Study On Transnational Dividend Taxation

The study focuses on the taxation of transnational dividend. The author tries to find out the balance point among three parties involved in transnational dividend taxation: source country of dividend, residence country of transnational investor and transnational investor himself. The whole study is divided into four chapters.Chapter 1 examines the concept of transnational dividend which constitutes the basis of the further research. In the author's view, concept of dividend in tax law is different from what is defined in company law. Generally, concept of dividend in tax law pays more attention to economic reality and substance of transactions. Influenced by the OECD model and UN model, there is much common place in specific tax treaties. On the other hand, influenced by the respective domestic laws, dividend concepts in specific tax treaties bear their individual traits. The chapter also introduce dividend concept in thin capitalization situation and dividend-stripping situation. These dividend concepts are designed in some counties'domestic laws to prevent taxpayers from evading taxation. But in practice, these regimes need to be harmonized with tax treaties.Chapter 2 and chapter 3 deal with the harmonization taxation system between source country and residence country. Harmonization tax system means source country and residence country share the taxation power. Chapter 2 discusses the source country's system. Take into consideration that the dividend will be taxed first in source country, in order to ensure the operation of"sharing system", tax rates to dividend in source country must be limited. In the real world, source country's limitation is differentiated between direct investment and portfolio investment. If the permanent establishment is involved in the taxation, the basic rules discussed above shall be amended. First, any dividend income which is attributable to permanent establishment shall be taxed according to the general rules applied to profits earned by permanent establishment. That means source country's taxing power will not be limited to the general rules about transnational dividend. Second, as to distributed profits and undistributed profits of permanent establishment, source country have no power to tax.Chapter 3 introduces another aspect of harmonization tax, that the resident country shall provide methods to relieve the tax on dividend borne in source country toeliminate double taxation on dividend. As to jurisdictional double taxation, there is a consensus that it need to be relieved. But as to economic double taxation, academic opinions and practice are very different. In the author's view, we need to take measures to provide moderate relief to economic double taxation. This shall be the case in particular in the field of inter-company dividend taxation. If we don't provide this relief to inter-company dividend, the recurrent taxation can not be avoided. As to dividend taxation of individual shareholders, the tendency now is to back to classical company system. Chapter 4 provides the corresponding amendment of current Chinese tax system in transnational dividend. We shall introduce some new rules to recategorize income into dividend to fight against taxpayers'evasion of tax law. The author notes that China is a huge captical importer and will be a big capital exporter. So it needs us to amend rules about both source country and residence country. We need to change the current practice that gives the same tax treatment to direct investment and portfolio investment both in domestic law and in tax treaty. At the same time, we need to amend the rules about economic double taxation. We need to enlarge the application scope of half income system to relieve the individual shareholders'burden. We need to introduce indirect credit method in domestic law and insist the current treaty practice to provide indirect credit method.