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Tax evasion through trade intermediation : evidence from Chinese exporters

Author

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

Abstract

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 China's 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.

Suggested Citation

  • Liu,Xuepeng & Shi,Huimin & Ferrantino,Michael Joseph, 2015. "Tax evasion through trade intermediation : evidence from Chinese exporters," Policy Research Working Paper Series 7232, The World Bank.
    • Handle: RePEc:wbk:wbrwps:7232
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    Cited by:

    1. Bussy, Adrien, 2023. "Corporate tax evasion: Evidence from international trade," European Economic Review, Elsevier, vol. 159(C).
    2. 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).
    3. Dominik Boddin & Frank Stähler, 2018. "The Organization of International Trade," CESifo Working Paper Series 7378, CESifo.
    4. 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.
    5. 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.
    6. 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

    Economic Theory&Research; Debt Markets; Trade Policy; Markets and Market Access; Emerging Markets;
    All these keywords.

    JEL classification:

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

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