SUSTAINABLE FAR FRAMEWORK: EMBEDDING ESG INTO TRANSFER PRICING GOVERNANCE FOR SUPPLY CHAIN RESILIENCE

Open Access
Article Info
Submitted: 2026-07-05
Published: 2026-07-15
Section: Articles
Language: EN
In Vol 1, No 1 (2026): 1st ICoBLAST

Global disruptions ranging from pandemics and geopolitical conflicts to climate-related crises have exposed structural vulnerabilities in global value chains and challenged the adequacy of conventional fiscal governance frameworks. In parallel, international tax reforms increasingly emphasize transparency, economic substance, and alignment between profit allocation and real value creation. However, traditional Functions-Assets-Risks (FAR) analysis within transfer pricing governance remains predominantly financial and transactional, providing limited recognition of sustainability performance and organizational resilience as substantive drivers of corporate value. This study reconceptualizes the traditional FAR framework by integrating Environmental, Social, and Governance (ESG) dimensions and Supply Chain Resilience (SCR) into the assessment of economic substance in transfer pricing governance. Adopting a qualitative conceptual approach through an Integrative Literature Review (ILR), the study synthesizes insights from Stakeholder Theory, Resource-Based View (RBV), and Dynamic Capabilities Theory to develop a multidimensional governance framework linking sustainability, resilience, and fiscal transparency. The study argues that sustainable functions (e.g., green logistics and ethical sourcing), ESG-related assets (e.g., carbon credits, renewable technologies, and social capital), and resilience-oriented risks (e.g., climate disruption and supply-chain instability) constitute essential components of sustainable substance within multinational enterprises (MNEs). Accordingly, the framework extends the OECD principle that “profits follow functions, assets, and risks” toward a broader governance logic in which profits increasingly reflect sustainability performance, adaptive capability, and institutional legitimacy. The proposed Sustainable FAR Framework contributes to the emerging discourse on Sustainable Tax Governance by offering policymakers and tax authorities a conceptual tool for integrating ESG and resilience indicators into risk-based transfer pricing oversight. The framework is particularly relevant for emerging economies, including Indonesia, where sustainability disclosure, carbon governance, and substance-based tax compliance are becoming increasingly interconnected.

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  1. Imran Rosyadi  Vokasi Perpajakan, Universitas Indonesia, Indonesia