1. Listed companies transfer tax burden through related party transactions, which reduces the overall tax burden of enterprises and causes the loss of national tax revenue.
2. Listed companies manipulate profits through transfer pricing and whitewash financial statements. In order to qualify for rights issue, avoid being delisted by ST and PT, achieve the predetermined profit index, and other economic and political reasons, the related party transactions will increase greatly at the end of each year. Listed companies often inflate their profits through improper related party transactions. Earnings information is the focus of financial statements and an important basis for investors to make decisions. A large number of abnormal related party transactions make it impossible for investors to distinguish between high-quality companies and low-quality "lemons", which leads to inefficient allocation of social resources.
3. Related party transactions with abnormal pricing may make listed companies become ATMs of controlling shareholders, which will harm the interests of minority shareholders. A considerable number of controlling shareholders of listed companies use related party transactions to transfer funds to the parent company or its affiliated enterprises, such as buying listed companies' products at low prices and selling them at market prices to obtain the difference, providing raw materials to listed companies at high prices, occupying listed companies' funds free of charge or below normal interest rates, and transferring low-quality assets to listed companies at high prices. This actually sucks up the operating ability, profitability and solvency of listed companies and erodes the interests of minority shareholders.
4. Related party transactions with abnormal pricing violate the principle of fair trade. Some affiliated enterprises use transfer pricing to launch unfair competition, monopolize the market and interfere with the market transaction order.
5. Foreign investors of some foreign-funded enterprises may use transfer pricing to sell goods or raw materials to their foreign companies at low prices, or import raw materials or machinery and equipment from their foreign companies at high prices, so as to transfer the profits earned in China and achieve the purpose of paying less or not paying income tax. This has seriously damaged our national interests.