Font Size: a A A

The Thin Capitalization Tax Legal Issues Research

Posted on:2009-09-10Degree:MasterType:Thesis
Country:ChinaCandidate:F F ZhouFull Text:PDF
GTID:2206360272459048Subject:Law
Abstract/Summary:PDF Full Text Request
Currently, thin capitalization has become a new trend of tax avoidance for foreign-invested enterprises. With the enforcement of the new enterprise income tax law, there will be an adjustment of the tax bearing for foreign-invested enterprises in different industries. Some of them will be imposed with heavier tax bearing, which will, to some extent, intensify their intention on tax avoidance. Along with the gradual looseness of the capital items of foreign currency regulation and the skillfulness of the tax avoidance operation, thin capitalization will be more and more frequently adopted for tax avoidance purposes. Thin capitalization severely invades our tax interests, and leads to a series of negative impact. We have to take sound measurements to prevent and regulate it. Meanwhile, because of the complexity and the covertness, thin capitalization has not been attached corresponding importance. Studies on this subject, therefore, would have great realistic and academic significance.This thesis, starts with the economic and legal analysis of thin capitalization, so as to demonstrate the necessity of the effective regulation on it; following with it, introduces and summaries the experience of tax rules on thin capitalization of different countries, and then combines with its practice in our country and its current legal regulation; based on all of the above, make some suggestion to clarify and to perfect our tax rules on thin capitalization.This thesis is consisted of four chapters, which go as following: chapter 1 firstly brings up the topic from the perspective of taxation operation. Following, it applies the famous tax avoidance theory of best capital structure, to probe its economic nature. Then, it continues with further taxation and legal analysis, pointing out that the distinctive taxation treatment between interest and dividend is the very root reason for tax avoidance by means of thin capitalization. Specifically, due to the deductibleness of the interest of debt, some transnational related enterprises prefer debt capital financing to equity capital financing when they are making their financing decision, so as to, prior to the income tax, obtain the profit in the form of interest and ultimately to realize their tax avoidance goals. Chapter 2 briefly introduces the most commonly used approaches on regulation of thin capitalization: fixed ratio approach and arm's length approach. Chapter 3 makes an analysis and evaluation on the current situation of tax avoidance in our country, and following, on the current legal regulation and administration of thin capitalization, pointing out that, with the enforcement of new enterprises income tax law and the gradual looseness of capital items on foreign currency regulation, thin capitalization will be adopted by more and more foreign-invested enterprises, and it will probably become one of the core issues of international tax avoidance. The last chapter makes some suggestion on how to clarify and perfect our newly prescribed tax rules on thin capitalization.
Keywords/Search Tags:Thin Capitalization, Tax Avoidance, Fixed Ratio Approach, Arm's Length Approach, Taxation Regulation of Thin Capitalization
PDF Full Text Request
Related items