Study Of Multinational Intra-group Transactions Tax Law System

With the gradual liberalization of investment, more and more multinational enterprises establish subsidiaries in China, at the same time, some Chinese enterprises establish subsidiaries in foreign countries, among which, some may evade taxes though intra-group transactions, which will infringe taxation sovereignty as well as injure economic benefit of China. Many countries and international organizations lay emphasis on intra-group transaction taxation, while Chinese law governing intra-group transaction taxation is imperfect and related practice is lacking. Therefore, the research into intra-group transaction taxation is of far-reaching theoretical significance and pressing current significance.This thesis first epitomizes intra-group transaction, and then introduces domestic laws and international legislation governing intra-group transaction taxation. This thesis points out that intra-group transaction parties come within different tax jurisdiction, and thus make tax payment to related countries respectively. Many countries enact statutes governing intra-group transaction taxation in order to prevent multinational enterprises allocate at will global income and cost among parent and subsidiary entities, grant multinational enterprises and independent enterprises the same tax treatment, and ensure the tax payment made by multinational enterprises is fairly distributed among different competing countries. This thesis then expounds the concept and applying methods of generally adopted ".arm's length principle", probes into several important problems of comparability analysis, adjustment and information exchange in the application of "arm' s length principle", elaborates on the application of the principle to four types of intra-group transactions, including tangible transaction, intangible transaction, loan and service, and then analyzes the advantages and disadvantages of "arm' s length principle".The advantages of "arm's length principle" are as follows: arm's length price is market price, thus protects the interests of both intra-group transaction parties, moreover, the principle ensures the same tax treatment between the multinational enterprise and independent enterprise and comparatively fair distribution of tax payment among related countries.The disadvantages of "arm's length principle" are as follows: the theory is not sound and the application is rather difficult. From the angle of theoretical basis, multinational enterprises often employ centralized management, in other words, parent companies often have control overinterdependent subsidiaries, thus produces scale economy, which differentiates from independent enterprises. In this sense, the infra-group transaction and the uncontrolled transaction are incomparable. In addition, the application of "arm's length principle" amounts to denying the centralized management of multinational enterprises. From the angle of application, sometimes if s hard to find the comparable uncontrolled transaction, and the application is somewhat difficult. The alternative "formula apportionment method" relates to the taxation sovereignty and economic benefit of countries concerned, and the application of mis method is also difficult. As a result, "formula apportionment method" is not widely adopted.The author holds that modern multinational enterprises carry out centralized management at different levels, each subsidiary keeping separate account has its own interests. In this sense, the "arm's length principle" is rational. Moreover, if there exists comparable uncontrolled transaction, the arm's length price is close to market price. More importantly, tax authorities and multinational enterprises share common understanding on "arm's length principle", which helps to protect tax base of countries concerned and avoid double taxation. In conclusion, without a rational as well as feasible alternative principle, tax authorities should stick to "arm's length principle".Finally, this thesis expounds Chinese laws governing intra-group transaction taxation a...