An empirical analysis of the changes in tax audit focus on international transfer pricing
Document Type
Journal article
Source Publication
Journal of International Accounting, Auditing and Taxation
Publication Date
1-1-2015
Volume
24
First Page
94
Last Page
104
Publisher
Pergamon Press
Keywords
Foreign investment enterprises; International transfer pricing; Tax audit focus
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.
DOI
10.1016/j.intaccaudtax.2014.12.001
Print ISSN
10619518
E-ISSN
18791603
Publisher Statement
Copyright © 2015 Elsevier Inc. All rights reserved.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Chan, K. H., Lo, A. W. Y., & Mo, P. L. L. (2015). An empirical analysis of the changes in tax audit focus on international transfer pricing. Journal of International Accounting, Auditing and Taxation, 24, 94-104. doi: 10.1016/j.intaccaudtax.2014.12.001