Did the anti-avoidance rules curtail the profit shifting of foreign multinationals in China?

This paper analyzes the policy effect of the anti-avoidance rules introduced on January 1, 2008 on profit shifting of foreign multinationals in China. Based on micro data from the OSIRIS database, this paper finds that the anti-avoidance rules were quite effective in curbing profit shifting of forei...

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Bibliographic Details
Published in:China economic review 2024-12, Vol.88, p.102299, Article 102299
Main Author: Xue, Mantian
Format: Article
Language:English
Subjects:
Anti-avoidance rule
Foreign multinational
Profit shifting
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Summary:This paper analyzes the policy effect of the anti-avoidance rules introduced on January 1, 2008 on profit shifting of foreign multinationals in China. Based on micro data from the OSIRIS database, this paper finds that the anti-avoidance rules were quite effective in curbing profit shifting of foreign multinationals through raising the pre-tax margin of subsidiaries in China relative to those outside China by about 6.5 percentage points, or about 7.6 percentage points considering the anticipation effect. Besides, the results indicate that the anti-avoidance rules were more effective for multinationals in service industries or those registered in non-haven countries. •The rules narrowed the pre-tax margin between subsidiaries in and outside China.•The rules did not completely offset the impact of increased corporate tax rate.•The rules were more effective for multinationals in service industries.•The rules were more effective for multinationals in non-haven countries.
ISSN:1043-951X
DOI:10.1016/j.chieco.2024.102299