A Study On The Rules For The Identification Of The Controlled Foreign Company

Controlled Foreign Company Regime(CFC Regime)is the regime stipulating that the resident jurisdictions can tax the retained profits earned by the foreign corporations or other entities controlled by resident taxpayers and attributable to the shareholders.In recent years,the increasing economic connections of cross-border corporations and the differences of tax regimes in different jurisdictions enable those companies to shift profits wholly or partly for tax reasons by setting non-resident affiliations and therefore avoid tax liabilities,dramatically reducing the tax revenues of many jurisdictions.Therefore,many jurisdictions established the CFC Regime to respond to the tax erosion crisis.The prerequisite for the application of CFC Regime is the determination of the foreign subsidiaries owned by resident investors being the controlled foreign companies provided by the law of resident jurisdictions.This paper intents to analyze the identification of the controlled foreign company in an effort to determine whether the tax authorities can tax the shareholders of the controlled foreign company on the retained profits.The effective implementation of the CFC regime cannot be achieved without the correct identification of the controlled foreign company.This paper can be divided into four chapters.In the first chapter,the author introduces the system evolution,legal system status and system value of CFC Regime in China,including the evolutions of the provisions and the contents of the current articles.In the second chapter,the paper starts with a real case,and points out the current legal loopholes in the identified elements one by one,and then analyzes them respectively.In the third chapter,the author briefly introduces the contents on BEPS(Base Erosion and Profit Shifting)Action 3,and then evaluates the considerations of the definitions of a controlled foreign company which are described in detail,comparing its rules with ours to analyze the advantages and disadvantages of the domestic laws for improving the existing legal provisions.In the fourth chapter,based on the research made above,the author puts forward some suggestions for reconstructing the identified elements of the controlled foreign company in China.First,the author analyzes the policy environment that defining a controlled foreign company should be considered based on the background of the international community and the domestic society.According to the existing legal stipulations,it is clear that we should support the"four elements" for the identification of the controlled foreign company.Then the author divides the four elements into substantive and formal requirements.Finally,the author puts forward some suggestions on solving the existing problems.