China Studies, A Number Of Legal Issues In Cross-border Investment In The Supervision Of The Offshore Company

This paper studies legal, issues and practical problems concerning China's. supervisions on offshore companies engaging in international investments.The offshore company discussed in this paper, can be defined in the view of law as a kind of international business vehicle which registered in offshore islands with foreign capitals invested by onshore investors in order to conduct global businesses of all kinds outside of its registered place.Offshore companies have many economic advantages in transnational investing activities, for example, transnational investors can register a company quickly and run it conveniently in offshore islands, allowed to pay little or no local taxes, able to maneuver funds with great freedom, enjoying the right to keep the company's information confidential and having the access to developed services of offshore finance and offshore entrustment. However, these economic advantages of offshore companies cause many problems throughout the world, such as taxation losses, capital escapes and money laundries, harmful to onshore countries doing business with offshore companies, and even worse, offshore companies to some extent help transnational investors evade legal supervisions of both the capital export country and the capital import country. This paper focuses on China's domestic legal practices, analyzing some limitations of legislation in the fields of foreign capital administration, finance and taxation, discussing some practical problems relevant to the supervisions on offshore companies engaging in international investments, and then puts forward some advices and suggestions in each part. This paper (except the introduction), consists of four parts:The first part gives a general introduction of the definition and characteristics of the offshore company and a brief review of the international and domestic laws and regulations relevant to the supervisions on offshore companies engaging in international investments.The second part points out some limitations in the legislation of foreign capital, such as the unscientific criteria and the unfair treatment between foreign and domestic capitals, negligence in the protection to domestic assets and faults in the property rights' dealing mode, and analyzes reasons for the "fake foreign capital" and non-consideration deals like the "one-dollar deal" happened along with investments of offshore companies, and in the end puts forward some advices and suggestions toward legal and practical issues mentioned before.The third part focuses on the financial supervision on offshore companies. The author firstly elaborates two legal problems exposed in our country's supervision on offshore companies: the foreign exchange control on offshore companies used to be generally strict too much, thus those justified transnational investing and financing needs were frustrated; the securities supervision on domestic enterprises used to be abandoned or dysfunctional, thus some domestically-controlled offshore companies were able to go public overseas out of China's supervision. Secondly, the author explains two main challenges—capital escapes and transferable oversea financial risks—faced by our country with regard to the financial supervision on offshore companies. Last are some advices and suggestions.The fourth part focused on the taxation collection and administration with regard to offshore companies engaging in transnational investments. The author points out that, in our country, taxes lost through offshore companies, can be attributed into three ways: the first is the deducted income taxes imposed uponforeignized domestic enterprises in the background of Chinese dual income tax system which gives foreign-funded enterprises more tax favors; the second is tax losses caused by investors who register offshore companies with the purpose to evade tax collections in domestic China where the legislation of anti-offshore tax evasion is underdeveloped at the present; and the third is taxes lost through associated deals between offshore companies and their liaised domestic enterprises due to our country's impotent legal checking measures to transfer price. At the end, the author concludes several aspects to improve China's legislation and execution of taxation to prevent taxes from being further lost through offshore companies engaging in transnational investments.