■ 国際会計研究学会 年報 2019 年度第 1・2 合併号

A Study between Internal Control and Tax Risk
-Based on the Listed Real Estate Enterprises in China
LI Xiang-yu
PhD Candidate, Wonkwang University

Kwon Young-mo
Wonkwang University

Abstract
In May 2009, the State Administration of Taxation issued the “Guidelines
for the Management of tax risk of Large Enterprises” (Guo Shui Fa［2009］
No. 90) to help enterprises establish a tax risk management system. This is
the first time that tax risk have been formally presented in a separate form,
causing a stir in the academic and practical circles. Tax risk is one of thefinancial risks faced by enterprises. The consequences can not be
underestimated. Improper handling or slight neglect may bring economic
losses, reputation damage and even bankruptcy crisis. At present, the tax
risk management of Chinese enterprises has just started. Many enterprises
have inadequate internal control systems and limited ability to manage tax
risk. tax risk have become an important factor affecting business results andsafeguarding corporate interests. The control and reduction of risks is
crucial to the survival and development of enterprises. This paper cuts
through the internal control of the enterprise, and selects 90 enterprises
during 2013-2017 for the total of 450 samples in the A-share real estateindustry listed in China’s securities market as the research object. Combinedwith the theory of internal control and from the perspectives of operation,
reporting and compliance with taxation the hypothesis is proposed andregression models are constructed. The empirical study is related to thecorrelation between the degree of implementation of internal control andcorporate tax risk, and finds that the quality of the report is negatively
correlated with the tax risk of the enterprise. The quality of the operation ispositively correlated with the tax risk of the enterprise. The quality ofcompliance is negatively correlated with the tax risk of the enterprise.
Finally, the paper puts forward reasonable suggestions for the reduction andprevention of tax risk.
Key words: Internal Control; Tax Risk; Real Estate Enterprises
215

1

Introduction(SASAC) issued the “guidance on overall risk
management of central enterprises” in 2006

With the continuous development of theand enterprise risk management should bemarket economy, the competitive environment

taken as a focus of enterprise operation, but

in which enterprises are located is becoming

tax risk have not been specifically mentioned

increasingly fierce, which makes the financial

in the guidance. Until May 2009, the staterisks faced by enterprises more complicatedadministration of taxation issued guidelinesand diversified. Whether enterprises canon tax risk management of large enterprises

achieve sustainable development in this(guoshuifa［2009］no. 90), which was the firstenvironment is inextricably linked to thetime that “tax risk” were formally proposedlevel of financial risk. As an important partin the official documents of the stateof financial risk, tax risk also affects theadministration of taxation. At this point, thesurvival and development of enterprises.

domestic academic circle set off a climax of

Improper handling of tax risk can cause

the study of tax risk, and the practice circle

financial losses, reputation damage and evenalso began to pay attention to the enterprisebankruptcy. In recent years, many large

tax risk as an important part of enterprisecompanies have fallen into the “tax gate”

risk management. There are many factors

scandal due to their lax tax risk prevention.

affecting the tax risk of enterprises, but

Guomei, PingAn, Suning, Wahaha and otherinternal control can be said to be the key

well-known companies have been deeply

factor affecting the level of tax risk of

involved. How to build a corporate tax riskenterprises.

“firewall” and improve corporate tax risk

environment of an enterprise is very complex.

prevention capabilities has become the focus

With the expansion of modern enterpriseof both domestic and foreign governments

scale, the degree of complexity is also

and enterprises. In foreign countries, it isdeepening. The existence of internal control

earlier to pay attention to tax risk.

can help enterprises to cope with variousTheinternal

andexternal

The concept of total risk management has

uncertain factors. Through the assessment,

been put forward in the comprehensive

prevention and control of enterprise risks,framework of enterprise risk management

various activities of enterprises can be carriedissued by COSO of the United States inout in an orderly manner to ensure the2004, and tax risk has been taken as the risk

realization of enterprise goals. Internalthat needs to be prevented in enterprise risk

control is the most effective means of risk

management. Since then, many multinational

management. the COSO published “riskcompanies have set chief tax officers in their

management an integrated framework” infinance departments to guard against tax

2004. including it into “integrated framework

risk. In China, the state-owned assets

in the enterprise risk management”, thesupervision and administration commission

integrated framework of internal control and216

A Study between Internal Control and Tax Risk

enterprise risk management are close unitedand it also marks the internal control has
risen to the height of overall corporate risk
management. It can be inferred that the

