Title

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

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

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Full-text Version

Publisher’s Version

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