The Defects And Perfection Of China's Thin Capitalization Tax System

The People's Republic of China Enterprise Income Tax Law,which was promulgated in 2008 set up the thin capitalization regulation clause,followed by Regulations on the Implementation of Enterprise Income Tax Law of the People's Republic of China,Notice of the Ministry of Finance and State Administration of Taxation on Taxation Policies Relating to the Standard for Pre-Tax Deduction of Interest Expense of Related Parties of the Enterprises,Implementing Measures for Special Tax Adjustment(Trial),Announcement on the treatment of enterprise income tax of enterprises with mixed investment and Announcement on the relevant matters concerning the improvement of the relevant declaration and the data management of the same period.These regulations make it clear that the methods of thin capitalization in our country is the combination of safe harbor mode and principle,besides the regulations for the debt-equity ratio of the financial and non-financial companies is also clear.Those regulations,to a certain extent,deal with the condition of our country reasonable level of taxation is weakened by the thin capitalization.However,considering the terms of regulations about the thin capitalization,whether it consider different characteristics between different industries or not,whether it consider the debt-equity ratio of the safe harbor mode are applicable to enterprises with different characteristics or not,especially after the strategy of “The Belt and Road”,enterprises going globally will face greater funding needs.So whether the regulations about the thin capitalization could meet the normal financing needs of enterprises and could deal with more complex BEPS situations or not,these are what this paper focuses on.Considering above questions,this paper combines the theoretical analysis with data analysis.First of all,this paper combs classical theory about thin capitalization to make the contents about thin capitalization more clear.Then,based on the definition of thin capitalizations and introduction of thin capitalization tax system in our country,together with the analysis of present situation of our listed companies and different industries about thin capitalization,it comes to a conclusion that it's necessary and important to perfect our country's thin capitalization tax system.Finally,Introduce the BEPS action plan,which offers the theory foreshadowing for the following suggestions of perfecting our country's thin capitalization tax system.For the data analysis,this paper uses the 2014-2016 financial data of listed companies.On the one hand,use those data to analyze the overall situation about thin capitalization of different industry;on the one hand,to compare the metric recommended by BEPS best practice approach with metric-debt-equity ratio in our country,which shows that problems exist in using debt-equity ratio as metric and what BEPS best practice approach can learn from.Lastly,based on the above theoretical and data analysis,this paper put forward the suggestions of perfecting our country's thin capitalization tax system.