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Tax evasion through trade intermediation: Evidence from Chinese exporters

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  • Liu, Xuepeng
  • Shi, Huimin
  • Ferrantino, Michael

Abstract

Many production firms use intermediary trading firms to export indirectly. Using Chinese export data, we provide strong evidence that production firms can effectively evade value-added taxes (VATs) by exporting through intermediary trading firms, especially when selling differentiated products. Indirect exporting can save export taxes by 14.5% compared to direct exporting even if no intentional price under-reporting occurs, and even more when domestic purchasing price paid by a trading firm to a production firm is under-reported purposely. We also find that such under-reporting behavior through domestic intermediaries may be associated with cross-border evasion through under-reporting export values to foreign partners.

Suggested Citation

  • Liu, Xuepeng & Shi, Huimin & Ferrantino, Michael, 2016. "Tax evasion through trade intermediation: Evidence from Chinese exporters," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 518-535.
    • Handle: RePEc:eee:reveco:v:42:y:2016:i:c:p:518-535
    DOI: 10.1016/j.iref.2015.10.022
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    Cited by:

    1. Dominik Boddin & Frank Stähler, 2018. "The Organization of International Trade," CESifo Working Paper Series 7378, CESifo.
    2. Daunfeldt, Sven-Olov & Engberg, Erik & Halvarsson, Daniel & Kokko, Ari & Tingvall, Patrik, 2019. "Wholesale firms: A catalyst for Swedish exports?," Ratio Working Papers 328, The Ratio Institute.
    3. Ouyang, Caiyue & Xiong, Jiacai & Huang, Kun, 2020. "Do multiple large shareholders affect tax avoidance? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 67(C), pages 207-224.
    4. Sun, Churen & Wu, Han, 2023. "The impact of export VAT rebate on firm-product markups: Evidence from Chinese industrial enterprises," Economic Modelling, Elsevier, vol. 119(C).
    5. Braakmann, Nils & Gao, Bo & Maioli, Sara, 2020. "VAT rebates as trade policy: Evidence from China," China Economic Review, Elsevier, vol. 63(C).

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    More about this item

    Keywords

    Trade intermediation; Value added tax; Tax evasion; Export tax rebates; China;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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