IDEAS home Printed from https://ideas.repec.org/a/eee/jiaata/v24y2015icp94-104.html
   My bibliography  Save this article

An empirical analysis of the changes in tax audit focus on international transfer pricing

Author

Listed:
  • Chan, K. Hung
  • Lo, Agnes W.Y.
  • Mo, Phyllis L.L.

Abstract

International transfer pricing is an important financial management mechanism allowing multinational corporations to maneuver funds internationally. The manipulation of reported profits often triggers investigations from tax authorities. With the increased globalization of economies and changes in the business environment, tax authorities in many countries have refined their enforcement of transfer pricing regulations. In this study, we use archival data in China to examine whether tax authorities have changed their focus on auditing multinational companies over the past two decades. Our results indicate that Chinese tax authorities have significantly reduced their focus on auditing wholly foreign-owned enterprises, and placed more focus on Western multinationals and larger companies in the late 2000s as compared with tax audits in the early 1990s. Tax audits in the late 2000s also focus on export-oriented and loss firms. The findings show that changes in the business environment, regulations and the audit expertise of tax officials can lead to a shift in the focus of tax audits of international transfer pricing.

Suggested Citation

  • Chan, K. Hung & Lo, Agnes W.Y. & Mo, Phyllis L.L., 2015. "An empirical analysis of the changes in tax audit focus on international transfer pricing," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 24(C), pages 94-104.
    • Handle: RePEc:eee:jiaata:v:24:y:2015:i:c:p:94-104
    DOI: 10.1016/j.intaccaudtax.2014.12.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1061951815000026
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.intaccaudtax.2014.12.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. K. Hung, Lynne Chan Chow, 1997. "International Transfer Pricing for Business Operations in China: Inducements, Regulation and Practice," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(9‐10), pages 1269-1289, October.
    2. Chan, K. Hung & Chow, Lynne, 1997. "An empirical study of tax audits in China on international transfer pricing," Journal of Accounting and Economics, Elsevier, vol. 23(1), pages 83-112, May.
    3. Scholes, Ms & Wilson, Gp & Wolfson, Ma, 1992. "Firms Responses To Anticipated Reductions In Tax Rates - The Tax-Reform Act Of 1986," Journal of Accounting Research, Wiley Blackwell, vol. 30, pages 161-185.
    4. K. Hung Chan, 1997. "International Transfer Pricing for Business Operations in China: Inducements, Regulation and Practice," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(9&10), pages 1269-1289.
    5. Chan, K. Hung & Lo, Agnes W. Y., 2004. "The influence of management perception of environmental variables on the choice of international transfer-pricing methods," The International Journal of Accounting, Elsevier, vol. 39(1), pages 93-110.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Victoria I. Tarasova & Yuri V. Mezdrykov & Svetlana B. Efimova & Elena S. Fedotova & Dmitry A. Dudenkov & Regina V. Skachkova, 2018. "Methodological provision for the assessment of audit risk during the audit of tax reporting," Post-Print hal-02166957, HAL.
    2. Victoria I. Tarasova & Yuri V. Mezdrykov & Svetlana B. Efimova & Elena S. Fedotova & Dmitry A. Dudenkov & Regina V. Skachkova, 2018. "Methodological provision for the assessment of audit risk during the audit of tax reporting," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 6(1), pages 371-397, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chan, K. Hung & Lo, Agnes W. Y., 2004. "The influence of management perception of environmental variables on the choice of international transfer-pricing methods," The International Journal of Accounting, Elsevier, vol. 39(1), pages 93-110.
    2. Margaret Lamb & Andrew Lymer, 1999. "Taxation research in an accounting context: future prospects and interdisciplinary perspectives," European Accounting Review, Taylor & Francis Journals, vol. 8(4), pages 749-776.
