Tax Incentives,Diversification and Group Company Tax Avoidance
Industrial policies have played an important role in promoting the development of China's emerging industries and catching up with backward industries.As a basic industry affecting the national economy and people's livelihood,agriculture has always been a key area of industrial policy implementation.Since the reform and opening up,the government has continuously strengthened its industrial policy support for agriculture.Especially in 2008,The new Enterprise Income Tax Law implemented that enterprises engaged in agriculture,forestry,animal husbandry and fishing projects are exempt from or halved the enterprise income tax,including the cultivation of vegetables,grains,fruits and Chinese medicinal herbs,forest cultivation,poultry and livestock raising,and primary processing of agricultural products.Items such as agricultural machinery operations and maintenance are exempt from taxes,and items such as the cultivation of beverage crops and spice crops,mariculture and inland farming are halved.This policy not only expanded the scope of application of preferential tax policies for agriculture-related operations,but also significantly reduced the applicable tax rates for agricultural production enterprises,decreasing the tax burden on a large number of agricultural enterprises.Under the guidance of agriculture-related industrial policies,agricultural production have been significantly improved.However,there is information asymmetry between the government and the market,resulting in that the government cannot accurately identify the enterprises.This issue really needs support by means of"one-size-fits-all"industrial policies,and inevitably leads to the adverse selection behavior of enterprises using preferential policies to manipulate operation.In particular,tax incentives for agricultural operations have led to significant differences in tax rates among different peers,which provides opportunities for group companies to avoid taxes by engaging in the agricultural sector.In addition,the application conditions of this policy are relatively relaxed,mainly based on whether the enterprise business project belongs to the agricultural category as the key standard,which greatly reduces the cost of group enterprises to implement tax avoidance through new agricultural business.Based on the income tax reduction and exemption policy for agricultural projects,this paper uses hand-collected data of parent-subsidiary companies of listed groups from 2005 to 2015 to measure the degree of agriculture-related operations according to the proportion of agricultural subsidiaries,and studies how non-agricultural enterprises using agricultural tax incentives to avoid taxes through diversified operations.The results show that,first,compared with agricultural enterprises,non-agricultural parent companies significantly increase the proportion of investment in agricultural subsidiaries after the implementation of the policy,which significantly reduces the effective tax rate of parent companies and group companies.Second,heterogeneity analysis shows that the positive impact of tax incentives on the agriculture-related operations of non-agricultural parent companies is mainly reflected in enterprises with large financing constraints,weak government tax collection and management,and low market attention.Third,the mechanism test shows that profit transfer is an important way for non-agricultural parent companies to implement tax avoidance.The higher the proportion of agricultural subsidiaries,the lower the profit rate of assets of non-agricultural parent companies,but the profit rate of its agricultural subsidiaries is significantly higher than that of other subsidiaries in the group and agricultural subsidiaries in the agricultural parent companies.The profit transfer is mainly achieved through related purchases of non-agricultural parent companies from agricultural subsidiaries.The marginal contributions of this paper are as follows:First,it has enriched the research on corporate tax avoidance and profit shifting behavior.Most of the existing literature studies the profit shifting and tax avoidance behavior of group enterprises in cross-regional investment based on the tax rate differences between countries and regions.This paper reveals another way to realize tax avoidance of group enterprises from the perspective of industry tax incentives,and improves the relevant research on enterprises,using tax incentives to implement strategic tax avoidance.Second,the relevant literature on the implementation effect of industrial policy and its influencing factors is expanded.A large number of literature have evaluated the actual effect of industrial policy,but the research conclusions have not reached a consensus.This paper reveals the possible reasons for the failure of industrial policy when it is implemented in the form of tax incentives from the perspective of tax avoidance.Third,it enriches the relevant research on enterprise diversification.Diversification is a typical feature of group enterprises.Existing studies mainly discuss the influencing factors of enterprise diversification from the aspects of economic environment uncertainty,government policy intervention,market incentives and individual characteristics of enterprises.This paper provides a new perspective for understanding enterprise diversification from the perspective of tax avoidance.Finally,this paper helps to understand the risks contained in the implementation process of tax incentives in industrial policies,and provides policy enlightenment for improving the effectiveness of tax incentives and optimizing the tax governance system.