외부감사 및 재무공시가 외국인 투자기업의 국가 간 소득이전에 미친 영향: 한국 유한회사 사례

With the amendment of the Act on External Audit of Stock Companies, it became mandatory for limited companies (LCs) to receive external audits and disclose their financial statements for the business year starting from November 1, 2019. This study examines whether this regulatory change influences the tax-motivated cross-jurisdictional income shifting behavior of foreign-controlled firms with LC forms. Foreign-controlled firms have incentives to minimize corporate income taxes on their worldwide income, and the differential corporate tax rates across countries provide multinational corporations with the opportunity to reduce their total taxes by shifting income from high- to low-tax jurisdictions. However, there is a risk that tax-motivated shifting activities can be challenged by tax authorities, which may distort financial statements and increase audit risk. Thus, we predict that the new auditors of LCs play a monitoring role in restricting income shifting, and LCs are also likely reluctant to disclose information on abnormal profit margins and reduce income shifting to avoid public attention. Using foreign-controlled firms comprising stock companies and LCs in Korea, we find that while stock companies do not change their tax-motivated cross-jurisdictional income shifting behavior after the year 2020, LCs significantly reduce it following the regulatory change. This is more pronounced for LCs audited by Big 4 auditors, those with larger size, those with greater advertising expenses and those with greater opportunities for income shifting. This study suggests that the audit and disclosure requirements for financial reporting quality also have a positive impact on the tax compliance of foreign-controlled firms.