Domestic Income Shifting by Chinese Listed Firms
Terry J. Shevlin
University of California-Irvine
Tanya Y. H. Tang
The University of British Columbia - Faculty of Management
Ryan J. Wilson
University of Oregon - Lundquist College of Business
April 12, 2011
The Journal of the American Taxation Association, Forthcoming
To encourage economic development in specific regions and industries, the Chinese Central and local governments offer a series of corporate income tax incentives (tax exemptions, reduced tax rates, tax holidays and tax refunds). In China, parent and subsidiary companies are consolidated for financial reporting, but not tax, purposes. We take advantage of a unique disclosure in the tax footnotes of Chinese listed firms to examine income shifting among consolidated group members in response to these incentives. We find that intangible intensive groups (“firms”) and firms concerned with meeting minimum earnings thresholds to issue equity shift greater amounts of income. We find no evidence that high concentrations of either Central or local government ownership affect the level of income shifting.
Keywords: Income Shifting, Tax Avoidance, Chinese Listed Firms, Intangibles, Equity Issuance
JEL Classification: H25, H26
Date posted: April 14, 2011
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