Study On The Legal Theory And System Of Trust Income Taxation

China officially introduced the trust system in2001. With trust system is applied to the fields of civil, commercial, public welfare, social security and other fields, the challenges to our current income tax system is increasingly prominent, and the rift between the trust system and tax system. The taxation of trust income has become an important issue to tax theory and practice circle.The taxation of trust income involves not only the application of personal income tax law and enterprise tax law, but also the clear and specific of some tax system elements such as taxation object, tax payer, tax base, tax rate, tax payment stages, tax deduction, and so on. To solve these problems, the premise is clearing trust income attribution, which is the basic problem of trust income tax. Solving the basic problems of trust income taxation system is the core of theory study and system design.According to trust conduit theory, trust should be regarded as the conduit by which the client intends to transfer the benefit to the beneficiary. As the trust income belongs to the beneficiary, he or she should pay the tax. Meanwhile, according to the trust entity theory, the trust income belongs to the trust property itself, so tax is levied on the trust property, which is paid by client. These two theories are contradictory in the content and taxation system, however, they are mutual supplement in application scope, value pursuit and system function, through which they constitute the fundamental theory of trust income taxation system.The trust conduit theory is the leading theory to guide the design of trust income taxation system. It follows substantial taxation principle, and decides the fundamental principles of trust income taxation system. The fundamental principles of trust income taxation system include:No taxation with pro forma shifts; Taxation on the substantial beneficiary; Taxation on benefit. The principle of no taxation with pro forma shifts means that tax is only levied on the substantial shifts of trust property. The principle of taxation on the substantial beneficiary require trust income to the real beneficiaries and tax real beneficiary directly. The principle of taxation on benefit requires that tax should be paid at the moment when the profit happens, not until the beneficiary gets the trust income, which make sure the justice of taxation.The regulations of taxation system are designed consistent with the fundamental principles of trust income taxation system. The trust income taxation system is constituted by taxation system of trust shift and taxation system of trust income. The taxation system of trust shift should be designed according to the taxation system of testamentary trust and the taxation system of trust gift, which means a lot of relevant elements should be considered, such as benefit scope, benefit assignment, taxation timing, benefit assessment and so on. The corresponding tax regulations should be designed according to the trust shifts to improve current tax system. The taxation system of trust income should be designed respectively according to different assignment mode of trust income. The assignment mode of trust income is complicated. Generally speaking, the assignment mode of trust income can be divided into three types. The first type is vested trust income. As the vested trust income has already belonged to the beneficiary when the benefit happened, so the trust income tax should be levied on the beneficiary. The second type is accumulated trust income. As the accumulated trust income has not been assigned when the benefit happened, the client is responsible for the accumulation of the trust income, and the trust income tax should be paid by client. The third type is retained trust income. As the client retains the trust estate and trust income, for the retained trust income, the client should be responsible for the trust income tax in case tax avoidance of the client.