Where Is The Future: A Rethink Of Fiction Rules In Individual Income Tax Regulations

The fiction rules about shareholder loans in MF&SAT[2003]No.158 ignore the possibility of legitimate loans,and directly regard them as “Dividends and Bonuses”.Therefore,the scope of “Dividends and Bonuses” had expanded.Meanwhile,it delivered a message that the fiction rules in Individual Income Tax Regulations may result in the conflict of the Doctrine of Tax Legal.Thus,these rules should be limited by the Doctrine of Tax Legal and Ability-to-pay.Under the prescriptive analysis method,it is difficult to prove the legitimacy of fiction rules in tax regulations.Therefore,a new analysis framework is required.Under the normative analysis framework,the fiction rules in tax regulations should find the secondary rules of their legitimacy and put them into the chain of legitimacy.Firstly,Individual Income Tax Law(IIT)is authorized by Article 8 of Legislation Law and Article 58 of the Constitutional Law.Secondly,the secondary rules in Article 21 of Individual Income Tax Law provide general authorization to the State Council which has power to formulate the Implementation Regulations.Thirdly,Article 6 of the Implementation Regulations of IIT authorizes the State Administration of Taxation to define taxable income items.Therefore,the chain of legitimacy in Individual Income Tax Law has been gradually shaped.Meanwhile,the legality of fiction rules in individual income tax regulations has been initially proved.The content of Individual Income Tax Law shall be restricted by the Doctrine of Abilityto-pay.By implementing “Sog.Objectives Nettoprinzip” principle in fiction rules,it can show the actual ability of taxpayers.Then,based on the reshaping of MF&SAT[2003]No.158,it is a significant attempt that the Doctrine of Ability-to-pay to can be meaningful to restrict the content of fiction rules.For example,the true intention in shareholders loans,it is divided into three types: real borrowing,tax avoidance and paid-in-capital withdrawal.Therefore,the true shareholders’ loans which violate the “Sog.Objectives Nettoprinzip” principle should be excluded through the Exclusion Mode.In Individual Income Tax Law,the three possible approaches to eliminate fiction rules lack the foundation and feasibility in China.Faced with the reality that fiction rules still need to be retained,it is an option to reach the undisputed legality and legitimacy.Firstly,in order to improve the integrity of legitimacy chain,the power of “definition of income items” should be restricted.The secondary rules which authorized the power should be put in a higher level of legal norm.Meanwhile,the opinions of taxpayer representatives shall be considered in the process of formulating fiction rules,in order to cool down the tension and query of the Doctrine of Tax Legal.Secondly,by adding the principled concept of income in Article 2 of Individual Income Tax Law,it provides a basic guideline for the “definition of income items” of the State Administration of Taxation.Through the multiple models such as the List,Categorization,and Exclusion mode,the requirements of the Doctrine of Abilityto-pay can be effectively achieved in the content of the fiction rules in individual income tax regulations,and rational elements can be involved in the fiction rules system.