Disregard Of Corporate Personality And Its Application On Anti-tax-avoidance

Tax evasion is a long-standing issue.Judging from domestic and international cases oftax avoidance and anti-avoidance solution, the current situation regarding the resolvingof this issue can be quite serious.The adverse effects caused by a series of problemswhich are triggered and related to tax evasion have alarmed the international commubitygreatly. Given all the considerations and it is an urgent task (which must be enforced onthe basis of China’s complying with the rules of WTO, strengthening its work in anti-taxevasion, defending its sovereignty in tax management and promoting fair trade) forChina, after its joining in the World Trade Organization (WTO), to create a fairenvironment in terms of taxes for enterprises to compete in.In2008,China enacted andimplemend the Corporate Income Tax Law. Together with its regulations, this law hasruled the arm’s length principle, thin capitalization regime, advance pricing system, costsharing agreement system and so on. It is a big step forward in China’s anti-avoidancelegislation system and its implementation rules for tax avoidance. At present, China isnot yet established in the field of tax law legal personality denied the application of thesystem, but with the further development of China’s economy, the use of the company’sindependent personality and shareholders limited liability avoidance showing a trend ofuniversalization, which seriously damaged the country financial interests. The currenttax law can not be effective regulation, it is necessary to introduce the disregard ofcorporate personality system to solve these problems.In2009, The Legislative Affairs Office of the State Council, the Ministry of Finance,and the State Administration office of Taxation first suggested in the “Taxadministration of the People’s Republic of China–modification of the draft for publicreview” that the system of disregard of corporation personality should be included intotaxation laws. In that case, if the independent legal personality of corporation or thelimited liabilities of shareholders were abused to avoid tax duties or improperly obtaintax incentives, the tax authority has the right to order the company to shoulder theresponsibility caused by the loss of taxes and the shareholders to bear the secondobligation of tax.In this paper, the definitions of tax evasion and the disregard of corporation personalityare briefly discussed at first, followed by a summary of the connections between the two.It is believed that the operation of abusing the corporate personality and the limitedliability of shareholders to evade tax is of great harm and can conceal itself very well.The current anti-avoidance measures cannot supervise and regulate this problemeffectively, which makes it very important to introduce personality denial system.The necessity and feasibility of applying the corporate personality denial system arediscussed. Starting from the theories related to the feasibility of introducing this systeminto tax laws, this paper supports the idea that this introduction is indeed suitable and isalso necessary, especially when there are shareholders taking advantage of theindependent corporate personality and their own limited liabilities to avoid taxes. Finally, some suggestions are made in applying the personality denial system in anti-taxavoidance. The circumstances of this application and its objects and subjects as well asthe relevant proper applicable procedures are also talked about with somerecommendations made.