Tax Evasion through Trade Intermediation : Evidence from Chinese Exporters

Many production firms use intermediary trading firms to export indirectly. This paper uses Chinese export data at the transaction level to investigate the tax evasion motive through indirect trade. The paper provides strong evidence that, under Chi...

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Bibliographic Details
Main Authors:	Liu, Xuepeng, Shi, Huimin, Ferrantino, Michael
Format:	Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2015
Subjects:	TAX INCENTIVES TARIFFS MICROSTRUCTURE SUBSTITUTION EQUIPMENT CHECKS ACCOUNTING PRODUCTION SALES INTEREST FINISHED PRODUCTS GUARANTEES EXPORT PERFORMANCE EXCHANGE LOCAL GOVERNMENTS LIQUIDITY TAX BENEFIT EXPORTS ELASTICITY EXPORTERS POLITICAL ECONOMY MARKET SIZE POSITIVE COEFFICIENT WELFARE HOMOGENEOUS GOODS INCENTIVES VARIABLES PRICING PRICE TAX INPUTS OWNERSHIP INCOME TAX PRODUCT QUALITY DUMPING DUMMY VARIABLE RESERVE INTERNATIONAL BANK DEVELOPING COUNTRY RETAIL BUDGET FOREIGN MARKETS SMALL BUSINESS INFLUENCE GLOBAL ECONOMY DEVELOPMENT ECONOMICS EXPORT GROWTH CONTRACT ENFORCEMENT RESERVE BANK FOREIGN MARKET REBATES REBATE CONTRACTS FIXED COSTS SURPLUS PRODUCTS TRADING GLOBALIZATION CRITERIA MARKETS WTO RETURN PUBLIC FINANCE INTERNATIONAL ECONOMICS PRODUCT ELASTICITY OF SUBSTITUTION INVENTORIES FINANCE TAXES EXPENDITURE DOUBLE TAXATION TRANSACTIONS EQUILIBRIUM ANALYSIS EQUITY TRANSACTION BUDGET CONSTRAINT FEDERAL RESERVE VALUE ADDED TAX RATE FEDERAL RESERVE BANK DOMESTIC MARKETS INTERNATIONAL TRADE OWNERSHIP STRUCTURE FINANCIAL CRISIS VALUE COMPETITIVENESS CREDIT MIDDLEMAN PRODUCT DIFFERENTIATION EXCHANGES EXPORT SHARES EXPECTED VALUE CONTRACT ECONOMIES OF SCOPE PRICE LEVEL CONSUMERS AGRICULTURE ISSUANCE PROPERTY TAX RATES AVERAGE PRICE TRADE REGIMES SHARES DEFAULT MARKET BENCHMARK TRADE LIBERALIZATION ECONOMICS EXPORTER COMPARATIVE ECONOMICS TAXATION TRADE GOODS THEORY GENERAL EQUILIBRIUM ANALYSIS GROWTH RATE BARTER INVESTMENT SHARE TARIFF PURCHASING MARKET MICROSTRUCTURE REVENUE CHECK WHOLESALERS INSTRUMENT PROFITS LIABILITIES TRADE REGIME EXPORT SHARE GUARANTEE PRICES ADVERSE SELECTION DEVELOPMENT POLICY MIDDLEMEN
Online Access:	http://documents.worldbank.org/curated/en/2015/04/24310280/tax-evasion-through-trade-intermediation-evidence-chinese-exporters http://hdl.handle.net/10986/21846

Description
Summary:	Many production firms use intermediary trading firms to export indirectly. This paper uses Chinese export data at the transaction level to investigate the tax evasion motive through indirect trade. The paper provides strong evidence that, under Chinas partial export value-added tax rebate policy, production firms can effectively evade value-added taxes by underreporting their selling prices to domestic intermediary trading firms, especially when they sell differentiated products. Even for a moderate level of underreporting, the revenue loss is close to one billion U.S. dollars. The paper also finds that such underreporting behavior through domestic intermediaries may be associated with cross-border evasion through underreporting export values to foreign partners. In addition, the results indicate that the evasion motive is stronger for larger transactions.

Tax Evasion through Trade Intermediation : Evidence from Chinese Exporters

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