| Summary: | 碩士 === 國立臺灣大學 === 國際企業學研究所 === 103 === This paper aims to examine the income shifting activities Taiwanese corporations conduct within jurisdictions to reduce tax liabilities. Taiwanese business groups provide a good example to explore within jurisdiction the tax motivated income shifting intention because under the uncharacteristic governance structure of business group firms, each firm, under the controlling owner of the group, may develop a coordinated strategy with the other affiliates to reduce overall tax burdens. However, controlling shareholders may be willing to forgo tax benefits to avoid the non-tax cost of a potential price discount, either to maintain the controlling power or to reduce the transaction costs.
To encourage economic development in specific regions and industries, quite a few governments offer a series of corporate income tax incentives (tax exemptions, reduced tax rates, tax holidays, and tax refunds). In Taiwan, parent and subsidiary companies are consolidated for financial reporting, but not for tax return purposes. That is unlike U.S. firms, Taiwan companies are not taxed on a consolidated basis. Therefore, shifting income from affiliates with high tax rates to those with low tax rates within a domestic business group can substantially reduce firms’ tax burdens and increase reported after-tax book income.
However several tax-minimizing strategies result in lowering reported book income, which may lead to increased non-tax costs arising from capital market pressure or agency problems.
For a large proportion of Taiwanese companies subject to external audits, I conduct univariate and multivariate regression analyses on income shifting behavior of business group firms compared with non-business group firms. The result supports the notion that business group firms conduct tax-motivated income shifting activities. The scale of income shifting is found to depend on its effect on nontax cost factors such as earnings and cash flow rights of the controlling shareholders. The ways of income shifting occurs mainly through manipulating operating rather than non-operating income, suggesting that transfer pricing could be a likely channel. This study provides insights on within-jurisdictional income shifting activities.
|
|---|
