EconPapers    
Economics at your fingertips  
 

Tax Law Asymmetries and Income Shifting: Evidence From Japanese Capital Keiretsu

Kazuki Onji and David Vera

Asia Pacific Economic Papers from Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University

Abstract: When positive and negative income are treated asymmetrically under a corporate income tax (CIT) without allowance for group taxation, a group of affi liated corporations may engage in tax avoidance by shifting income from profi table to unprofi table subsidiaries for the sole purpose of minimising the sum of tax liabilities of the group members. The aim of this paper is to offer systematic evidence on the behavioural response to a tax penalty that arises from doing business in multiple entities, in order to provide justifi cation for group tax systems such as consolidated fi ling and loss transfer. The setting for our investigation is the Japanese CIT before the introduction of a group tax system. We develop a theoretical model of a corporate group that predicts a difference in profi t reporting behaviour between subsidiaries above and below 100 million yen in paid-in capital due to the progressive feature of the Japanese CIT. We test the implications of the model with a company-level data on subsidiaries based on survey that covers over 1,700 corporate groups headed by large corporations. The sample consists of 33,340 subsidiary-time pairs from 1988, 1990, and 1992. We fi nd evidence consistent with a hypothesis that corporate groups shift income among group members. The fi nding underscores the importance of accounting for the group behaviour in the design of CIT.

JEL-codes: H25 (search for similar items in EconPapers)
Date: 2008
References: View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
https://crawford.anu.edu.au/pdf/pep/apep-371.pdf (application/pdf)

Related works:
Journal Article: Tax Law Asymmetries and Income Shifting: Evidence from Japanese Capital Keiretsu (2010) Downloads
Working Paper: Tax Law Asymmetries and Income Shifting: Evidence From Japanese Capital Keiretsu (2008) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:csg:ajrcau:371

Access Statistics for this paper

More papers in Asia Pacific Economic Papers from Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University
Contact information at EDIRC.
Series data maintained by Akira Kinefuchi ().

 
Page updated 2014-06-30
Handle: RePEc:csg:ajrcau:371