2 Prior Research and hypothesis
2.1 Definition and measurement ofinternal control

level of tax risk, which is also one of the

2.1.1 Definition of internal control

enterprise risks, may be related to the

According to the article “Internal Control-

quality of internal control. However, theIntegrated Framework” issued by the US

academic research on the relationship between

COSO Committee (1992), internal control is

the two is only theoretical discussion andinfluenced

lacks empirical research results, which makes

management and other personnel of thethe role of internal control lack of datacompany. The framework aims at the process

supportin preventing tax risk.

of achieving the efficiency of business

by

the

board

of

directors,

This paper is divided into five parts. The

operations, ensuring financial reliability andfirst part is the introduction, and the second

providing reasonable assurance of compliance.

part is the prior research and hypothesis. On

This article refers to these three measurement

the basis of domestic and foreign literaturesindicators as operation quality, report quality,

related to tax risk and internal control, thisand compliance quality.

paper proposes the research method andhypothesis. The third part is research design.

2.1.2 Measurement of internal control

In the quality-oriented internal control(1) operation quality

evaluation index system, combined with tax

The operation quality is to improve therisk evaluation index, the regression model

efficiency of business operations through theis constructed. The fourth part summarizes

implementation of internal control. The leveland expounds the results of empiricalof achievement of business quality can beanalysis, and empirically tests the relationshipmeasured in terms of both efficiency andbetween the degree of realization of various

effectiveness of operations. An enterprise’s

objectives of internal control and tax risk.

operating efficiency mainly refers to the

The fifth part is the conclusion, according toasset’s turnover speed and liquidity, while

the results the paper puts forward policy andthe operating effect mainly refers to thesuggestions to prevent and control the tax

profitability of the enterprise.

risk.
(2) Report quality
That is to ensure the reliability of financial
reports, the level of achievement of reportquality can be measured from the internal
audit normative and the financial reports
authenticity. It

isareflection

of

the

217

standardizationofcorporatefinancialmanagement.

tax risk include: the performance of thecompany’s

strategic

objectives,

businesspractices and tax planning inaccurate use of(3) Compliance quality

tax laws, not enough to use the relevant tax

Compliance with laws and regulations

policy, pay more unnecessary taxes, noshould be the bottom line of businessreasonable tax avoidance to the maximum

activities. The degree of achievement ofextent, bear the risk of unnecessary tax

corporate compliance quality largely reflectsburden.

the rationality and legitimacy of corporate
tax planning. Compliance and legal tax

2.3 Internal Control and tax riskplanning

Sarbanes-Oxleyhasa major

impact on

thearticle

302

and

404

construction of a benign corporate environment

respectively published in 2002 and 2004

andrequired to submit an annual report of listedthestandardized

developmentofenterprises.

companies management or quarterly report,
which must disclose internal control report

2.2 Definition and form of tax risk

and evaluate the quality of enterprise internal
control. It also requires external auditor to

2.2.1 Definition of tax risk

audit the internal control report issued.

Michael Carmody (2003) believes that tax

Chinese scholars started the research late inrisk is an uncertainty risk, mainly fromtax risk management, but in recent years,

internal and external factors. Internal factors

more and more attention has been paid toare internal control of the enterprise, while

the study of internal control and financial

external factors are uncontrollable. According

risk. According to Zhang Xiao (2010), based

to the book Corporate Tax Management, tax

on the internal control system of enterprises,

risk refers to the possibility that a taxpayer

the main objectives of tax risk management

may incur losses caused by taking additional

include: tax planning has a reasonable

responsibility in the tax-related process.

business purpose and conforms to theprovisions of the tax law; Business decisions

2.2.2 Forms of tax risk

and daily business activities shall conform to

From the perspective of punishment, thethe provisions of the tax law; Accounting

tax-related behavior of enterprises violates,

treatment of tax matters in accordance withthe provisions of tax regulations, tax payable

relevant accounting systems or standards

unpaid or less paid. Thus the company faces

and relevant laws and regulations; Taxrisks such as tax reimbursement, fines, latedeclaration and payment in accordance withpayment of late fees, criminal liability

the provisions of the tax law. Jin Yu (2015)(sentence, fines) and reputation damage.

believes that the integration of tax risk andFrom the perspective of management, the218internal control can enable enterprises to

