Research On Regulation Of Taxation Evasion Based On Thin Capitalization For Transnational Enterprise

Thin Capitalization means investors reduce the proportion of equity, raise the proportion of debt to loans offering alternative form of financing in the enterprise of choice of the mode of financing,in order to achieve tax purposes or other purposes.In recent years ,enterprises , particurly the Transnational enterprise increase the interest expense to transfer the taxable income and then to get tax burden minimization by reducing the share capital and expand the scale of loans . This negative impact can not be ignored . It has gradually become multinational widely used method of tax avoidance.The model for calligrahy of OECD and the United Nations should recommend to adopt 2 ways of coping with thin Capitalization : (1) Normal trading method. (2) Fixed rate method. In 1976 the United States enacted china's capital-weaken taxation (IRC section 385), added 163 J terms to make it more perfect in 1989, then, the United Kingdom, France, Germany, Canada, Australia and other countries have also introduced and established this system .Japan introduced the formal system of the Thin Capitalization model during the 1992 tax reform. New enterprise income tax law implenmentation, "the unified tax system" involving tax concessions to foreign investment system reform, in particular the preferential treatment of various equity investments range compression adjustment, the future capital projects in China has gradually liberalized the foreign exchange controls, capital dilution inevitable will be more and more transnational investment utilized by people, as to maximize the after-tax profits of tax avoidance methods.On the basis of learning from developed Western countries's success of Thin Capitalization system experience, China should combin with the condition of our country and take the opportunity of new corporate income tax law implementation , use safe harbour provisions to set up China's Thin Capitalization tax system, focus on the following aspects of work: (1) Determine the appropriate debt / equity ratio, and adjust the minimum level of control related parties. The suitable rate will be 30% -40%. (2) Definite fixed debt / equity ratio's caculating object .According to China's actual conditions, we believe that our country's safe harbour rule should be caculated by individual sharedholders .(3) Definite debt capital and equity capital scope. Debt capital should be defined as enterprises get it directly or indirectly from all related parties and enterprises should pay the fixed-income borrow funds by cash or other forms of non-cash according to contractual agreement to the need for regular cash or other forms of non-cash .It mainly includes non-residents from China's banks to offer alternative investments with fixed interest rates and long-term loans; linked to corporate earnings and residents of floating rate loans; commissioned by the back-to-back loans or loans with loans and equity investments dual characteristics of the mixed loans provided by an unrelated third party, but shareholders have recourse loan. (4) Definite the excess interest calculation and processing. The tax department need to impose corporate income tax and and withholding tax according to divident 's tax rate,at the same time, enhance the international tax cooperation.