Controlled Foreign Company Tax And The Exemption Clause

Under the economic globalization,as to the different tax rates of many countries or regions,the transnational companies and their shareholders prefer to establish the sub-companies in the low-tax regimes to avoid or reduce the tax liability,In order to counteract tax-avoidance, many countries have adopted the rules of controlled foreign company (CFC rules) in their domestic tax laws, taxing on the undistributed income which should be attributed to the shareholder. The USA created the CFC rules in 1962, and many countries copied the legislation and set their own rules with characteristics of themselves. The CFC rules have been the very important part of the international tax law in addition to the double tax agreement. China has introduced the CFC rules in the article 45 of newly amended Corporate Income Tax Law. Since China has started the anti-tax avoidance mechanism recently, our rules are not so mature as the western countries, especially concerning on the exemption provisions of the CFC rules. This article will analyze the legislation and application of CFC rules and the exemption provisions to provide some suggestion on the China's legislation and practice.This thesis includes four chapters. In chapter one, the author introduces the basic conceptions of the CFC rules. In chapter two, the author focus on the international society's attitude on CFC rules mainly about the conflicts and harmonization between EU treaties and the domestic laws of its members, and also discuss the application of the double tax treaties and domestic laws from the prospective of the Model versions made by OCED and UN.In chapter three, the author analyzes the legislation of exemption rules of some typical countries, and emphasis on the rules of the USA and UK. In the last chapter, the author discuss the China's legislation and practice, including the Corporate Income Tax Law, the Regulations on the Implementation of the Corporate Income Tax Law, the three exemption provisions in the Special Tax Adjustment Implementation Rules, and also the China's double taxation treaties' rules about the CFC to assure the exemption provisions' application on the CFC's shareholders under the double taxation treaties. As to the situation of our country, more and more Chinese companies choose to invest oversea, so in the storm of anti-tax avoidance, the authority should make reasonable legislations and set certain exemption provisions.The article provides the advice on exemption provisions according to the above mentioned analysis.