The Reconstruction Of China’s Controlled Foreign Corporations On The Background Of BEPS

Controlled Foreigner Company rules(CFC rules) are special tax regulations, responding to the problem of Base Erosion and Profit Shifting(BEPS). CFC rules can effectively prevent that taxpayers with a controlling interest in a foreign subsidiary strip the base of their country of residence and, in some case, other countries by shifting income into a CFC.With the constant implementation of Go Out policy, China’s foreign direct investment continues to grow. In 2014, 18500 Chinese domestic investors have established about 30000 enterprises overseas in 186 countries and regions. The foreign direct investment, 123.12 billion dollars, has reached the highest level on record with year-on-year growth of more than 14.2%. Foreign direct investment of our country continues to grow fast, and meanwhile, more and more resident multinational corporation, in order to reduce its overall capital income tax and to achieve the goal of mutual benefit, choose to establish subsidiaries in countries or areas with low or zero tax rate, shifting income to these controlled foreign companies and achieving the illegal goal of tax avoidance. In order to solve above problems, the new enterprise income tax law, which was promulgated in 2008, introduces Controlled Foreign Company rules for the first time, aiming to prevent domestic enterprises using CFC to make tax avoidance. The subsequently promulgation of “PRC Enterprises Income Tax Law Implementation Rules” and“Special Tax Adjustment Implementation Measures(Trial) ” supplements and details Controlled Foreign Company rules. Otherwise, Controlled Foreign Company rules of our country, compared to other advanced nations, are not perfect enoughand needed to be improved. The main problems of Controlled Foreign Company rules of our country are as follows:firstlycontrolled standard is not explicit enough; secondly the definition of reasonable commercial objectives is not explicit enough; lastly classification and calculation of taxable income is not reasonable.The main method used in this paper is case analysis method. Analyzing Controlled Foreign Company rules of our country through two Controlled Foreign Company cases, and then conclude the major problem of Controlled Foreign Company rules of our country. Accordingly, this article presents some instruction to reconstruct Controlled Foreign Company rules of our country. The Text consists of four chapters set below:Chapter 1 introduces the background of Controlled Foreign Company rules, namely Deferral tax policy and the independent personality of a company. Meanwhile, the author gives a brief introduction to the main concepts of Controlled Foreign Company rules, namely control, reasonable commercial objectives, calculation and classification of CFC incomes.Chapter 2 introduces two Controlled Foreign Company cases. The author analyzes Controlled Foreign Company rules of our country through these two Controlled Foreign Company cases, and then concludes the major problems of Controlled Foreign Company rules of our country, including controlled standard is not explicit enough; the definition of reasonable commercial objectives is not explicit enough; classification and calculation of taxable income is not reasonable.Chapter 3 analyzes the relevant legislation of Controlled Foreign Company rules of our country and concludes the problems. The author gives an introduction of advanced experiences and practice abroad in this aspect.Chapter 4 offers suggestions for China’s Controlled Foreign Company rules based on advanced experiences and practice abroad and Chinese situation, including: enrich test content of economic control and legal control and use multi-methods to define taxable income; specify the definition of reasonable commercial objectives and formulate relevant procedure rules; perfect the classification and calculation of CFC incomes; strengthen international tax cooperation.