The Effect of the Introduction of the General Anti-Avoidance Rule on the Tax-Sheltering Behavior of Chinese Listed Firms

Project: Research

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This project will examine the extent of the tax-sheltering activity (aggressive transfer-pricing activity and tax haven utilization) of Chinese listed firms over the 2006–2010 period, surrounding the introduction of the general anti-avoidance rule (GAAR) in January 2008 and determine whether any significant changes in these tax-sheltering activities follow the GAAR implementation. Although prior studies have examined the effect of stricter tax enforcement on tax sheltering in developed (rule-based) economies (e.g., Hoopes et al. 2012), little is known about whether anti-avoidance rules are effective in deterring tax sheltering in developing (relation-based) economies such as China. This project will provide important insights into whether stricter anti-avoidance tax rules actually constrain tax sheltering in relation-based economies such as China. Further, prior research provides evidence that state ownership and institutional setting (including political connections) impact economic and financial activities of Chinese firms. We extend prior research to determine if ownership structure, political connections, and corporate governance structures impede or exacerbate the effects of the GAAR on the tax-sheltering activities of Chinese listed firms. Our project is timely and important given the rapid increase in foreign investment and trade of Chinese multinational firms, the increased importance placed on resourcing the audits of tax sheltering activities by the State Administration of Taxation in China, and the global recognition that transfer pricing and tax haven utilization have been the primary mechanisms for multinational firms to reduce corporate tax liabilities. Overall, the findings of this project will provide important insights into the nature and extent of international corporate tax sheltering activities adopted by Chinese firms, and changes in these tax-sheltering activities as a direct result of implementation of GAAR.


Project number9042137
Grant typeGRF
Effective start/end date1/10/1414/03/18

    Research areas

  • Tax avoidance,Tax sheltering,Tax havens,Transfer pricing,