Strategic Choice,the Establishment Of Subsidiaries And Tax Planning

The corporate strategy is long-term,planned and global,leading various aspects of management,investment and financial activities in a company.The type of a company' strategy determines its attitude toward risk and uncertainty and affects the behavior of tax planning.Tax planning aims to save expenses and seek more economic benefits through pre-planning or arrangement of operations,investment,and financial management activities within the scope permitted by law.With the development of market economy,the competition pressure faced by most enterprises is also increasing.Therefore,as the main means of saving corporate tax costs,tax planning has been incredibly popular and applicable.Many international enterprises even set up subsidiaries in tax havens for tax planning purposes and transfer business or income to the subsidiaries with relatively low tax rates to avoid high taxes.From the aspect of domestic situation,will the group enterprises carry out tax planning through subsidiaries when they spread across different locations? And is there any difference in tax planning behavior among the enterprises with different strategic types?Based on Chinese A-share listed companies from 2008 to 2015,this paper divides companies with different strategic types into prospectors,analysts,and defenders,and analyzes the relations between and among corporate strategy,the establishment of subsidiaries and tax planning.The results show that:(1)Prospectors are more radical in tax planning than defenders;(2)Compared with defenders,prospectors have more subsidiaries,greater average distance with their subsidiaries,and larger amount of investment for subsidiaries located in another city;(3)The number of one company' subsidiaries,the geographical distance between the parent company and its subsidiaries,and the investment to its remote subsidiaries are all positively related to the aggressiveness of tax planning.That is,the larger the number of subsidiaries,the longer the geographical distance between the company and its subsidiaries,and the greater the investment to ecdemic subsidiaries,the more radical the tax planning behavior of group companies;(4)Compared with defenders,prospectors have a more significant positive relationship between the establishment of subsidiaries and radical tax planning,indicating that prospectors are more inclined to set up ecdemic subsidiaries for aggressive tax planning.In addition,this paper further studies the influence of regional tax incentives,political connections and agency costs on the relations between and among corporate strategy,the establishment of subsidiaries and tax planning.The results show that when the parent company does not enjoy preferential tax policy,it will be more inclined to save taxes through its subsidiary companies,and the incentive of prospectors carrying out tax planning through subsidiaries is stronger than defenders,which further indicates that companies may set up subsidiaries in different locations based on tax planning motives.As for political connections,state-owned companies are less motivated to set up subsidiaries for tax planning purpose than non-state-owned companies,and when one company is state-owned,its strategy has almost no influence on the relationship between the establishment of subsidiaries and tax planning.However,the results find that agency costs have no significant impact on the relationship among company strategy,establishment of subsidiaries,and tax planning,indicating that agency cost is not the main consideration when companies plan tax payment through subsidiaries.