Analysis On The Taxation On The Gain Of The Indirect Share Of Transfer In China

Tax avoidance has obviously a negative impact on the world community,which makes anti-tax avoidance a hot topic in the academic area of Taxation.To minimize the damage to the benefit of taxation,it is necessary to establish a set of law system.The indirect share of transfer is becoming a popular way of tax avoidance.Part of the countries have already built its own taxation system on indirect share of transfer,which has been doing well in anti-tax avoidance.Since the Circular 698 was published,China has begun to built its own taxation on the capital gain of indirect share transfer.However,in the practice,the law system arouse controversy upon the following aspect: One the one hand,the reasonability of such taxation is in doubt,since the taxation may invade the sovereignty or the source of income may not be the taxing state;One the other hand,the system made by the China Tax Bureau may increase the possibility of double taxation and may be conflict with the international tax convention like OECD MC and UN MC.The First Part have a overview about the indirect share of transfer,including the concept of what is “indirect share of transfer”,the characteristics,the comparison with “direct share of transfer”and why such share transfer can be a way of tax avoiding.When the government decide to levy tax on the capital gain which belong to a non-resident,there are the prerequisites must be satisfied.This capital gain or source income is arising in or deriving from this country and the right of taxation shall notinvade the sovereign of other country.So the question are,dose the income gain via indirect share of transfer derive from the country where the substantial transfer company located ? Is this kind of right of taxation infringe foreign sovereign? Or in other words,is the right of taxation on the gain made by indirect share of transfer is reasonable? This part present the opposite view and the author's view.The Second Part elaborate the law system which regulate the taxation of indirect share of transfer,including the Enterprise Income Tax Law Implementation Regulations which entitled the authority the right to tax on direct share of transfer,the Circular 698 published in 2009 that is the first legal document which explicitly point out that the income made by indirect share of transfer shall be taxed and the Document NO.7 which is now the main guidance for the tax authority to impose tax on the indirect share of transfer.Also,Some typical case will be analyzed to explore the law document's application and the controversy during the law's enforcement.The Third Part is study of comparative law about the anti-tax avoidance law in other countries.Since some countries have already implement measures to regulate the taxation of indirect share of transfer,it is necessary to see and analyze how other states tax this kind of transfer.This part first give a overview about the numbers of the countries which have levy tax on indirect share of transfer,then introduce some countries mainstream countries like India and US about how they deal with the capital gain of non-resident who transfer their share in indirect way.The Forth Part first give the controversy point out by the scholar,then present some advice made by author myself.