Researches On The Special Tax Adjustments Rules Of Enterprise Income Taxation

Enterprises are’economic person’, with the nature of pursuing maximized profit. Tax avoidance has been a most common phenomenon since China’s reforming and opening up, particularly with foreign enterprises and private enterprises. Tax avoidance is very harmful in that it reduces our national financial revenues and affects the fair competition order of the market economy. Therefore, by summarizing anti-avoidance experiences of our country and referring to other countries’successful approaches, the legal system of anti tax avoidance is established in China, with the implementing of the enterprises income tax law and implementation measures for special tax adjustments in2008. Thus, the following questions need to be studied: What is the theoretical basis of the common enterprise income tax (EIT) avoidance means? What is the legal basis of special tax adjustment anti-avoidance rules? What are the innovative and incomplete points of China’s anti-avoidance legal system?"Rationality principle" is the typical representative for the objective incompleteness and strategic or subjective incompleteness in the application of EIT pretax-deduction and special tax adjustment rules. In tax collection practices, how to judge the rationality degree? Considering the innovation and incompleteness of enterprise income tax law and its special tax adjustment rules, what are the impacts that they will make on those tax avoidance means? What is the basic situation of enterprise tax avoidance phenomenon currently and what are the enterprises’overall cognition and basic viewpoint towards tax authorities’special tax adjustment anti-avoidance? How to complete and perfect our country’s "enterprise income tax law" and its special tax adjustment rules? To these problems, this paper draws the following conclusions:(1) The common enterprise income tax (EIT) avoidance means are all generated out of theoretical grounds. While the legal bases of special tax adjustment anti-avoidance are the incomplete contract theory, incompleteness of law theory and the substantive taxation principle. Under the condition that the "enterprise income tax law" and the special tax adjustment approaches could not possibly plug all the avoidance loopholes, the special tax adjustment rules serve as an authorized norm, granting the tax authorities with the executive power of anti-avoidance tax adjustment. Under the incompleteness of law theory, the residual executive power of selective law enforcement is allocated to tax authorities. Tax authorities, by following the substantive taxation principle and getting rid of the restraint of legal forms, could directly levy tax on the economic essence, thus effectively regulating the tax avoidance behavior.(2) The current enterprise income tax law and the special tax adjustment rules have distinct innovation and highlights. However, they are incomplete in the legislative and executive aspects, according to the incomplete contract theory and incompleteness of law theory.This is reflected in that, many anti-avoidance measurements are borrowed from the successful experiences of foreign countries, which are abstract in prince and elastic in practice and fuzzy in many a aspects, thus it is inconvenient for tax authorities and enterprises to carry out these anti-avoidance rules. Questionnaire survey results show that, enterprises have a strong desire to reduce the tax burden, but the tax planning modes they adopted contain many tax avoidance methods, for which the special tax adjustment measures are made. Current special tax adjustment measurements carried out by tax authorities has achieved certain anti-avoidance effect, but there are some room for improvement in some aspects, such as perfecting laws and regulations, increasing publicity nd promotion, strengthening the operability and increasing enforcement.(3) The enterprise income tax law and its special tax adjustment rules are incomplete in many aspects, therefore, it is the requirement of tax collection legislation and execution to reduce their incompleteness as far as possible.As for the application of " rationality principle ", the regulations on the " reasonable expenditures ","reasonable employee salaries and wages" and "reasonable interest expense" in pre-tax deduction rules of EIT and regulations on the "reasonable business needs" in controlled foreign enterprise management rule of the special tax adjustments are examples of objective incompleteness, while the regulations on "reasonable commercial purpose" in general anti-avoidance rule of special tax avoidance are examples of strategic or subjective incompleteness.This paper, by combining social knowledge, related regulations and the occupational judgment of accounting and tariff staff, tries to provide some basic standards and practice cases to decide its rationality.