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Study On Economic Substance Doctrine In International Tax

Posted on:2015-12-07Degree:MasterType:Thesis
Country:ChinaCandidate:L N HaoFull Text:PDF
GTID:2296330467954063Subject:International law
Abstract/Summary:PDF Full Text Request
Economic substance doctrine is created and developed by judges in judicialpractices in common law jurisdictions, and is used by courts to deny tax benefitsachieved from abusive tax avoidance transactions that comply with the letter of taxlaw but contradict the policy goal intended by legislators. In the United States,economic substance doctrine is one of the most important judicial anti-avoidancedoctrines, and has been codified into the Internal Revenue Code in2010, putting anend to debates on different understanding of the doctrine. The codified doctrineadopted a two-pronged test in determining economic substance, under thetwo-pronged test, a transaction must have both business purpose and economicsubstance. Following the courts’ shift from literal interpretation of law to purposiveinterpretation, England experienced a transition from form over substance tosubstance over form in judicial approach when dealing with anti-avoidance. Importantprinciples developed during this period such as the Westminster principle and Ramsayprinciple are followed by courts even today. In2008, China introduced GeneralAnti-Avoidance Rule (GAAR) into its Enterprise Income Tax Law, and empoweredthe State Administration of Tax (SAT) to re-characterize an avoidance transaction inaccordance with its economic substance in a later circular Guo Shui Fa [2009] No.2.This dissertation is to employ the methodology containing historical approach,comparative analysis and economic analysis. The purpose is to draw a properdefinition of economic substance, give an economic evaluation of the doctrine’sconsequences and administration cost by studying classic cases and related material,and provide reference for perfecting China’s own anti-avoidance legislation andpractice.This dissertation has four chapters. Chapter one shows how economicsubstance doctrine evolved by studying U.S. and British cases, and comparedeconomic substance doctrine with other similar doctrines. Chapter two contains three parts: part one summarized factors that courts usually look into when determiningeconomic substance, such as pre-tax profits, market risks and functions, use ofintermediaries, and common features of commercial transactions; part two looks intothe relationship of economic substance and legal substance, and applied economicanalysis into the study of economic substance and its effects; part three explores thebalance between base protection and stability, predictability, and fairness of law, aswell as the balance between preserving revenue and protecting legitimate interest oftaxpayers from a policy perspective. Chapter three presents the legislation andpractice of economic substance doctrine in China, and looks into the2008Chongqingcase and2012Shanxi case to study how tax authorities apply economic substancedoctrine in anti-avoidance practices. Chapter four analyses the deficiencies in thecurrent anti-avoidance legislation and practice in China, and proposed suggestionsbased on a comparative study of Chinese and foreign experience.
Keywords/Search Tags:Economic Substance, GAAR, Substance OverForm
PDF Full Text Request
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