| Ever since its born, international taxation has had two crucial tasks, double taxation and international tax avoidance. The common practice of preventing double taxation is usually achieved by negotiations between different tax jurisdictions, resulting in the sign of tax treaties. But when it comes to handling tax avoidance, the perceptions and approaches vary due to the disparities of history background, political and economical system, tax regime and legal system of countries around the world. In China, research on how to deal with international tax avoidance started in the early 1980's. Admittedly the Chinese tax authorities have undergone an arduous journey for the past two decades. Acting as a field examiner of transfer pricing, the author points out that the ultimate aim of tax anti-avoidance is to perfect tax law regime as well as protect tax bases in China. The thesis falls into four parts.Part 1. What is tax avoidance? To begin with, there are no direct definitions of tax avoidance specified in any of the tax laws in the world because tax authorities have not had adequate experience in that aspect. Secondly, it should be noted that three kinds of views do exist when tax professionals deal with tax avoidance. One holds that tax avoidance means playing upon the loopholes or defects of tax law so as to minimize tax liability. The other thinks that tax avoidance is analogous to tax evasion, though it shall not be imposed with any penalties. Still another simply views tax avoidance as alegal activity. Thirdly Chinese tax administrations treat tax avoidance as something between tax evasion and tax planning.Part 2. An introduction of the main modes of tax avoidance. Generally speaking, there are six main approaches for avoiding taxes which are respectively migration of taxpayer, thin capitalization, tax haven & controlled foreign company, cost contribution arrangement, transfer pricing and abuse of tax treaty. For the migration of a taxpayer to a low tax jurisdiction, it is usually difficult for the tax authority of the host country to make much restriction. As to the tax treatment towards CFCs, most of the tax administrations adopt the Subtitle F Provisions of the Internal Revenue Code, US, in other words, any parent company should includes income of its CFCs when filing annual tax returns Cost contribution arrangement is a relatively new approach adopted by multinationals to avoid tax. Presently study on this avoidance mode is insufficient, so a discreet attitude should be taken in making laws restricting CCAs. Up to now China has already enacted specific laws defying transfer pricing between related corporations, but laws concerning thin capitalization and abuse of tax treaty have been quite unsystematic. No legal restrictions have been made on tax haven, CFCs and cost contribution arrangement.Part 3. Evaluation on the law governing tax avoidance. Firstly, it is only recently that China began its legislation on tax anti-avoidance and such laws or provisions are quite low graded. Secondly, anti-avoidance provisions only include: Article 36 of Law On Tax Collection And Management Of The People's Republic Of China, Article 51,52,53,54,55,56 of Detailed Rules Of Law On Tax Collection And Management Of The People's Republic Of China, Tax Regulation On Transactions Between Related Corporations. Lastly, it should be noted that laws on tax anti-avoidance are insufficient in the following eight aspects: no general provision for governing anti-avoidance; legally uncertainty of the qualification of tax avoidance auditors; no strict requirement for disclosing related transactions on the part of taxpayers; no criteria for determining what is the fair interest rate; no practical way to assess value of the intangibles; illegal tax documents; insufficient methodologies for transfer pricing; no specific regulations on thin capitalization, tax haven, abuse of tax treaty, etc.Part 4. Advice. The author holds that in the future Chinese tax authorities should focus on the following aspects in draftin...
|
PDF Full Text Request