Research On Strategy Of Preventing Tax Avoidance By Thin Capitalization Of Multinationals

With the factors such as capital and technology move across countries freely, tax-avoidance by the way of thin capitalization is becoming more and more popular. Countries differ in their rules of anti-tax-avoidance by the way of thin capitalization because of every county's specification. Our county's rules develop step by step, too. And by now, our rules are well and reasonable.The main principal of tax avoidance by the way of thin capitalization is that the interest of loan can be deducted pre-tax. Resident taxpayers will ignore the crises of high loan to gain more pre-tax deduction, let alone the capital structure.There are two main methods to solve the problem:rules of safe port and the principal of equal transaction. We choose the former one which means that the rate of loan and equity must be lower than a proper rate, or the ex-interest cannot be deducted. The second method emphasizes on equality, but in real station, it is always hard to achieve.This essay will take New Zealand and British Empire as examples to explain how to operate the two methods, at the same time,make a compare between their operation and ours to make up for each other's deficiencies, at last to improve our rules. This essay also supplies some cases to make the points more clear.