Profit Shifting And Tax Avoidance Of Multinational Corporations:

With the development of economic globalization,more and more multinational corporations(MNCs)try to avoid tax by profit arrangement.Although the trend of international trade protectionism has risen since the Trump administration came to power,it has not changed the general trend of economic globalization.Therefore,it is still of great practical significance to pay attention to profit shifting and tax avoidance of multinational corporations.Existing literatures on profit shifting and tax avoidance of multinational corporations explains the ways,motivations and economic impacts of profit shifting,and has been confirmed in the empirical study using developed countries' data.However,the fact that the international economic center of gravity is shifting makes it necessary for us to focus our research on the Asia-Pacific region.This is also conducive to providing valuable research reference for the "two-way" integration of Chinese economy into the world.Differences between tax systems provide an objective realistic basis for enterprises to avoid tax.Therefore,when many literatures study tax incentives,they will observe enterprises' profit shifting behavior by investigating the cost/benefit of tax planning.However,from the reality of Chinese tax system,MNCs not only need to pay planning costs,but also may face administrative penalties.Therefore,this paper includes both of these in the theoretical analysis.At the same time,we further consider the role of industry heterogeneity in the way and difficulty of corporations' profit shifting.On the basis of literature review and theoretical analysis,we establish a fixed effect regression model,and use Oriana Asia-Pacific Enterprise Database to verify the research hypothesis.The results of theoretical and empirical studies show that:(a)Tax differential incentives have a significant negative correlation with the reported profits of multinational subsidiaries,and the increase of tax differential incentives leads to the tendency of underreporting profits.(b)The profit shifting behavior of subsidiaries in low-tax countries is different from that in high-tax countries.The subsidiaries in low-tax countries tend to report higher profits,but the subsidiaries in high-tax countries do not seem to be affected by tax incentives.(c)Different factor-intensive enterprises have different profit shifting behavior.Only labor-intensive enterprises in low-tax countries have significant tendency of profit shifting,while capital-intensive enterprises and labor-intensive enterprises in high-tax countries have not been found to shift profit for the purpose of tax avoidance.