Reflections On The Legislation Of The Income Tax Preference For Foreign-invested Enterprise

The legislation of the income tax preference for foreign-invested enterprises has been a long history of 28 years. The purpose of the legislation of the income tax preference for foreign-invested enterprises is to give foreign investors kinds of income tax preferences, which is to attract foreign investments, foreign capital, advanced technology and management experience and then to promote the national economy develop rapidly and improve the people's living standards continuously.Based on the observation and analysis of the implementation of the legislation of the income tax preference for foreign-invested enterprises, the thesis comes to the conclusion that the legal practice of the income tax preference for foreign-invested enterprises has deviated from its purpose at the present, which leads to the lost of state-owned assets.According to the arrangement of "transitional measures" in the "Enterprise Income Tax Law ", after the merger of "Foreign-invested Enterprise and Foreign Enterprise Income Tax Law" and " Provisional Regulations of Enterprise Income Tax Law"(hereinafter referred to" the merger of the two laws") ,the legislation of the income tax preference for foreign-invested enterprise in a certain area and a certain period of time is divided into two parts: the one part is the legislation before" the merger of the two laws" , which grants the foreign-invested enterprises enjoy the income tax preference exclusively; the another part is the legislation after " the merger of the two laws" ,which is the chapter IV" tax preference" of "Enterprise Income Tax Law". It grants domestic and foreign-invested enterprises enjoy the income tax preference together and will be implemented soon after. According to the "non-retroactivity", which is one of the basic principles of the rule of law, the former is still applicable to the foreign-invested enterprises who enjoy the original statutory income tax preference; the latter is applicable to the domestic enterprises and other organizations who get interest (excluding personal enterprises and partnership enterprises). Although the two laws has been merged, it is visible that a considerable number of foreign-invested enterprises still enjoy the income tax preference exclusively in a certain period of time, because of the arrangement of " transitional measures". Therefore, at the time of "the merger of the two laws", it is necessary to reflect the legislation of the income tax preference for foreign-invested enterprises which grants the foreign investors enjoy income tax preference exclusively before "the merger of the two laws" and it is necessary to analyze the "tax preference" of the "Enterprise Income Tax Law" after "the merger of the two laws".According to the observation and analysis of legal practice of the income tax preference for foreign-invested enterprises, the current legislation of the income tax preference for foreign-invested enterprises of china dose not play an important role in attracting foreign investment. The reasons are as follows: Firstly, the decisive factor that affects the flow of international capital is the investment environment of a country in theory. The investment environment includes "hard environment" and "soft environment". The income tax preference is only the small part of the "soft environment". It has little influence on attracting foreign investment. Secondly, there are not tax sparing provisions in the bilateral treaties signed by China and other countries. Therefore, the measures that the foreign enterprises enjoy the enterprise income tax preference exclusively do not make the foreign investor benefit from them actually. Instead, the income tax preference become one part of revenue of foreign government. Finally, the purpose of the legislation of the income tax preference for foreign-invested enterprises appears four aims in practice, which is either on longer necessary or unable to come true. "Attracting foreign capital at the price of market" is no longer necessary now; "Attracting advanced technology at the price of market" is self-deceptive; "Getting more foreign exchange" is bring hidden danger to the economic development of China; "Promoting the growth of economy of China and the improvement of people's living standard" is just the incidental goods of foreign investor reaping high profits from china.Not only have the legislation of the income tax preference for foreign-invested enterprise not achieved its legislative purpose, but also it has lead to massive loss of state-owned assets. The income tax of foreign-invested enterprises belongs to one part of state's revenue. The various income tax preference is essentially the partly expropriation of state's revenue. So, it is necessary to reflect the legislation of the income tax preference for foreign-invested enterprise from the perspective of preventing the loss of the state-owned assets. Firstly, the imperfection of the legislation of the income tax preference for foreign-invested enterprise leads to the massive loss of state-owned assets inevitably. The problems in the legislation of the income tax preference for foreign-invested enterprise are as follows: violating WTO rules; violating the basic principle of tax fairness.; the statutory authority is weak and the transparency is not enough; some legal concept is not clear and the content is not specific; the taxation legal system is not perfect; international tax coordination is not enough. Secondly, foreign enterprises and domestic enterprises avoid tax by the legislation of income tax preference, which lead to massive loss of state-owned assets too. The ways that foreign enterprises and domestic enterprises avoiding tax are as follows: avoiding tax by the fuzzy legal concept; avoiding tax by the ways of "domestic enterprises acting as foreign enterprises" and "domestic enterprises conspiring with foreign enterprises"; avoiding tax by transferring price; avoiding tax by abusing tax treaties; avoiding tax by capital weakening; avoiding tax by the tax-avoiding heavens, and so on.According to the problems in the legislation of the income tax preference for foreign-invested enterprises and tax avoiding by some enterprises, in order to prevent state-owned assets from lost, in my opinion, it is necessary to construct a comprehensive income tax preference legal system with domestic law and international law included. Specific legal measures are as follows: establishing the correct guiding ideology of tax preference legislation; implementing the "Enterprise Income Tax Law" earnestly; establishing an effective legal mechanisms to regulate tax avoiding; improving the taxation system of China; strengthening the international coordination and cooperation in tax.