Research On Thin Capitalization Tax Regulations Of China

The thin capitalization is a widely used modern means of tax avoidance, which is through arrangements on capital structure, debt financing instead of normal means, to make debt capital in the capital structure far exceeding the proportion of equity capital and reduce their tax liability. With the free flow of transnational factors such as capital and technology, this means has been widely used by foreign-funded enterprises, and also increasingly becomes a matter of growing importance to States and relevant international organizations in the world.In recent years, all countries in the world in this way improves the ability to review in response to the associated enterprises through transfer pricing tax avoidance issues, which makes it difficult for enterprises to avoid tax through transfer pricing. The thin capitalization is a widely used form of tax avoidance, compared with transfer pricing, the form more concealment, tax deductibility effect more obvious, risk is lower, so it is more harmful. Especially in the implementation of the tax supervision, it makes more difficulty. It can be seen that firstly this avoidance methods influence on national sovereignty and make the erosion of national tax base; secondly it disturbs the international market order, so it is not conducive to the fair competition among enterprises. Therefore, it damages the fair tax and regulatory functions and not conducive to the stable development of national economy. Since the nineteen century sixties’, western developed countries have implemented a series of tax anti-avoidance measures and introduced the related laws and regulations to regulate the capital weakening. Developed countries generally allowed financing interest tax prior to the financial costs in the form of deduction, as for the equity investment acquires dividends and dividend it is not allow to be deduce. These two different kinds of financing methods adopt countermeasures objectively and encourage the use of capital weakening of the birth of this avoidance behavior development.Judging from the current situation in our country, with the acceleration of the pace of reform and opening up, transnational investment activities are more and more frequent. Multinational taxpayers’tax avoidance activities are more and more diverse. In some of the larger and economically more developed coastal areas of transnational corporations, this phenomenon is particularly serious. How to make effective prevention capital weakening tax policies to prevent the transnational corporations from capital weakening tax havens is China’s problem to be solved. In order to prevent enterprises from increasing various pre-tax debt investment, in January1,2008, China promulgated the "Law of the People’s Republic of China Enterprise Income Tax Law ", for the first time in the legal form of the initial specification of the " capitalization ", filling in the capital weakening tax on blank. In2008September, Circular of the State Administration of Taxation and the Ministry of Finance jointly issued "The Enterprise Related Party Interest Expense Standards for the Pre-tax Deduction of Relevant Issues Concerning the Tax Policy". In January8,2009, our country administration of taxation issued a "Implementation Measures for Special Tax Adjustments", refining the prevention of thin capitalization rules, and further improving the capital weakening tax related.The regulation of capitalization in China are in the initial stages,and the particular regulating capitalization rules are distributed in some related policies and laws, being lack of specialized legislation system and comprehensive system of tax system.Although the "New Enterprise Income Tax Law "and some related regulations on thin capitalization have some effect on some of the corresponding provisions, but problems still exist such as the debt investment scope determination being not clear, safe harbor proportion setting unreasonable, capital weakening tax avoidance tax regulatory means not perfect.To solve the above problem, this article is divided into five parts, standing on the point of the capital weakening reason, theoretical foundation and the effect of tax. The first part introduces the background of this paper, the significance of the study, citing domestic and international scholar in the prevention of capital weakening field theory in recent years. The second chapter describes the capital weakening concept, theoretical foundation, motivation and its influence. The third chapter combining with the actual examples, from the new income tax law and its related regulations analysis, summarizes our country capital weakening tax system present situation and the existence question. The fourth chapter introduces the international commonly used two kinds of methods of regulation, namely normal trading principles and fixed ratio method, and drawing lessons from international capital weakening tax experience in practical application. The fifth chapter is to make some feasible proposals for our tax system of the thin capitalization. The innovation of this paper lies in the "New Enterprise Income Tax Law " and " Implementation Measures for Special Tax Adjustments " to " capital weakening " provisions of the corresponding terms as research perspective, and analysis the implementation of tax supervision undeserved likely consequences, for further optimizing our country capital weakening tax regulation policy proposals, to provide some reference.Related party debt has been the focus of thin capitalization and core, due to the lack of multinational corporations’internal financing data, the shortage of this article is the lack of through empirical analysis of capital weakening influence on China.