Study On The Impact Of Unilateral Anti-Tax Avoidance Policies On Profit Shifting By Domestic Multinational Corporations

How to improve China’s international tax governance ability without compromising the overseas investment and business activity of enterprises is one of the important issues for the healthy and stable growth of China’s economy in the new era.China has been actively participating in international tax cooperation,maintaining international tax fairness,and continuously improving its unilateral anti-tax avoidance policies.However,compared with the practical experience accumulated in the industry for many years,the academic community in China has never evaluated the policy effects of China’s unilateral anti-tax avoidance policies.Is China’s unilateral anti-tax avoidance policy effective? If effective,what is its mechanism? If the effectiveness is insufficient,where is the problem? This series of questions needs to be answered urgently.This article uses the "General Administration Measures for Anti-Tax Avoidance(Trial)" for the first time as a policy impact of tightening unilateral anti-tax avoidance policies,introducing overseas tax avoidance regulatory measures into the traditional "A-S Tax Evasion Model",using a mathematical model to explain the theoretical logic of how the tightening of unilateral anti-tax avoidance policies can curb the profit transfer behavior of domestic multinational corporations,and proposing four hypotheses based on this.Then,based on panel data of listed companies from 2011 to 2019,this article empirically tests these hypotheses by constructing a DID model.The main research conclusions of this article are as follows.(1)The tightening of unilateral anti-tax avoidance policies can to a certain extent suppress the profit transfer behavior of domestic multinational corporations by reducing the scale of overseas related party transactions.(2)The tightening of unilateral anti-tax avoidance policies makes domestic multinational corporations use more domestic related party transactions to transfer profits,instead of overseas related party transactions.(3)When other conditions are unchanged,the lower the tax rate of the related party in the transaction,the stronger the effectiveness of unilateral anti-tax avoidance policies.(4)When other conditions are unchanged,the stronger the tax collection and management capacity of the parent company’s location,the stronger the effectiveness of unilateral anti-tax avoidance policies.Through a systematic evaluation of unilateral anti-tax avoidance policies,this article found that there are four major issues with China’s current unilateral anti-tax avoidance policies.(1)Current unilateral anti-tax avoidance policies are not enough to completely curb profit transfer behavior,and the combined efforts of unilateral and multilateral policies need to be strengthened.(2)Due to the existence of "domestic tax havens",as unilateral anti-tax avoidance policies tighten,domestic parent companies begin to transfer profits to domestic low-tax related parties.(3)China’s international anti-tax avoidance focus is insufficient for countries or regions where the statutory tax rate is lower than that of China and is not considered a tax haven.(4)Previous international anti-tax avoidance efforts have focused more on traditional related party transactions,and there is still room for improvement in the international tax governance of the Golden Tax Project.This article proposes policy recommendations for each of these issues.This article has three main contributions.First,it provides a theoretical innovation by improving the traditional "A-S tax evasion model" and offering a theoretical basis for the impact of unilateral anti-tax avoidance policies on profit shifting by domestic multinational corporations.Second,it presents an innovative empirical testing strategy by using the "General Anti-Avoidance Rules(Trial Implementation)" as an exogenous policy shock and constructing a DID model to study China’s international anti-tax avoidance experience for the first time.Third,it offers a data innovation by using overseas related party transaction data and parent company financial data,which better reflect tax avoidance information,to evaluate the policy effects of anti-tax avoidance measures.