The Application And Challenges Of The "Beneficial Owner" Institution In Chinese Tax System

Since the globalization of the economy,the conflict of taxation rights between countries under the international trading system has intensified and most countries have adopted bilateral tax treaties to avoid double taxation and to combat international tax avoidance,but the rapid change in the international tax environment has posed serious challenges to international anti-tax avoidance.On the one hand,multinational groups continue to use new models to avoid taxable obligations and abuse tax treaties;on the other hand,the excessive use of some harsh provisions in tax treaties reduces the possibility for enterprises to enjoy treaty treatment and does not encourage the internationalization of domestic enterprises.In this context,countries have introduced the concept of "beneficial owner" in tax treaties and defined it in their domestic law in order to address the abuse and overuse of "dividend,interest and royalty" provisions.The concept of "beneficial owner" is mainly used in the areas of "securities trading" and "international taxation" and refers to an artificial or a natural person with beneficial ownership of a piece of property.In the field of international taxation,it is usually used to refer to a non-resident enterprise.A non-resident enterprise can only benefit from the preferential treatment of a tax treaty if it meets the definition of "beneficial owner" under the domestic law of the Contracting State,which is essentially a partial territorial jurisdiction over "dividends,interest,royalties" in both Contracting States.The essence of this preferential treatment is the partial territorial jurisdiction of the contracting states over "dividends,interest,royalties".There is a consensus in international taxation circles that territorial jurisdiction,resident jurisdiction and citizenship jurisdiction make up the entirety of national tax jurisdiction,the first two of which are key components of national tax jurisdiction.Therefore,the correct identification of the "beneficial owner" under the domestic tax law system is a core task to protect the tax rights of the state.Currently,China applies the Notice of the State Administration of Taxation on the Identification of "Beneficial Owners" in Tax Agreements(Notice No.9 of 2018 of the State Administration of Taxation,hereinafter referred to as "Notice No.9")to determine the identity of "beneficial owners" in tax agreements.(hereinafter referred to as "Circular 9")to determine the status of "beneficial owner" in a tax treaty.According to the tax policy announced by SAT in March 2022,China has signed bilateral tax agreements with 112 countries or regions(including tax arrangements with Macau and Hong Kong and tax agreements with Taiwan),and the pressure of a large system of tax agreements has raised higher requirements for the "beneficial owner" system.The pressure of a large system of tax treaties has placed greater demands on the "beneficial owner" regime.In recent years,rapid innovations in international taxation have also impacted on the "beneficial owner" regime.Firstly,in 2015,the OECD issued 15 BEPS action plans to address basic erosion and profit shifting,of which the sixth result was included in Announcement9.Are there any shortcomings? Secondly,in 2021,the OECD has issued another Statement on the Two-Pillar Approach to Addressing the Tax Challenges of Economic Digitization(hereinafter referred to as the "Two-Pillar Approach").Against the backdrop of the pressure of the tax treaty system and the rapid innovation in the international taxation field,the question of how to prudently revise the beneficial ownership system in the domestic law system has become an urgent issue to be addressed.Accordingly,following the logic of "summarizing the history-analyzing the current situation-raising questions-deducing conclusions-giving suggestions",this article summarized the development of the concept in China’s tax law system and analyzed the specific contents of the current ruling regulations-Notice No.9.Then,on the basis of the famous case of "beneficial owner" in China-"Qinghai Dachaidan Case",the applicability and limitations of Circular 9 are summarized in the light of the logic of the Circular 9.On this basis,further assumptions and general derivations are made,and for the first time,the over-application of Article3(the supplementary determination clause)of Circular 9 is identified.Finally,the first analysis of the link between the "two pillars" and the "beneficial owner" regime and the challenges the former poses to the latter leads to two conclusions.Firstly,the initiative of enterprises to enjoy the treatment under the Agreement is not related to the determination of "Pillar I" amount A.Secondly,the interpretation of the tariff rate provisions in Circular 9 will be invalidated under the impact of "Pillar II".In Chapter 7,the paper concludes four measures as "Enriching the Determination Dimension of the LOB Rules of Circular 9","Revising the Explanatory Tariff Rate of Article 2(3)of Circular 9 in Due Course","Guiding Large Multinational Enterprises to Enjoy the Agreement Treatment" and "Caution for tax authorities and enterprises in dealing with tax concessions",in order to address the challenges arising from the rapid innovation of the tax treaty system and the international taxation field,and provides directional suggestions for the revision of the beneficial ownership system in China.