A Study between Internal Control and Tax Risk

form a sound internal control system andoperation of an enterprise does not involve

provide a good internal control environment,taxes. Procurement, production, sales, planningso as to effectively reduce tax risk. Wu

and investment all involve the calculation

Xianghui (2010) believes that enterprises

and payment of taxes. Weili Ge (2005)

need to establish standardized internalbelieves that both operational risk andcontrol processes, and to prevent tax risk,

financial risk will induce the ultimate tax

they need to consider five elements ofrisk. According to Fan Zhongshan (2003),

internal

control,

includingcontrol

there is a strong relationship between theassessment,

controlbusiness activities and tax risk. Gaide (2009)activities, information and communication,

believes that tax risk should be divided into

supervision and feedback. According to

two aspects. On the one hand, it is because of

Wang Xia (2012), non-standard business andthe inaccuracy of tax laws applicable tofinancial behaviors of enterprises, as well as

business operations, insufficient use of tax

low level and inappropriate tax planning ofpolicies, overpayment of taxes, and unnecessary

tax payers lead to tax risk, and strengthening

tax burden. Liu Zhen (2009) puts forward

internal control is the most effective measure

the tax risk measurement theory, and she

to prevent tax risk. Li Shuo (2014) believes

pointed out that tax risk can be quantified bythat in terms of the evaluation of internal“cost-benefit analysis”. Zhang fan (2011)

control, there is no unified standard evaluation

believes that the non-standard operation andform, which is mainly caused by the difficulty

financial behavior of enterprises, the limited

in quantifying the evaluation of internal

quality of tax-related staff, inappropriate tax

control. The internal control deficiencies isplanning and other factors will lead to theused to measure quality of internal control

intensification of tax risk of enterprises, andabroad. The reason is that the foreign

the control of tax risk is closely related to theinternal control regulations and disclosureinternal control of enterprises.

environment,risksystem is relatively perfect. It is more strict
for stringent execution, and the report

In summary, this paper proposes hypothesis

quality is relatively high to encourage

1: the higher the quality of operation, theenterprises to issue internal control selflower the tax risk.

assessment report and internal control of theverification. It is more comprehensive andChen

Hanwen(2009)

believes

that

reliable for the enterprise to disclose internal

ensuring the reliability of financial reporting

control defects.

is the most important goal of internal

Wang Zeye (2012) believes that tax risk

control. To a certain extent, effective internal

will have an impact on the business

control prevents managers from deliberately

management decisions of enterprises. No

manipulating surpluses and reducing the

doubt, every link of the production andoccurrence of false financial reports, thereby219improving the reliability of financial reporting.

Gai di, Zhang xiao (2009) in the article

Internal control was originally used to check“Enterprise Tax Risk Management: Riskfor fraud prevention. It can be said that the

Identification and Prevention and Control”

degree of achievement of financial reportingin the definition of tax risk, the company’s

objectives is the best for the quality of an

tax-related behavior does not meet theinternal control system. Luo Zhengyuan

requirements of tax regulations. The use of(2013) also obtained the result throughtax laws in business operations is inaccurate,empirical analysis: the company that issued

and there is no need to use the relevant tax

the non-standard audit opinion is worse thanpolicies, to pay more taxes, and to bear

the standard audit opinion of the internal

unnecessary tax burdens. Han Lingli (2008)

control. The audit guidelines issued by the

believes that tax risk is a taxpayer’s

five ministries and commissions such as the

tax-related matters in the course of business

Ministry of Finance also clearly pointed out

operations because of violations of tax

that “the enterprise has corrected the publishedpolicies

financial report, which indicates that there

penalties of tax authorities, the possibility ofare signs of major defects in internal control.”late fees or even criminal penalties. Hu

Gu Zhaochun (2011) also believes that under

Guoqiang (thinks) the system and method of

the internal control of enterprises, theinternal control of tax risk itself must comply

accounting treatment of tax matters is in linewith national laws and regulations, various

with the corresponding accounting system orindustry norms and regulatory requirements

standards, and the corresponding laws andofregulations are an important point in therequirements are violated, it will not only

prevention and control of tax risk. Jin yu

deviate from the compliance objectives of the(2015) conducted an empirical analysis of theinternal control of tax risk, but also the legal

tax risk under the internal control ofrisks faced by enterprises, which will cause

commercial banks. The timely and accurate

the enterprises to fall into punishment.

andrelevant

regulations,departments.

such

If

the

as

the

above

tax returns of commercial banks are basedon accurate and standardized accounting.

In summary, this paper proposes hypothesis

The irregular accounting results will inevitably

3: the higher the quality of compliance, thelead to the appearance of tax returns.

lower the tax risk.

Mistakes, thus facing the risk of being
inspected by the tax authorities.
In summary, this paper proposes hypothesis
2: the higher the quality of the report, thelower the tax risk.