    3. Swati Verma, . "Intrafirm trade and tax haven linkages: Evidence from Indian manufacturing," UNCTAD Transnational Corporations Journal, United Nations Conference on Trade and Development.
    4. Céline Azemar & Grégory Corcos & Andrew Delios, 2006. "Taxation and the international strategy of Japanese multinational enterprises," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00590421, HAL.
    5. Iatridis, George & Valahi, Styliani, 2010. "Voluntary IAS 1 accounting disclosures prior to official IAS adoption: An empirical investigation of UK firms," Research in International Business and Finance, Elsevier, vol. 24(1), pages 1-14, January.
    6. Preetika Joshi & Edmund Outslay & Anh Persson & Terry Shevlin & Aruhn Venkat, 2020. "Does Public Country‐by‐Country Reporting Deter Tax Avoidance and Income Shifting? Evidence from the European Banking Industry," Contemporary Accounting Research, John Wiley & Sons, vol. 37(4), pages 2357-2397, December.
    7. Azemar, Celine, 2008. "International Corporate Taxation and U.S. Multinationals Behavior: an Integrated Approach," SIRE Discussion Papers 2008-40, Scottish Institute for Research in Economics (SIRE).
    8. Céline Azemar & Grégory Corcos & Andrew Delios, 2006. "Taxation and the international strategy of Japanese multinational enterprises," PSE Working Papers halshs-00590421, HAL.
    9. Mai, Nhat Chi, 2012. "Market timing, taxes and capital structure: evidence from Vietnam," OSF Preprints t3mvs, Center for Open Science.
    10. Renato Matta, 2019. "Product costing in the strategic formation of a supply chain," Annals of Operations Research, Springer, vol. 272(1), pages 389-427, January.
    11. Arie Pratama, 2020. "Corporate governance, foreign operations and transfer pricing practice: the case of Indonesian manufacturing companies," International Journal of Business and Globalisation, Inderscience Enterprises Ltd, vol. 24(2), pages 185-200.
    12. Hamamura, Jumpei, 2019. "Unobservable transfer price exceeds marginal cost when the manager is evaluated using a balanced scorecard," Advances in accounting, Elsevier, vol. 44(C), pages 22-28.
    13. Hervé Stolowy & Gaetan Breton, 2000. "A Framework for the Classification of Accounts Manipulations," Working Papers hal-00597249, HAL.
    14. Tao Chen & Youchao Tan & Jinghua Wang & Cheng (Colin) Zeng, 2022. "The Unintended Consequence of Land Finance: Evidence from Corporate Tax Avoidance," Management Science, INFORMS, vol. 68(11), pages 8319-8342, November.
    15. Rebecca Reineke & Katrin Weiskirchner-Merten & Stefan Wielenberg, 2023. "When do firms use one set of books in an international tax compliance game?," Review of Accounting Studies, Springer, vol. 28(3), pages 1856-1885, September.
    16. K. V. Mukundhan & Sreevas Sahasranamam & James J. Cordeiro, 2019. "Corporate investments in tax havens: evidence from India," Asian Business & Management, Palgrave Macmillan, vol. 18(5), pages 360-388, November.
    17. Patric H. Hendershott & Kyung-Hwan Kim & Jin Man Lee & James D. Shilling, 2021. "Announcement Effects: Taxation of Housing Capital Gains in Seoul," The Journal of Real Estate Finance and Economics, Springer, vol. 62(3), pages 319-341, April.
    18. Daniel R. Feenberg & James M. Poterba, 1993. "Income Inequality and the Incomes of Very High-Income Taxpayers: Evidence from Tax Returns," NBER Chapters, in: Tax Policy and the Economy, Volume 7, pages 145-177, National Bureau of Economic Research, Inc.
    19. Mella, Javier, 2024. "Corporate taxes, partisan politics, and stock returns," The North American Journal of Economics and Finance, Elsevier, vol. 72(C).
    20. Alexander Ljungqvist & Liandong Zhang & Luo Zuo, 2017. "Sharing Risk with the Government: How Taxes Affect Corporate Risk Taking," Journal of Accounting Research, Wiley Blackwell, vol. 55(3), pages 669-707, June.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jiaata:v:24:y:2015:i:c:p:94-104. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/journal-of-international-accounting-auditing-and-taxation .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.