Recently, the research paper "Income Tax Regime Differences, Organizational Form Choice and Tax Base Shifting: Evidence from the Adjustment of Business Income Tax Rates" was published in the top-tier Economic Research Journal, Issue 12, 2025. This paper was contributed by Ye Jingjing (corresponding author), Researcher at the Center for International Cooperation and Disciplinary Innovation of Income Distribution and Public Finance, and collaborators (Yang Longjian, Professor at the School of Public Finance and Taxation, Central University of Finance and Economics; Wu Ziyi from the School of Finance, Renmin University of China; and Liu Chong, Tenured Associate Professor at the School of Economics, Peking University).
Highlights:
In the context of the booming digital economy, new business formats such as the platform economy, live-streaming marketing, and flexible employment continue to emerge, giving rise to a large number of emerging market entities. An increasing number of practitioners in modern services, consulting, design, live-streaming, and related industries are opting to establish personal studios (typically sole proprietorships or individual businesses) or partnerships to conduct their operations, aiming to reduce their tax burden. This tax planning behavior, which involves making choices based on different organizational forms, has become a noteworthy phenomenon in current tax practices and serves as the focus of this study.
The paper examines how differences in income tax systems influence the choice of corporate organizational forms, using the 2018 reduction in China's individual business income tax rate as a policy shock while drawing on industrial and commercial registration data. It also studies the shift of the tax base between corporate income tax and individual income tax. The key findings are as follows: (1) The market entry rate of newly established non-corporate entities created to shift the tax base increased by an average of 5.57%, with sole proprietorships being the primary choice; (2) Tax base shifting is more prevalent in commercial and trade services, high-wage industries, outsourcing-intensive sectors, and micro, small and medium-sized enterprises; (3) Corporate entities with tax base shifting "channels" experienced an 8.26% reduction in profits and a 16.97% decrease in corporate income tax. Research indicates that tax base shifts across organizational forms may result in partial losses of policy dividends. Against the backdrop of emerging business formats such as the digital economy, future policy adjustments should place greater emphasis on tax system balance and enhance coordination and synergy among different taxes.
About the Author:
Ye Jingjing is a professor at the School of Public Finance and Taxation, Zhongnan University of Economics and Law; a researcher at the Center for International Cooperation and Disciplinary Innovation of Income Distribution and Public Finance supported by the Ministry of Education and the Ministry of Human Resources and Social Security; and a doctoral supervisor. She holds a Ph.D. from Southern Methodist University, USA. Her research focuses on tax administration and national governance, fiscal expenditure, and subsidy design. Her related findings have been published in authoritative domestic and international journals such as Journal of Management World, The Journal of World Economy, China Economic Quarterly, Journal of Banking and Finance, Urban Studies, and China Economic Review. She has been selected for provincial-level talent programs and as a candidate for academic and technical leadership. She has led and participated in four major projects funded by the National Social Science Fund of China, one project funded by the National Natural Science Foundation of China, one project funded by the Ministry of Education Foundation on Humanities and Social Sciences, and more than ten other national and provincial/ministerial-level projects. Her research achievements have won several awards, including the Excellent Paper Award from the Camphor Tax Forum, the Chinese Society of Technology Economics, the Fiscal Forum, and the China Association of Labor Economics. The research results from her practical investigations have been widely reposted and reported by media outlets such as Beijing News and Xinhuanet, creating a positive social impact.