Research On Non-resident Enterprises Tax Avoidance By Transferring Equity Indirectly

Since the implementation of the Enterprise Income Tax Law, the tax authorities of China began to attach importance to the indirect transfer of the equity transfer, which usually includes tax avoidance arrangements, with the use of the general anti-avoidance provisions to do judgment. Then combined with other relevant departments, the tax authorities formulated laws and normative documents to adjust the tax avoidance behavior, providing a legal basis for the enforcement of tax laws, including the documents of the No. 32 in 2014, No. 7.in 2015. Combined with domestic and foreign tax case, this paper is to find the problems of the general anti avoidance provisions and regulations applicable in the process of problem analysis, and finally put forward the corresponding suggestions.The first chapter is the basic theory part. The first section describes the definition of nonresident enterprises in tax law in our country, and then compares the indirect share transfer and direct transfer of shares in the concept and the transaction mode. The second section firstly discusses the theory of taxing on share transfer behavior. This paper argues that the transfer of property brings more profit and the enterprise daily management activities bring income is the same in essence. Therefore the tax on capital gains is to be reasonable, and it also reflects the principle of tax fairness. Secondly, this section discusses the income tax of other countries, such as the UK capital gains tax, securities transaction tax of Japan, South Korea, the financial transactions tax of Brazil. Finally, this section discusses the indirect share transfer behavior of the taxpayer and the tax jurisdiction. There are three parties in the transactions involving the transferor, transferee subject, intermediary companies. According to the source jurisdiction in our country, intermediary companies earn nothing in China, and our country has the jurisdiction. But if lacking reasonable business purpose, the intermediary companies will be denied, our country has the jurisdiction.The second chapter is the analysis of the case. Tax on indirect share transfer behavior is always a difficult problem in tax. With cross-border enterprise avoiding China’s tax regulation by the tax avoidance arrangement, the number of tax avoidance cases is about half a dozen in the year of 2014.The first section summarizes the investigation of China’s tax authorities. The second section is the comparison of Chinese tax authorities for tax avoidance arrangements and the Supreme Court of India on the verdict of Vodafone act. The third section summarizes the characteristics of the tax avoidance arrangement. The tax authorities’ information mostly comes from the committee, third party media reported or submitted by the administration, sources of information are lack of monitoring of lasting effect, and the tax authority is always in a passive position. In addition, the transferor and the transferee is not in China, which increases the difficulty of withholding at source. Secondly, based on the literature review and analysis of the case, this paper summarizes the indirect transaction mode and process. Finally combined with the tax practice in China, this paper find that tax law enforcement agencies have some problems such as lacking of a unified standard to deny the intermediary companies and so on.The third chapter is the summary of existing laws and regulations and the problems existing in the application. The first section is the summary of China’s existing laws and regulations to deny intermediary companies and the necessity of the general clause in our country is introduced. Secondly, discuss the specific provisions of China’s standard documents about indirect equity income source, jurisdiction, withholding at source, the special tax treatment issues. From the existing the file, we can see that the classification of the current enterprise income tax law on the direct and indirect equity transfer equity transfer income is not enough to be clear. About the tax jurisdiction, the provisions of China equity trading income is from invested enterprises region or country, and the transaction object is the equity of the intermediary companies, and the intermediary companies are not in China. According to China’s regulations, China has no taxation right. As to China’s implementation of withholding at source, the tax authorities in reality is difficult to obtain the transaction information.The second section summarizes the legal basis of tax avoidance arrangements in other countries, and mainly compares the general terms of the Anglo American countries. The Anglo American countries adopt the principle of substance over form to deny tax avoidance arrangement, and the principle is summed up from the tax judicial cases. On the other hand, this paper introduces the general provisions of the countries of Canada, Australia, New Zealand, Germany, India. The establishment of general anti- avoidance provisions is not only conducive to the exercise of tax law, but also reasonable to provide the reference basis for the assessment of taxpayers. More and more countries will generally introduce the tax anti-avoidance provisions legislation.The third section is about the problems found in the application. The problems of general anti-avoidance provisions during the applicable process, mainly involving not having tax jurisdiction, double taxation principle, on the contrary, lacking of standard for judging reasonable commercial purpose, infringement of right of tax planning.The fourth chapter is the suggestions for improvement. The first proposal is to recognize the specific standards of denying intermediary companies. Firstly, with reference to India and other countries who deny the intermediate holding company not only based on identification of foreign enterprises, but also the company’s essence and operation duration, principal transactions outside the tax situation, the structure of the transaction. Secondly, confirm the main or only unreasonable commercial purpose in the proportion of equity transfer, and if it is the main objective, the tax authorities shall have the right to deny the tax avoidance arrangement. Thirdly, improve tax collection and management information system. And the primary factor of share transfer behavior management is that the tax staff in handling similar cases cost a lot of time and energy. Strengthening the tax information will help tax authorities.The second section is the suggestion to protect the taxpayer’s tax planning right. Citizens have the right to private property. The taxpayer is trying to reduce tax in accordance with the law. Therefore, considering the conflict between the national taxation right and the property rights of citizens, tax authorities must be careful of using power.The third section is other recommendations. First suggestion is the use of tax treaties to solve the problem of double taxation. According to the real transaction principle we deny indirect transfer of equity trading arrangements. However, we don’t have the right to do so. If these countries advocate tax jurisdiction at the same time, signing the agreement will be a good idea. The second is about the special treatment of undistributed profits. In order to avoid double taxation of undistributed profit, we must determine the time node about tax. According to the accrual basis, the taxpayer has occurred in the taxable behavior, so the node of equity transfer behavior is more appropriate to confirm the undistributed profits.