The Latest Progress In Preventing Treaty Abuse And Chinese Responses

Different countries have different tax laws and regulation, etc. If those laws work together, it may results in some consequences such as double non-taxation and tax deficiency. Some company transferred their profits to places outside their manage location deliberately to avoid taxes. This give rise to the problem of base erosion and profit shifting. Nowadays, digital economy becomes more and more popular, It challenges the whole social economy and influences the international tax. If we don’t take some measures, the global tax order will become a mass. So the BEPS comes into being, BEPS means Base Erosion and Profit Shifting. The BEPS aim at give some suggestions to the world countries to help them counter base erosion and profit shifting. BEPS issued 15 action plans. One of them was Preventing the Treaty Benefits Granted Under Inappropriate Circumstances. OECD wants to provide some suggestions to the world countries by making new model tax convention through this action plan. Specifically, Those suggestions mainly included adding LOB(limit on benefits) articles and PPT(primary purpose test) articles in existing model tax convention, and specified subject and object standards. Those two articles mainly counter treaty shopping. Others suggestions are also designed to counter other kinds of treaty abuse. For now, we don’t have laws to counter treaty abuse in domestic. Only the Corporation Income Tax Law contains simple tax avoidance articles, these articles are too simple, and lack of specific standard, so It’s hard to operate. China has signed more than 100 tax treaties with other countries for now. In these treaties, only few made some articles about treaty abuse, those articles included limit on benefits, beneficiary owner of the interest and deny dual residence. Those articles are not enough to counter treaty abuse.Based on these circumstance, I wish China can follow this trend, and adopt the suggestions presented by BEPS, modified the domestic law and amended the tax treaties, adding the LOB article and PPT article parts and whole. Specifically. First, this article will restate the concept of tax abuse and state the type of treaty abuse and introduce the impact of treaty abuse; Second, the article will analysis the status of the world countries in countering treaty abuse; Third, this article will introduce the latest achievements of the BEPS Action 6,mainly will introduce the LOB article and PPT article. Fourth, the article will introduce the current situation of China in countering the treaty abuse; Last, I will provide some specific suggestions to China in Countering treaty abuse.