Research On Legal Regulation For Multinational Company Via Thin Capitalization

In the early years of 19th century, regulations and laws on multinational company via thin capitalization were enacted in the developed countries, such as America, Australia etc. They have rich experiences to solve this problem. Enterprise Income Tax Law of the People's Republic of China enacted in March, 2007 made some prescriptions on multinational company via thin capitalization. However, it is a new legal system, there are still some problems. The purpose of this paper is to make regulations and laws on multinational company via thin capitalization better by introducing and analyzing other country′s regulations in order to protect the tax benefit of our country.In this paper, comparative method is used to restrict the behavior of multinational company via thin capitalization from legal respect. In the first part, tax profit is illustrated by comparing the financing of the equity and debt adopted by multinational company when they invest to other countries. In the second part, two primary approaches, being a "fixed ratio/safe harbor approach" and a "flexible/arm's length approach", in the report issued in 1987 by OECD (Organization for Economic Cooperation and Development) are introduced to deter thin capitalization for multinational company. At the same time, several country′s thin capitalization rules are introduced with my own brief ideas. In the third part, research method of jurisprudence is used to see which one has priority if there is inconformity between the thin capitalization rules in a country and tax treaty contracting with other countries. In the fourth part, some measures are proposed by learning foreign experiences to restrict thin capitalization for multinational company.The research result of this paper is concluded in the last part. In this part, I analyze the problems of our regulations and laws on multinational company via thin capitalization and measures are proposed. "fixed ratio/safe harbor approach" and "flexible/arm's length principle" are used to restrict thin capitalization in our country, but the fixed ratio and the standard in equity of associated party is very restrictive, we should raise it to make our thin capitalization rules better. At the same time, China should actively negotiate and modify tax convention contracting with other countries, and promote international exchange and cooperation to attack tax evasion for multinational company via thin capitalization.I hope this paper make some contribution to some extent in order to deter thin capitalization for multinational company. However, some mistakes probably exist in this paper because of the limitation of my knowledge and theory.