Study On The Improvement Of Trust Income Taxation

Trust has the functions of risk control and financial innovation with its uniquestructural design. The trust has developed around the world due to its specialty. Thetrust system has also been introduced into China. In our country, the trust taxation hasno big breakthrough despite the fact that the trust system keeps innovating. There aretwo main problems in the current trust taxation: double taxation and trust taxavoidance. To solve these problems, we have to focus on the trust income taxationbecause of its importance to the trust taxation system. Clearing the attribution of trustincome is the first and basic step to study the trust income taxation.There have been two theories to clear the trust income attribution: trust conduittheory and trust entity theory. The trust conduit theory has been proposed anddeveloped by America. Parts of civil law countries seem to agree the trust conduittheory because the trust conduit theory embodies “the substance over form”. However,the trust conduit theory is not so good enough because of its shortcomings that itneeds the help of the trust entity theory. International legislation and judicial practicecan be a reference for the trust conduit theory and the trust entity theory.The main content of this paper is emphasizing native fact and internationallegislation and judicial practice, centering on the trust income attribution, choosingthe trust conduit theory and the trust entity theory as guidance, analyzing the various types of trust tax mode and stressing the double taxation and the trust tax avoidance.This paper has four parts besides the introduction part:The first part is to clarity the theoretical basis of the trust income tax: one is thetrust conduit theory and the other is the trust entity theory. The trust conduit theoryhas been adopted by lots of countries. The trust entity theory is an important theory tocomplement the trust conduit theory. Three main principles are also defined whichwill be as the basis of trust income taxation throughout the whole paper: taxation onthe substantial beneficiary; taxation on real transfer of ownership; taxation whenincome produced.The second part is to state the current situations of trust income taxation andreasons of the existing problems in China. The current situations, main existingproblems and the reasons why problems are caused will be stated one by one.The third part is to introduce the trust income taxation of two legal systems inmajor countries and districts: Britain, America, Japan and Taiwan of China. This partwill focus on the characteristic and development of the trust income taxation in abovecountries and districts to provide referential experience for China’s trust incometaxation.The fourth part is to discuss how to improve the China’s trust income taxation.This part can be divided into two parts: improvements on the basic system andsolutions to solve double taxation and trust tax avoidance. These contents shouldchoose trust income attribution as the breakthrough point to establish the whole trustincome taxation system.This paper’s innovation is using the trust conduit theory and the trust entitytheory to clear the trust income attribution despite the dispute on the ownership oftrust property. Moreover, this paper also takes double taxation and trust tax avoidanceinto consideration by using the cases to complete the trust income taxation system.