The Research On The Rules Of Thin-capitalization In China

With the continuous development of economic globalization, multinational corporations are playing increasingly important role in the global economy. These companies seek to pay less tax in cross-border investments through tax planning. At the same time, with the growing of local enterprises, they have begun to try the less risky way, the tax avoidance. Due to concealment of the thin-capitalization, this approach becomes more popular, however this arrangement violates China’s tax benefits. Therefore, China set thin-capitalization rules in the newly issued Law of the People’s Republic of China on Enterprise Income Tax, Regulations on the Implementation of Enterprise Income Tax Law of the People’s Republic of China, Notice of the Ministry of Finance and State Administration of Taxation on Taxation Policies Relating to the Standard for Pre-Tax Deduction of Interest Expense of Related Parties of the Enterprises, Implementing Measures for Special Tax Adjustment(Trial). This rules set the mode of thin capitalization rules and established a package of measures to fill China’s gaps on the thin-capitalization tax rules. Meanwhile, there are also some defects. Therefore, this thesis tries to tease out and analyze thin-capitalization rules in China and put forward a sound proposal.Part I: Overview OF Thin-Capitalization. This part not only introduces the general theory of thin-capitalization which helps the readers to have a good understanding of the thin-capitalization itself and lay an important basis for regulating this scheme, but provides background and premise for the proposed regulation of the thin-capitalization issues in China.Part II: Teasing Out the Regulation of the Thin-Capitalization Rules. This part seeks to divide the regulation of the thin-capitalization rules into two parts: indirect rules and tax rules, and provides a comprehensive analysis. The part firstly teases out the relative rules in company law, bankruptcy law, securities law and the relevant provisions of the foreign exchange and debt management system in China. Secondly this part combs the tax rules on thin-capitalization issues in Law of the People’s Republic of China on Enterprise Income Tax, Regulations on the Implementation of Enterprise Income Tax Law of the People’s Republic of China, Notice of the Ministry of Finance and State Administration of Taxation on Taxation Policies Relating to the Standard for Pre-Tax Deduction of Interest Expense of Related Parties of the Enterprises, Implementing Measures for Special Tax Adjustment(Trial).Part III: The Macro Analysis on Tax Rules on Thin-Capitalization. This part analyses the relative tax rules on macro-level. It respectively analyses the choose of the mode of thin-capitalization tax rules, the relationship with the relevant tax-avoidance provisions and rethinks thin-capitalization tax rules from the policy perspective which may provides guidance for the analysis on thin-capitalization rules in detail.Part IV: The Microscopic Analysis and Improvement of Thin-Capitalization Tax Rules. This part analyzes the tax rules on thin-capitalization on micro-level, and makes sound recommendations. This section analyses separately from the main body, the scope, the standards and administration of the rules.From the main body concerned, this part focuses on the following three parts: whether the definition of related party on the transfer pricing provisions is applicable to that on thin capitalization rules, whether the criteria applicable to judge the related parties is rational, whether the different treatment of related parties within and outside violate the non-discriminatory terms in tax agreements between China and other countries. As to scope applicable, this part analyzes the criteria to distinguish debt and owner’s equity in taxation law and sets the different treatment on the different pattern of debts. As to the standard applicable, this part expresses the soundness of setting the corresponding criteria between China’s financial enterprises and other enterprises, but in the existing conditions in China, the standards on financial enterprises is too low, besides, the author also believes that there should be subdivided sectors to set separate criteria. About the rules on the collection, the part recommends to perfect the collection rules to accommodate the thin-capitalization rules.