3 Research design
3.1 sample selection
After combing the existing literature, theautomobile

manufacturingindustry,thepharmaceutical industry, and the small and220

A Study between Internal Control and Tax Risk

medium-sized enterprises have all been

3.2 Variable definition

systematicallybyAccording to the Internal Control-Integrated

scholars as research samples. This paper

Framework issued by the US COSO Committee

selects the latest data of the real estate(1992), the efficiency of business operations,industry as a research sample, mainly based

ensuring financial reliability, and complianceon the tax-related risks of the real estatewith relevant regulations are the main metrics

industry. Higher features of the high tax risk

for internal control of enterprises. The principle

are mainly manifested in two aspects: on theis: (1) the indicator must be directly affected

one hand, because the industry involves

by internal control, and (2) the indicator data

many types of taxes, including income tax,

must be publicly available.

empiricallyanalyzedbusiness tax, land value-added tax, property
tax, etc., The tax burden is heavier, coupled

3.2.1 dependent variablewith the recent macro-control of the real

Tax risk: Since the tax authorities usually

estate industry by the state. Moreover, theuse the industry tax rate as a reference

actual tax burden of the industry has

standard when conducting tax audits. theincreased; on the other hand, due to the longcalculation method is: the actual tax rate ofspan of real estate projects, many links, andthe enterprise = (tax payable + business tax

complex cost calculations, the phenomenon

and additional + administrative fees) / businessof tax evasion is more serious. Selecting theincome. The individual corporate tax rate isreal estate industry as a research sample cancompared with the industry tax rate to judge

better reflect the current tax burden of real

whether there is an abnormality. This article

estate enterprises in China, and has great

is also the same as most domestic scholars on

significance for the related research of thethe measurement of tax risk (CAOXIAOLI,

real estate industry.

LIUJIANMIN, etc.). Tax difference rate is

Sample selection and screening processused to measure tax risk and the absolutetakes the new version of the industry

value of the negative difference rate is use toclassification issued by the China Securities

measures the overall tax risk. It is expressed

Regulatory Commission in 2012 as thein TDR.

classification standard, and collects the dataof real estate listed companies (A shares) in

3.2.2 independent variables

Shanghai and Shenzhen in 2013-2017 as the

In this paper, the internal control quality

research object. Excluding ST companies andis taken as an independent variable, and one

missinghas

index is selected as the substitute variable ofobtained 90 listed real estate companies as

the equity structure from the three dimensions

research objects, with a total of 450 samplesof operation quality, report quality andfor consecutive 5 years as research objects.

compliance quality.

data

samples,

this paper

221

(1) operation quality： This paper selects(2) Asset-liability ratio: expressed in DAR.

the return on net assets to measure theChen Jing (1999), Chen Xiao (1999), Xiao

quality of business operations. Expressed by

Zuoping (2005), Ma Haiping (2009) and other

ROE. An enterprise’s operating efficiency

scholars have proved through empiricaland operational efficiency mainly refer to theanalysis that the excessive financial leverage

profitability of the enterprise. Considering

has a significant impact on the tax rate.

the size of the enterprise, the return on net(3) Nominal income tax rate: expressed in

assets can well measure the current operating

NTR. The income tax rate can be said to becapacity of the enterprise. Therefore, thisthe most direct indicator of tax burden.

paper takes the return on net assets of theEnterprises will formulate tax planning

enterprise as Metrics.

according to different tax policies, which will(2) Report quality: This paper selects
whether the financial statement restatement

affect the size of corporate tax burden fromthe root cause.

has been used as a measure of the quality of(4) Flow ratio: expressed in CR. The

the report and is expressed by RFR. The

current ratio reflects the proportion of therestatement of the financial statements, thatcompany’s available assets. When enterprisesmeans,

thecorrections

andencounter a shortage of available assets, thebeenissuedtopressure on paying taxes and fees willaccounting errors and abnormal amounts

increase, which will affect the tax burden ofafter the announcement of the financial

enterprises and increase tax risk.

whether

supplements havedue

statements.

(5) Asset intensity: expressed in AI. Liu(3) Compliance quality: This paper selects

Xing (2009) believes that asset intensity is

the number of major violations of the sample

the proportion of fixed assets to total assets.

company as an indicator of compliance

The greater the proportion of fixed assets inquality, and uses NOA to reflect the

total assets, the greater the annual depreciationcompany’s current compliance with relevant

will be, affecting tax risk.

laws.

(6) Whether it is a loss or not: it isexpressed

by

LOSS.

China’stax

law

3.2.3 control variables

stipulates that an enterprise’s annual loss

(1) Enterprise size: expressed in SIZE.

situation, the income tax payable can be

LiuJianmin (2001), Liao Xiaojing (2005) andused to make up for the income of the next

many other scholars believe that there is ayear, and the next year is not enough tocertain correlation between the size of themake up for the continuation of the year, up

enterprise and the corporate tax burden,

to 5 years.

that is, the larger the enterprise, the higher
the actual tax burden.

