||Related Party Transactions: Academic and Practical Issues
||Department of Accountancy
Related Party Transactions
This paper summarizes the information useful for studies on operating-purpose related party transactions (RPTs) different from fraud-purpose RPTs. Prior literatures discussing RPTs focus on fraud-purpose RPTs. However, operating-purpose RPTs are also important and worth to notice. Therefore, we write this review paper because little prior papers regard this issue. We introduce the RPT practice through four simulations and the effects on financial reporting and cash parking under different cases. To understand the constraints firms faced when conducting RPTs, we gleans the regulations related to the transaction process. We review the prior literatures about RPTs, transfer pricing (TP), and business groups (BGs) because the three fields are involved during the process of RPTs. While this is a review paper, we still identify the data available from the database and from hand collection of financial reporting for future empirical studies. To grasp the circumstance, we also run a simple descriptive statistics on data we collect from the database. At first we’d like to investigate American firms, but the required disclosures about RPTs are not detail. We thus turn our attention to Taiwanese firms, forming BGs and conducting a lot of routine operational RPTs. Our sample includes 14,478 observations from 1,207 Taiwanese listed firms from 2000 to 2012. We find that almost 60% of Taiwanese listed firms invest in China through tax heavens as springboards. Finally we develop some issues for prospective researches. Our paper is a crucial beginning and foundation for studies of operating-purpose RPTs. We believe that our paper can raise the attention on this issue and trigger more studies in the future.
Table of Contents
I. Introduction 1
II. Background 3
III. Definition 3
IV. Transaction Practice 4
V. Regulations 14
VI. Literatures Review 16
VII. Empirical data 21
VIII. Study Issues 24
IX. Conclusion 26
List of Tables
Table 1 Transaction Practice-tax purposes 12
Table 2 Transaction Practice-performance purposes 13
Table 3 Transaction Practice-other purposes 13
Table 4 Descriptive Statistic 23
List of Figures
Figure 1. The way Apple saves tax through the Double Irish With a Dutch Sandwich 5
Figure 2. The structure of a BG(A) and RPTs in this group 6
Figure 3. The structure of a BG(B) and RPTs in this group 7
Figure 4. The structure of a BG(C) and RPTs in this group 7
Figure 5. The structure of a BG(D) and RPTs in this group 8
Figure 6. The simulation background 8
Figure 7. Case 1 avoiding no tax 9
Figure 8. Case 2 avoiding tax in China 10
Figure 9. Case 3 avoiding tax in China and in Taiwan 11
Figure 10. Case 4 avoiding tax extremely 11
Regulations and Others
AICPA 2012.12.05 AU-C Section 600: Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors) http://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/AU-C-00600.pdf
China State Administration of Taxation 2008.01.01 Implementing Measures for Special Tax Adjustment
China State Administration of Taxation 2008.01.01 Regulation on the Implementation of the Income Tax Law of the People’s Republic of China
China State Administration of Taxation 2008.01.01 The Law of the People’s Republic of China on Enterprise Income Tax
IASB 2012.01.01 IAS 24: Related Party Disclosures
Taiwan Financial Supervisory Commission 2012.07.26 Regulations Governing Loaning of Funds and Making of Endorsements/Guarantees by Public Companies
Taiwan Financial Supervisory Commission 2013.01.23 Supplementary Provisions to the Taiwan Stock Exchange Corporation Rules for Review of Securities Listings
Taiwan Investment Commission 2008.08.29 Principles of Examination of Investment or Technical Cooperation in Mainland China
Taiwan Investment Commission 2013.01.16 Regulations Governing the Approval of Investment or Technical Cooperation in Mainland China
Taiwan Ministry of Finance 2004.12.28 Regulations Governing Assessment of Profit-Seeking Enterprise Income Tax on Non-Arm's-Length Transfer Pricing http://law.moj.gov.tw/Eng/LawClass/LawAll.aspx?PCode=G0340019
Taiwan Ministry of Finance 2013.01.30 Company Act http://law.moj.gov.tw/Eng/LawClass/LawAll.aspx?PCode=J0080001
Taiwan Ministry of Finance 2014.01.18 Income Tax Act
Taiwan Stock Exchange Market Observation Post System http://mops.twse.com.tw/mops/web/index
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