Tax Incentives From The Perspective Of WTO Subsidy Rules

In recent years,various kinds of subsidies quietly appeared in order to support the development of domestic industries and relieve the pressure of employment under the trend of global economic downturn.As a result,trade frictions between governments are rising,and tax-related subsidies have drawn international attention.WTO restricts mainly trade issues.Although there’s no special agreement or document deals with tax issues,it is undeniable that tax benefits are a common type of subsidy.Clarifying the subsidy rules for tax preferences will help standardize China’s tax preference policies.Tax incentives subsidies involve both subsidies and taxes.From the General Agreement on Tariffs and Trade to the Code of Subsidies and Countervailing Measures,to the Agreement on Subsidies and Countervailing Measures under the WTO,the Legal definition of subsidies finally came out.The definition contains three elements: subsidy provider,financial assistance and grant of a benefit.When determining whether a preferential measure constitutes a subsidy,consider whether it meets these three elements.In terms of tax incentives,first of all,there’s no doubt that this is one of the financial aid measures.SCM divides subsidies into prohibited subsidies and actionable subsidies.Prohibited subsidies are directly prohibited because of directly disrupting the international trade order.Actionable subsidies have some room for existence,but if they are specific and have adversely affected members,they will also be subject to antisubsidy measures.Moreover,due to the difference between direct tax and indirect tax itself,the SCM agreement also adopts a different attitude towards direct tax and indirect tax.Generally speaking,direct tax preferential measures are more likely to constitute prohibitive subsidies.In practice,disputes related to tax incentives indeed account for a large proportion in the WTO trade frictions.The case of the European Union and the United States for foreign sales companies is mainly about tax incentives implemented in the United States.This case has lasted for nearly 40 years from GATT to WTO.The analysis and determination made by the WTO expert group and the appellate body in this case are of great significance to China in both formulating and implementing preferential tax measures and in responding to disputes raised by other WTO members.Therefore,this article combined with the constituent elements of the subsidy,made a detailed analysis and introduction of the case of the US foreign sales company,and found out what types of subsidies constituted by tax benefits and the recognition of benefits under the subsidy rules.Since accession to the WTO,international trade disputes between China and other member states on subsidies have increased.China’s tax incentives policies and systems account for a large part of all countervailing investigations against China,such as specific tax reductions,exemptions and tax incentives related to imports and exports.This article introduces the general situation of China’s tax incentives and the problems and contradictions in its compatibility with WTO subsidy rules,and attempts to analyze the main reasons behind such contradictions.We can find that there is a contradiction between China’s tax incentives and WTO subsidy rules.China’s attitude towards tax preferences is state-oriented and instrumental.It lacks internal legal control over the formulation and implementation of tax incentives.At a deeper level,compared with other WTO members,China’s level of market economy development and the socialist market economy system are unique.Therefore,this article proposes some solutions to improve the compliance of China’s tax incentive system under WTO.On one hand we need to build a more complete and legalized tax legislation system and improve China’s tax legislation.Specifically,it’s necessary to introduce a tax expenditure system to strengthen pre-assessment and post-control of the formulation of tax incentives.As for existing tax incentives,we should make them comply with WTO subsidy rules in order to reduce the possibility of recourse to WTO dispute settlement.On the other hand,we must actively participate in WTO negotiations to improve the subsidy rules and strive for more benefits for our country.