222

After the above indicators are summarized,
see Table 1.

A Study between Internal Control and Tax Risk
Table 1: Definition of each variable
Variable namevariable name

Variable symbol

Variable definitions

Dependent
variableTax risk

TDR

The value of the tax difference.

operation quality

ROE

Return on net assets=net income/Average net assets

Report quality

RFR

Financial report restatement.
If there are any additions to the annual
report, the correction is 0, not is 1.

Compliance quality

NOA

Number of violations.
Number of violations of penalties for
major matters, taking negative value

Business size

SIZE

Natural logarithm of total assets at the
beginning of the period

Debt Asset ratio

DAR

total liability/Total assets

Nominal income tax
rate

NTR

Available directly Corporate annual
reportCurrent ratio

CR

Current assets/Current liabilities

Asset intensity

AI

Fixed assets/Total assets

Whether it was a loss
in the previous period

LOSS

If there is a profit,the value is 1; if aloss, the value is 0.

Independent
variable

Controlvariable

3.3 Model Construction

operation

In view of the research focus of this paper,compliance quality are used as explanatory

the impact of the quality of internal control

variables, and other factors affecting tax riskon the tax risk. Therefore, tax risk is taken

are used as control variables. Based on all ofas the explanatory variable, the degree of

this, a regression model is constructed.

quality,reportquality,andrealization of internal control objectives,
TDR=α+β1ROE+β2RFR+β3NOA+β4SIZE+β5DAR+β6NTR+β7CR+β8AI+β9LOSS+ɛ
According to the above model, this paper
conducts

anempirical

analysisofthebetween operation quality, report quality,
compliance quality and tax risk in chapter 4.

internal control objectives, the relationship223

4 Empirical analysis
4.1 Descriptive statistics
Table 2: Descriptive statistics
Variables

Obs

Mean

SD

Min

Median

Max

TDR

450

0.381

0.347

.00117

.294

2.76

ROE

450

9.251

10.419

-39.7

9.31

41.2

NOA

450

-0.151

0.611

-4

0

2

RFR

450

0.976

0.155

0

1

1

SIZE

450

23.586

1.364

19.4

23.5

27.8

DAR

450

66.35816.522

12.2

69

94

NTR

450

24.578

2.013

15

25

25

CR

450

1.967

0.800

.0297

1.85

6.13

AI

450

0.032

0.057

.000215

.012

.513

LOSS

450

0.053

0.225

0

0

1

This paper uses Stata14.0 to performthe restatement of the financial statements,

descriptive statistical analysis of each variable.

the median is greater than the average,

The results are shown in Table 2.

indicating that the financial reliability of theIt can be seen from descriptive statistics

company exceeds the industry average; thethat the maximum tax difference rate is 2.76

asset-liability ratio is the largest. The value

and the minimum value is 0.0117. It can be

is 94, the minimum value is only 12.2, andseen from table2 that the tax difference

the average is not much different from thebetween enterprises is not large, and it ismedian, but the standard deviation is 16.522,

also normal that the tax difference ratio

indicating that the gap between assets andbetween the same industry is similar. Fromliabilities is also large. The maximum income

the perspective of ROE, the maximum value

tax rate is 25, the minimum value is 15, andis 41.2 and the minimum value is -39.7,

the average value is 24.578, indicating thatindicating that the profitability between

most enterprises do not enjoy preferential

enterprises is quite different, and a small

policies and continue to apply the 25%

number of enterprises are at a loss. From thecorporate income tax rate; the inter-enterprisepoint of view of the number of violations,flow ratio differs greatly from the asset

more than half of the companies did notintensity. The side reflects the large difference

violate the regulations in 2013-2017; fromin the company’s operating capacity. From

224

A Study between Internal Control and Tax Risk

the perspective of corporate loss indicators,

great impact on the accuracy of the model if

the median is 0, and a small number ofthere is multiple collinearity between variables.

companies are at a loss.

Therefore, before the regression analysis, thepaperanalyzesthecorrelation

of

the

4.2 Relevance test

independent variables to eliminate highly

When model is constructed, it will have acorrelated variables.

