Research On The Tax System Of Thin Capitalization

Thin capitalization is a widely used tax avoidance way,which severely violates the interests of sovereignties,disturbs the international market order,destroys the fairness and justice of tax, and interferes with its normal exertion of regulating and controlling. It goes without saying that it is harmful,and has become the target of tax avoidance prevention in every country. It has a greater harmfulness because,compared with the common way of tax avoidance such as transfer pricing,it is an even convert way. And in practice,there is also a great difficulty in taxation supervision. It is a challenge for various countries to take precautions against thin capitalization. The"PRC Enterprise Income Tax Law",which was promulgated on January 1st,2008, preliminarily standardized the problem of "thin capitalization"in the form of legislation for the first time. The Measures for the Implementation of Special Tax Adjustment (on trail), which was promulgated on Jan. 8th,2009 by DGI,gives a more detailed provisions on "thin capitalization". However,in China,related tax laws and regulations concerning thin capitalization is only a rough framework,and a comprehensive and systematic tax structure has not yet established.The paper starts with the rationale,causes,and influences of thin capitalization,and adopts methods like logic deductive and historical induction,standard and empirical analysis. Through analyzing actual cases of thin capitalization,the author tries to conclude some characteristics and commonness of tax avoidance that enterprises applied with the help of thin capitalization,and probes into the current situation and problems of tax system of the thin capitalization in China. The paper takes examples of the tax systems of other countries,integrating the research methods of comparative and inductive analysis. Linking theory with practice,the author ventures to propose some measures of tax policy of thin capitalization in accordance with China's national conditions,and present some feasible suggestions for the improvement of the tax system of thin capitalization.