(4) In view of the innovation and incompleteness of "EIT law" and the special tax adjustment discussed above, it will produce great influence on the common forms of tax avoidance. The analysis of macroeconomic data and enterprises financial data employed in this dissertation shows that:The cancellation of foreign enterprises’super national treatment in tax collection makes it insignificant in tax collection for taxpayers to avoid tax under the guise of foreign identity. The tax preferential policy of "industry preference first, regional preference as a supplement" makes it no longer effective for enterprises to register in special districts as a tax planning way. The affiliate transaction management measures have certain effects on transfer pricing tax avoidance, but, due to the various forms and convert means of transfer pricing, it still provides certain tax avoidance space. Capital weakening management can’t restrain the market debt financing of unrelated parties, therefore, it is still a possible major tax avoidance way for enterprises.A once widely adopted tax avoidance means is to set a special purpose company in international tax shelter, indirectly holding equity of the joint venture company in China, so as to obtain tax benefits when transferring the equity. But, many cases released by national tax administration indicate that, the general anti-avoidance rule will consider it as a company with unreasonable commercial purpose and deny its existence.(5) This dissertation, by employing the2008-2009years’financial data of listed companies in Shanghai and Shenzhen stock exchange, attempts to verify the anti-avoidance effect of special tax adjustment rules. This article draws on the experiences of domestic and international scholars, and uses the actual enterprise income tax rate (ETR) to judge enterprises’tendency towards tax planning. The empirical results show that, the initiative achievement of the tax reform has unleashed. Some specific achievements are as follows:①The unification in the identification of the taxpayer’s identity, helps to eliminate some differences in tax treatment among enterprises of different ownerships. This is reflected by the statistical insignificance between ETR of listed companies ultimately controlled by the state or private body;②the change of the preferential tax policy orientation to "industry preference first, regional preference as a supplement", will make more fund to be invested to the industry and regions which the country encourages to develop. This is embodied by the finding that the ETRs of enterprises in western region and in agriculture, forestry, herd or fishing industry, is significantly lower than those of enterprises in other regions and other industries.③enterprises’tax avoidance tendency has been curbed to certain degree. Zheng Hongxia etc(2008) claimed that private-controlled listed companies have a higher tax planning tendency before2005. However, this study finds that there is no significant statistical difference in ETR between enterprises ultimately controlled by the state or private body after the year of2008. This finding shows that, the new tax reform and the introduction of special tax adjustment measurements, reduces the application space of previous common tax avoidance means, and curbs, to some degrees, the large-scale tax avoidance phenomenon of private or foreign-funded enterprises in particular.(6) Some works should be done to perfect China’s anti-avoidance measures:①Reinforcing the construction of anti-avoidance talents, steadily improving the specialization of supervisory personnel. Cultivating professional supervisory personnel of specific industries, building economic analyst team, and carrying out thoroughly "joint expert panel system" in case investigation and consultation.②improving the status of anti-avoidance authorities. Increasing the status of current anti-avoidance department of international tax bureau to Bureau level, in order to strengthen the its leadership to anti-avoidance.③Gradually expanding the depth of anti-avoidance career from points to areas. From foreign-fund enterprises to private, state owned or joint-stock enterprises. Expanding measures from manufacturing industry to servicing industry, from tax avoidance in affiliate transaction to capital weakening and tax avoidance of controlled foreign enterprises and special purpose enterprises, from transfer pricing and booking price management to cost sharing and advance ruling, to anticipate progresses in aspects of "region"," industry"," enterprise"," transaction", and "measures".④Assessing tax avoidance clues and strengthening connections among departments, with electronic means as the basis;⑤cultivating tax agency of high quality and strong integrity;⑥establishing the list of tax shelters, and furthering cooperation with tax-shelter countries;⑦conducting effective international cooperation to crack down the cross-country tax avoidance behavior.⑧establishing advance ruling system, to provide guidance for taxpayer.⑨reducing the taxpayer’s tax avoidance tendencies by lower the tax burden.