Table 3: Pearson correlation test results between variables
TDR

ROE

NOA

RFR

SIZE

DAR

NTR

TDR

1

ROE

-0.0380

1NOA-0.114**0.146***

1

RFR-0.0580

0.04100.03201

SIZE-0.295***0.337***

0.193***

0.00500

1

DAR-0.294***0.085*-0.0220-0.080*0.591***

1

NTR-0.092*0.084*

0.05700.110**

0.090*-0.0440

1CR

0.086*-0.129***0.0610-0.0190-0.323***-0.474***-0.081*AI

0.275***-0.083*-0.104**0.0420-0.254***-0.190***-0.176***LOSS

0.0400-0.628***-0.136***

0.0380-0.156***

0.05400.00100

CR

AI

LOSS

CR

1

AI

-0.088*1

LOSS-0.01700.06101

It can be seen from Table 4.3 that thecorrelation coefficients of the four board

4.3 Regression analysis

structure variables and the three control

4.3.1 F test

variables selected in this paper are less than

The Person correlation test can only

0.3, indicating that there is no multicollinearity

preliminary test the relationship between

in the regression model constructed by these

the two variables. In order to further verify

explanatory variables. Therefore, regression

the hypothesis, this paper carries out

analysis can be performed.

regression analysis for the model.

Beforeregression analysis, the F test and Hausman
test are used to determine the model form.
225

Table 4: F test result of regression model

rejected, and there is a difference between

F test that all u_i=0

individuals, we should choose a fixed effectmodel.

F(89, 347) = 2.58
Prob > F = 0.0000

4.3.2 Hausman test
The null hypothesis of the Hausmann test

According to the result of Table 4, it can be

is: corr(ui, X) = 0, which means that there isseen from the test results that the statistic ofno correlation between the individual andthe F test is 2.58, the corresponding probability

the independent variable, and a random effects

value is 0.00, which is much less than 1%.

model should be chosen. The results of the

Therefore, the null hypothesis should betest are as follows.

Table 5: Hausman test result of regression model
Test:

Ho:

difference in coefficients not systematicchi2(9) = (b-B)’[(V_b-V_B)^(-1)](b-B) = 7.51
Prob>chi2 =0.87

It can be seen from the test results that

4.3.3 regression analysis

the statistic of the Hausman test is 7.51, andThis paper starts from three perspectives

the corresponding probability value is 0.87,

of internal control and establishes threewhich is much larger than 10%. Therefore,

basic assumptions about the relationshipthe null hypothesis should be accepted, so webetween internal control and tax risk. In

should choose a random effects model.

order to verify these hypotheses, this paper
selects appropriate indicators and establishes
multiple regression models for empiricalresearch. The results are shown in Table 6.

Table 6: Results of regression analysis
Variables

TDR

ROE

0.00385*(0.00202)

NOA-0.0494*(0.0258)

226

A Study between Internal Control and Tax Risk

RFR

-0.199**(0.0927)

SIZE-0.0347**(0.0198)

DAR-0.00347**(0.00154)

NTR-0.0115(0.00880)

CR-0.0238(0.0248)AI

1.284***(0.328)

LOSS

0.105
(0.0825)

Constant

2.014***(0.478)R-squared

0.102

N

450

chi2

74.60

Note: The standard deviations are in brackets. *, **, *** indicate significant at 10%, 5%, and 1%
respectively.

According to the regression analysis of thehand, perhaps because the company’s ability

model, the paper shows the following results:

to operate is stronger, the tax planning ismore arduous, and thus the risks of tax(1) Relationship between operation quality
and tax risk
The operation quality and tax risk arereimbursement, fines, late payment of latefees, penalties and reputation damage are
increasing. On the other hand, the stronger

significantly positively correlated at the level

the business capabilities, the higher theof 10%, indicating that enterprises withenterprise attaches importance to production

higher quality of operation have higher andand management and the greater thehigher tax risk, which is inconsistent withinvestment in the realization of the businessthe assumptions in this paper. On the one

objectives and the implementation of the227strategy. It makes the potential cost in

on tax planning and tax risk avoidance. It iscapital, income and capital flow higher, thus

the top priority for enterprises to control tax

ignoring the evaluation of tax planning. It isrisk.

far from enough for the importance of tax
planning and reasonable avoidance of tax
identification, evaluation and control of tax(3) Relationship between compliancequality and tax risk
According to the results of regression

risk. While expanding the operating profits

analysis, the compliance quality and tax riskof enterprises, the tax risk of enterprises areare significantly negatively correlated at thealso increasing. However, the tracking andlevel of 5%, indicating that the higher themonitoring of tax risk did not keep pace.

quality of compliance, the lower the tax risk.

risk.

