ABSTRACT
This chapter provides a insights from effective tax planning, agency, tax avoidance and legitimacy theories, and quantitatively examines the book-tax gap to address two questions regarding corporate valuation responses to the statutory changes in tax rates and greater scrutiny by the tax office in China. Corporate tax aggressive behaviour, business tax planning at the border between legal tax avoidance and illegal tax evasion, focuses on reducing the rate of tax paid on earnings. The traditional view regards corporate tax aggressive activity that lowers cash tax payments as value-enhancing—a transfer of wealth from government to shareholders. Corporate income tax aggressiveness is a factor that China’s central government must consider given its relatively heavy reliance on corporate tax revenues. Business tax planning includes both tax saving and avoidance, and thus covers a range of activities that reduce the rate of corporate tax paid on earnings.
