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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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

id	okr-10986-21846
recordtype	oai_dc
spelling	okr-10986-218462021-04-23T14:04:05Z Tax Evasion through Trade Intermediation : Evidence from Chinese Exporters Liu, Xuepeng Shi, Huimin Ferrantino, Michael 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 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. 2015-05-04T16:44:26Z 2015-05-04T16:44:26Z 2015-04 Working Paper http://documents.worldbank.org/curated/en/2015/04/24310280/tax-evasion-through-trade-intermediation-evidence-chinese-exporters http://hdl.handle.net/10986/21846 English en_US Policy Research Working Paper;No. 7232 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper East Asia and Pacific China
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	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
spellingShingle	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 Liu, Xuepeng Shi, Huimin Ferrantino, Michael Tax Evasion through Trade Intermediation : Evidence from Chinese Exporters
geographic_facet	East Asia and Pacific China
relation	Policy Research Working Paper;No. 7232
description	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.
format	Working Paper
author	Liu, Xuepeng Shi, Huimin Ferrantino, Michael
author_facet	Liu, Xuepeng Shi, Huimin Ferrantino, Michael
author_sort	Liu, Xuepeng
title	Tax Evasion through Trade Intermediation : Evidence from Chinese Exporters
title_short	Tax Evasion through Trade Intermediation : Evidence from Chinese Exporters
title_full	Tax Evasion through Trade Intermediation : Evidence from Chinese Exporters
title_fullStr	Tax Evasion through Trade Intermediation : Evidence from Chinese Exporters
title_full_unstemmed	Tax Evasion through Trade Intermediation : Evidence from Chinese Exporters
title_sort	tax evasion through trade intermediation : evidence from chinese exporters
publisher	World Bank, Washington, DC
publishDate	2015
url	http://documents.worldbank.org/curated/en/2015/04/24310280/tax-evasion-through-trade-intermediation-evidence-chinese-exporters http://hdl.handle.net/10986/21846
_version_	1764449420155289600

Tax Evasion through Trade Intermediation : Evidence from Chinese Exporters

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