Controlled Foreign Company Tax Law System

By employing the approaches of integrative comparison and inductive analysis, and from domestic and international perspective, the present dissertation compares and analyse the Controlled Foreign Company (CFC) legislations enacted in some countries, studies the relationship between the CFC legislations and the international tax treaties, and especially studies the relationship between the CFC legislations and the OECD Model Tax Convention on Income and on Capital (OECD Model). The author then reviews and comments on the four cases to date involving in the relationship between the CFC legislations and tax treaties. Based on the above analyses and comments, the author conceives the framework of China's CFC legislation, and puts forward his suggestions on how to resolve the potential contradictions between China's CFC legislation and tax treaties to which China has conceded. This dissertation consists of four chapters.Chapter 1 gives a brief introduction to some related international tax policies, including the taxation jurisdiction, the principles of the taxation on foreign-source income from investment, the definition and implications of "double taxation", and the tax treaties developed for the purpose of relieving international double taxation. The author then renders his own view of points on the economic and legal climate of the CFC legislation, the characteristics of CFC legislation, and the justifications on the accountancy, taxation and law of the CFC legislation.Chapter 2 gives a comprehensive comparison and analysis of the CFC legislations of certain countries. A common characteristic of the CFC legislations of those countries is the taxation imposed on the domestic residential shareholders of the foreign companies for those undistributed income of these foreign companies, though there exist numerous differences in the scope and application of the various CFC legislative regimes.Chapter 3 focuses on the analyses and reviews of the relationship between CFC legislations and tax treaties, including the status of tax treaties in the domestic law of the countries which have enacted CFC legislation, the approaches adopted to interpret those double taxation treaties by domestic courts, the provisions of theOECD Model and its Commentaries that may have an impact on the effectiveness of CFC legislation, the treaty practice of those countries concerned after the adoption of their CFC legislations, and the measures of these countries in resolving the contradictions between their CFC legislations and tax treaties. The conclusion is that CFC legislation in those countries, which do not specifically incorporate a treaty-overriding provision in their domestic legislations or do not include in their tax treaties a provision specifically allowing the application of their CFC rules, will inevitably contradict with their tax treaties. Therefore, the experience and lessons of other countries' treaty practices in eliminating any contradictions between their CFC legislations and tax treaties show that it is necessary to incorporate a specific reserving clause in the tax treaty or to include a treaty-overriding provision in the CFC legislations.Chapter 4 analyses and comments on China's present taxation system on the income from investment abroad. The author is of the opinion that, with the increase of China's investment abroad and the abolishment of foreign exchange control in the foreseeable future, it is necessary for the legislators of China to adopt the CFC legislation to protect its domestic tax base. The author in the end conceives the framework of China's CFC legislation, and renders his suggestions on how to resolve contradictions between the future CFC legislation and tax treaties.