There

is

no

guarantee

for

the

This is consistent with Hypothesis 3 in this(2) Relationship between report quality
and tax risk
According to the results of regression

paper, which verifies that a high degree ofcompliance with the law will reduce the tax
risk of the company. Some enterprises ignore

analysis, the report quality and tax risk areor cross the bottom line of the law in order tosignificantly negatively correlated at theobtain higher benefits. Thus the companies

level of 10%, indicating that the higher thegenerate excessive tax avoidance motives

report quality, the lower the tax risk, whichand even evade tax incentives, so it increases

is consistent with the assumptions in thisthe risk of being warned and punished by tax

paper, which verifies hypothesis 2. The

authorities. The company has not carried out

reliability of financial reports directly reflects

effective

the standardization of accounting standards

prevention of risks in the planning process,for enterprises. The restatement, revision,and has chosen some risky tax planningand supplementation of financial reports by

schemes, which not only does not have theenterprises reflect theandcost savings, but also increases the tax risk

unclearness of internal control of enterprises,and greatly increases the financial risks ofand the rigor of financial management andenterprises.

irregularity

internal

control,

controlandcontrol of enterprises. Conversely, the lower
the quality of the report, the higher the tax
whether the enterprise system is standardized,(4) Relationship between other control
variables and tax risk
According to the results of regression

the daily production and operation activities

analysis, the scale of the enterprise and theare reasonable, the financial management

tax risk are significantly negatively correlated

ability of the enterprise and the daily

at the level of 5%, that is, the larger the scalefinancial indicators of the enterprise. Theof the enterprise, the lower the tax risk,

accurate report has a very important impact

indicating that the large-scale enterprises

risk. The tax risk is largely an indicator of228

A Study between Internal Control and Tax Risk

not only have more resources for tax

about the relationship between the threeplanning, but also employ Professionals

basic metrics and tax risk of internal control,

provide financial support for reasonable tax

establishes a regression model, and empirically

avoidance. The asset-liability ratio and tax

tests the tax risk and The relationshiprisk are significantly negatively correlated at

between operation quality, reporting quality

the 5% level. The higher the asset-liability

and of compliance quality. According to theratio, the lower the tax risk, indicating that

empirical test in Chapter 4, the paper draws

the debt tax shield effect has been exerted.

the following conclusions. First, there is a

On the one hand, the enterprise with highhigh correlation between the degree of

asset-liability ratio is in the securities. In

quality realization of internal control and tax

order to obtain a higher financing reputation,risk. The better the enterprise’s ability to

the market tends to a conservative taxationachieve business, the heavier the tax burden,

strategy. On the other hand, it shows thatthe greater the tax risk. Although thethe tax credit of the debt makes the tax

hypothesis is not verified, the reasons haveavoidance motive and even the tax evasion

been analyzed. Second, the more reliable themotivation weaken, thus affecting the level

financial report, the lower the tax risk.

of tax risk. Asset intensity and tax risk are

Third, taxation risks are getting lower andsignificantly positively correlated at the 1%

lower for companies with higher legal

level. In theory, the greater the proportion ofcompliance. Undoubtedly, the taxation risk

fixed assets in total assets, the moreis lower for enterprises that have highdepreciation can be deducted before tax, thus

compliance with laws and the accuracy of

reducing corporate tax burden and thus

accounting standards. The more compliancereducing taxation. risk. However, the regression

with laws and regulations, the less tolerance

analysis results are contrary to the fact thatthey have for risks. Effective internal control

the higher the proportion of fixed assets of

can prevent and control tax risk with its goodthe enterprise, the lower the proportion ofcontrol environment, perfect supervision andcurrent assets, and the worse the ability torestraint mechanism and effective information

respond to risks, resulting in a rise in tax

communication methods, thus reducing therisk. Other control variables were notlosses of enterprises. Fourth, tax risk arestatistically significant in relation to tax

also affected by factors such as size, asset-

risk.

liability ratio, and asset intensity. The larger
the scale of the enterprise, the higher the

5 Conclusion

asset intensity, the higher the tax risk will
be. The lower the asset-liability ratio, theBased on the previous scholars’ researchmore the tax risk will be. low. In addition,on the relationship between internal control

the company’s loss or not, current ratio,

and tax risk, this paper makes assumptions

income tax rate also has a certain correlation229

with tax risk. All in all, companies should

standardization of corporate tax management

pay close attention to the realization of theand even financial management.

three qualities: the operation quality, theThe limitations of this paper are as follows:

reports quality and the compliance quality.

