Study Of Tax Law On Private Equity Funds In China

Private Equity Investment Funds（PE） can connect the finance and industrialindustry. Besides, it is also a reliable financial instrument which helps capitalappreciation. Especially in the very moment of China, PE makes great sense to theconstruction of multi-level capital market, to the ease of pressure of SME financing,to the improvement of industrial upgrading and the enhancement of science andtechnology progress. According to the experiences of other countries, there is a closerelationship between the development of PE and tax law system. Prosperity of PEmarket cannot live without support of tax policies.Since the first introduction of PE to China, we have developed a number ofappropriate tax policies and regulations, and we have also made a lot of achievements.However, in comparison to the ever-changing economic activity, tax legislation isalways lagging behind. The current tax law system has been incompatible with thepractice of PE by leaps and bounds. There are several problems in the current taxpractice of PE: Lack of uniform legislation, the differentiation rules of corporate taxsystem and the limited partnership PE, insufficient accomplishment of theimplementation of the “flow through” principle, the inexplicit of tax rules of carriedinterests, etc. These problems bring difficulties to the development of China’s PEmarket. And it’s urgent to find solutions to solve these difficulties.Except introduction and epilogue, this paper includes five chapters, and thecontent of each chapter is listed below:Chapter one focuses on the theoretical basis of PE, which is divided into twoparts. The first part defines the basic concepts of PE, describing its maincharacteristics and types. The second part analyzes the legal nature of PE and concludes that the essence of PE comes to "trust"，which makes the foundation ofissues to be argued later.Chapter two analyzes the relevance between tax law and PE, trying to explainhow the tax law affects the development of PE，based on the theories of economicsand tax law.Chapter three describes the practice of tax law on PE of other countries andTaiwan of China，from which valuable experience can be gained to improve of taxlaw system on PE in China.Chapter four，from the perspective of legal types of PE,describes the existing taxrules and calculates the specific tax borne by limited partnership PE and companyPE，trying to discover problems of tax law system on PE in China.Chapter five puts forwards specific suggestions and ideas on perfecting tax lawsystem on PE in China, based on the basic principles of tax, namely "legal","fairness"and "efficiency". Besides, as a kind of "trust", the construction of tax system on PEmust apply the "material imposition" principle and the "conduit" theory.The innovation of this paper includes：（1）Putting forwards the "materialimposition" principle and the "conduit" theory as the theoretical basis of improvingtax system on PE，by finding the legal nature of PE is trust through deeply analyzing.（2）Reconstructing the tax rules on PE, from the point of balancing the tax burden onPE of different legal types，changing the traditional tax rule which is based on legaltypes.(3) Analyzing the nature of carried interests，and pointing out that accrual-basisaccounting can be a suitable method taxing on it.