Tax Sparing Clauses In International Tax Treaties

Tax Sparing Clause is a clause which provides one of the contracting party should give credit to the exemption and deduction of tax which would have been paid in the other contracting party for the incomes derive from the latter party, for the purpose of avoiding or eliminating double taxation. In 1960s and 1970s, many countries introduced Tax Sparing Clauses into their treaties. Since 1990s, many countries especially developed countries began to require to insert restrict provisions or additional conditions into the Tax Sparing clauses which were signed or are to be signed. In March of 1998, the Organization for Economic Cooperation and Development (hereafter named OECD) published its report on the effect of Tax Sparing clause in bilateral tax treaties. The report pointed out all kinds of drawbacks of Tax Sparing Clause and advised its member countries to reconsider how to design reasonable clauses. After the report being published, the trend to reconsider Tax Sparing Clause arising in the developed countries became more and more obvious. But at the same time, most developing countries are still eager to ask for Tax Sparing treatment from other countries. What are the reasons on earth? China is one of the countries that accept Tax Sparing treatment from other countries. How does International Tax Sparing Clause do in our country? Since there is huge difference among other countries'attitudes towards the International Tax Sparing Clause, which kind of strategy is the best one we should take is becoming a real question. The author tries to answer these questions by means of law in the paper and wish to help our work in the future. For the purpose to look for the real reasons for the criticism to Tax Sparing Clause, the author begins with reconsideration of Tax Sparing Clause, then combines the summary of the usage of Tax Sparing Clause in our country and questions we meet , finally proposes the strategies we should take. The paper divides into four parts other than the introduction and conclusion . Part I Summary of Tax Sparing Clause Firstly, introducing the conception, characteristics and scopes of Tax Sparing Clause; secondly, reviewing the historic development of Tax Sparing Clause. Part II OECD's Reconsideration for Tax Sparing Clause. At the beginning, the paper compares the traditional stands of developed countries to Tax Sparing Clause with their real attitudes, then makes a conclusion that it is necessary to reconsider the Tax Sparing Clause. Following this, analyzes OECD's ideas about Tax Sparing Clause and its suggestions for designing Tax Sparing Clause, then finds that some ideas and suggestions are partial and OECD tried to defend for benefits of developed countries.. Part III Objective ideas about Tax Sparing Clause Firstly, the author introduces the roles of Tax Sparing Clause, Secondlyreconsiders the Tax Sparing Clause and points out the reasons why Tax Sparing Clause breeds so much criticism practically. The subjective reason is that it has a series of shortcomings which will diminish International Tax Sparing Clause's role. While the objective reasons are that contracting parties and investors will abuse Tax Sparing Clauses and the drawbacks of tax incentives will prevent Tax Sparing Clause to play its role properly . Thirdly the author concludes that we should acknowledge the role of Tax Sparing Clause while we criticize its shortcomings. What's more, we should not push all the liabilities to Tax Sparing Clause. To make use of International Tax Sparing Clause, we should not only design reasonable Tax Sparing Clauses, but also need to improve relevant domestic law. Part IV The Usage and Strategy of Tax Sparing Clause in our country The paper Firstly focuses on the present situation and the characteristics of Tax Sparing Clauses in our country; secondly discusses the problems and the challenges we meet. the author believes that, Lack of uniform and precise provisions, many factors that restrain Tax Sparing Clause, foreign enterprises'abuse to Tax Sparing Clause, foreign tax incentives'drawback and the voice to restrict and even cancel the Tax Sparing Clauses becomes louder and louder and many developing countries ask us to give them Tax Sparing treatment constantly during the negotiation of tax treaty are all the problems we encounter. To solve these problems, we should revise and improve relative laws in our country, on the other hand, we should have Tax Sparing Clauses signed and revised reasonably.