Tax Analysis Of Offshore Trust Arrangement From The Perspective Of Economic Substance

This article is based on a hot issue in the field of Chinese taxpractice, that is, a lot of Chinese enterprises go out bounding in recentyears and setting up their controlling companies in the offshore islands,however, those companies are prefer to use the offshore companystructure instead of the offshore trust structure, the latter is widely usedby the other international companies to build tax shelter or to avoid taxliabilities. Still, using offshore trust to make tax arrangement is a growingtendency that we need to pay more attention to.Offshore trust structure is able to utilize the law evasion functionmore easily than the onshore trust structure, and it also bears thecharacteristics of high confidentiality, what s more, it is quite free to setthe clauses of the trust agreement to maximize the benefit the tax payers.When come to the tax analysis of the offshore tax structure, the economic substance principle will play the key role. It is crucial to distinguish taxplanning, tax evasion and tax shelter: the subjective test is the principle ofeconomic substance, and the objective test is the doctrine of businesspurpose.This paper also explicitly analyzes the steps for Chinese taxauthority to adopt economic substance doctrine on the offshore truststructure and makes several proposals to prevent the abuse of such power.