The Principle Of Substance Taxation

The principle of substance taxation is that, when a taxpayer engaged in economic activity does notmatch the “form” and “substance”, the tax authorities have the power to ignore or break the “form”, andcollect tax based on the fact of “substance”. This principle is a significant principle of the tax system inthe field of anti-avoidance. Because of the principle of substance taxation breaking legal forms, however,the scholars concern that it may erode the tax stability and violate the private property of the taxpayer.Therefore, it is necessary to impose restrictions on applying the principle of substance taxation. The ideaof constitutionalism is the fundamental concept of the rule of law, the cornerstone of defending thefundamental right of citizens, which is in accordance with the freedom and democracy. The tax law is adepartment law which may “violate” the property rights of the citizens, so the protection of thefundamental right of taxpayers is the basic value of the legislation of tax law. In conclusion, the taxlegislation implementing the constitutional concept is the fundamental requirement to safeguard thelegitimate rights and interests of taxpayers. The principle of substance taxation needs to implement theconstitutional concept, because it is one of the basic principles of tax law.This article is to start from the essence of the historical evolution of the principle of substancetaxation, and to seek the reason of the exits of this principle. Through the substance of the basicprinciples of taxation, we can clearly see the essence of the principles of taxation is not the tools ofexpanding the fiscal revenue, but necessary means to make sure the fair of tax burden. Because of themeans, the principle of substance taxation is in unison with the idea of constitutionalism. So, the authorfinds out what the true principle of substance taxation is, it is the necessary of the tax justice. Inconclusion, the principle of substance taxation should be limited within a reasonable range of theconstitutional concept. Specifically, proposed to restrict the powers of the executive authorities’ abuse,safeguard the interests of taxpayers and tax legalism. Only is the idea of constitutionalism used, theprinciple of substance taxation can be made use of entirely.Next, the author discusses the existing provisions, with the theories talked about hereinbefore. Onone hand, the existing provisions are sorted out and summarized the shortages. On the other hand, withthe limit of constitutionalism, some suggestions about legislation and law enforcement are made. In therecommendations section, the author analyses the actual case in U.S. and introduces the appliancestandard of the “economic substance”. In the end, the author hopes that the improvement of thelegislation and law enforcement about the principle of substance taxation in China can benefit from thisstandard and the limits of the idea of constitutionalism.