avoidance and Wealth Relativeness that transfer pricing is not only an accounting technique but also as a source and allocation for tax avoidance. This study guest that transfer pricing is the allocation of income, welfare, quality and life risks.

A case in point is that the United States (US) tax authorities recruited 1,200 and 800 additional staffs, in 2009 and 2010, respectively, to conduct audits and research on transfer pricing practices. Unfortunately, many developing countries lack the manpower resources to carry out examinations and research on transfer pricing practices. As a result, developing countries are not in a position to observe the terms of transfer pricing.

The above research shows that the traditional representation of 'neutral' (OECD, 1979) or interpreted as "not having a direct effect on all company profits" is a problem because in practice it can allow firms to report higher earnings. Motivated companies attract investors by reporting higher returns. The methods companies use can unbalance the stock market and increase executive remuneration. In fact, less tax is paid due to transfer pricing, which reduces the state's ability to provide for public needs.

Companies that are on the stock market are likely to object because their related parties in some states will impose higher tax rates on salaries, consumption, savings, and fixed capital. Its implementation can foster resentment and undermine the social legitimacy of the state. Therefore, transfer pricing has become a long debate in the fields of state legitimacy, social responsibility, and accountability.

Manipulated transfer pricing can affect a country's economy in various aspects. Decrease in state revenue can occur due to reduced tax revenue. This condition has an impact on public policy. Public policies will maneuver because of limitations in budgeting in important sectors such as infrastructure, health and education. Therefore, the state will find it difficult to improve the welfare of its citizens. Transfer pricing is linked to a norm known as the Arm's Length Principle (ALP) to reduce its impact on tax avoidance aggressiveness. This norm is also called the principle of fairness and business practice which regulates that conditions in transactions between related parties are the same or comparable to conditions in transactions between independent parties.

ALP implies that transactions between related parties are considered reasonable if each transaction with related party is carried out in a manner comparable to transactions made with independent parties, thus independent party transaction is a fair benchmarking of related party transaction that occur. Before benchmarking is carried out, it is necessary to understand that independent parties as comparison do not make transactions with related parties.

Shantanu (2012) concludes in his research entitled International Transfer Pricing: A Review of Non-Tax Outlook which states that ALP plays a big role. ALP is needed in tax compliance management as a general perspective. They are divided into various types which include strategic requirements, risk management, investment management, and control management in the aspects of pricing by companies. Tax management controls are very important in achieving company goals. One of them is the implementation of ALP because strong certainty is needed regarding the method of taxation of overseas related party.

Thus, it takes the utmost efforts of multinational companies to set fair transfer pricing when making transaction with related parties. In its implementation, transfer pricing must maximize ALP to determine the contribution and roles of each party in the business group. If in fact there are irregularities in the provision of compensation within the business group, this can be categorized as an attempt to manipulate transfer pricing.

In conclusion, every motivation and strategy implemented in a transfer pricing scheme should aim to provide a fair price and avoid aggressive manipulation. Irregularities in taxation can actually have a negative impact on a country's economy. Management has an obligation to follow tax regulations honestly and be able to establish pricing policies fairly. This is because companies have a role to play in improving the economy of the countries that are their base of business.