First, the sample is selected as the real estate

Through the monitoring and identification ofindustry, and no research on all companies

the three qualities, the company finds possible

in the securities market is conducted, which

tax risk, which in turn reduces tax risk andis not conducive to the research and promotion

reduces corporate losses.

of the results. Second, the limitations ofCombined with the research of this paper,
this paper

puts forward

theinternal control measures, how to measure

following

the quality of internal control, scholars insuggestions for the management and control

the world have different views. This paperof corporate tax risk: First, strengthen the

adopts three quality measurement principles,internal control of enterprises, establish aeach taking a substitute indicator to try togood internal environment, establish a soundmeasure and transform internal control impact,

tax risk management organization system,

but it does not fully represent and replace

set up tax risk control points, and protect

the quality of internal control. Third, theenterprises. Effectively identify, assess andlimitation of tax risk measurement, thiscontrol tax risk and eliminate or reduce thepaper uses the tax difference rate to measureadverse effects of tax risk in a timely manner.

tax risk. The adverse effects in this study

Second, set up a special tax supervisionneed to be further tested.

department, equipped with commissioners toreview and supervise tax accounting and tax
planning, comply with internal management
systems and laws and regulations, establish
a personal responsibility system, avoid tax
risk, ensure that enterprises are legally andcompliant and Conduct in an orderly manner
to avoid loopholes. Third, improve theenterprise accounting system and improve
the professional competence of tax-related
personnel. China’s taxation and taxation
policies will be continuously adjusted andimproved along with economic development.
Tax-related personnel should be regularlyorganized to learn the latest tax-related
knowledge and regulations, and strict Follow
accounting
230

standards

toensuretheReferences
Gai Di, Zhang Xiao. Corporate Tax Risk
Management: Risk Identification and Prevention[J]. Finance and Accounting, 2009: p11-12.
Lin Tianyi. Reflections on Strengthening Tax Risk
Management of Large Enterprises [J]. Tax
Research, 2010, p14-17, p80-90.
Zhang Zhiyong. Research on the Construction of
Corporate Tax Risk Prevention Mechanism [J].
Accounting Research, 2011, p22-23.
Liu Jianmin, An Changying. Empirical Analysis
of Tax Risk in Real Estate Enterprises [J].
Friends of Accounting, 2012, p25-28.
Tao Liping, Research on Tax Risk Based on
Internal Control. Master’s Thesis.2013 p35-39
Wang Zehua. Control and Management of Corporate
Tax Risk. Master’s Thesis. p24-29
Zhang Zhaoguo, Zhang Wangfeng, Yang Qingxiang.
Construction and Empirical Test of Internal
Control Evaluation System under Target Guidance[J]•Nankai Management Review, 2011, p144149.
Zhang Xiao. Tax Risk Management Based on

A Study between Internal Control and Tax Risk

Enterprise Internal Control System. BusinessAccounting. 2010. p42-43.
Li Shuo. Research on Internal Control of Corporate
Tax Risk [J]. Shandong University of Financeand Economics. 2014. p18-26
Tan Guangrong, Zhang Lihua. An Empirical
Analysis of Tax Risk in Automobile Manufacturing
Industry [J]. Journal of Social Science of Hunan
Normal University, 2010, p84-87.
Zhang Yunhua. Analysis of the Causes of Tax
Risk in Enterprises and System Design. Tax
Research. 2010 P26-27
Li Shuping. On the prevention of tax risk andmechanism innovation [J]. Finance and Trade2005 p12-15
Han Lingli. Tax risk of the company and its
prevention. Tax Research 2008 p15-16
Sun Fangcheng, Mei Bo, Yang Xinglong. Internal
Control, Accounting Information Quality andAnti-dumping Response [J]. Accounting Research,
2011, 47-54.
Tom, Neubig, Balvinder Sangha. Tax risk and strong

corporate governance [J]. Tax Executive, 2004,
114-118.
Mark S. Beasley, J. Gregory Jenkins，Roby B.
Sawyers. Brainstorming to Identify and Manage
tax risk [J]. Tax Adviser, 2006. 158-162.
Emer Mulligan, Lynne Oats. Tax Risk Management:
Evidence from the United States [J]. British Tax
Review, 2009 p26-27
Lavermicocca, Catriona. Tax Risk Management
Practices and their Impact on Tax Compliance
Behaviour — The Views of Tax Executives from
Large Australian Companies [J]. Journal of Tax
Research, 2011, p89-115.
Haroldene F. Wunder. Tax Risk Management andthe Multinational Enterprise [J]. Journal ofInternational Accounting, Auditing and Taxation,
2009, p14-28.
Goodman G. R. Internal controls for the tax
department [J]. Tax Notes, 2004, p579-588.
Ernst&Young. Tax Risk Management [M]. Lexis
Nexis AU, 2004.p15-25

231