The Perfection Of China’s Capital Weakening Tax System In The Post-BEPS Era Background

With the deepening of opening-up to the outside world,international economic exchanges and cooperation have deepened,China has become the first choice for more and more multinational companies to invest overseas.The profit-seeking nature of Capital makes it have the motive of evading supervision.The liquidity of Capital allows multinational corporations to adjust the tax debt structure of the group for tax planning.The differences in taxation policies and supervision of various countries also provide natural soil in tax avoidance for enterprises.Among the many tax avoidance methods,the weakening of capital has not received enough attention because of its flexibility and high concealment,but this does not prevent multinational companies from using it as a common means of tax planning.With the implementation of “One Belt,One Road” strategy,the degree of internationalization of domestic enterprises has been increasing,and it has begun to pay attention to the use of tax laws to avoid taxation on differential treatment of interest and dividends.Therefore,in order to protect China’s tax rights and interests,it is necessary to formulate a strict anti-capital weakening tax system and regulate pre-tax interest deduction so as to prevent the loss of tax sources.Under the current boom in overseas contracted infrastructure construction,the financing demand for domestic corporate is even stronger.However,despite the government’s strong support,the financing costs of enterprises in real world are still high,so they have a strong incentive to tax planning.Therefore,it is necessary to reflect on China’s current capital weakening taxsystem,effectively solve the problem of financing difficulties,enhance the robust and continual development of companies,prevent the loss of tax sources,and improve China’s competitiveness in opening-up.In 2008,the capital weakening regulation clause appeared for the first time in China’s tax law,and the related constraint norms have sprung up.The most commonly used ones are “Special Tax Adjustment Implementation Measures(Trial)”,“Enterprise Income Tax of the People’s Republic of China Law Enforcement Regulations”,Notice on Tax Policy Issues Concerning Pre-tax Deduction Standards for Interest Expenses of Related Parties,Announcement about Issues Concerning Enterprise Income Tax Treatment in Mixed Investment Business,Announcement on Improving Relevant Issues and Related Issues in Synchronous Data Management,etc.,these regulations have further improved China’s capital weakening tax system.At present,China’s means to prevent capital weakening is to use both the safe harbor model and the principle of independent trading,and to divide the boundaries of the safe harbor model of the financial industry and other industries.Although these preventive measures have curbed the phenomenon of capital weakening in China to a certain extent,it should be recognized that the late start and partial regulations cannot adapt to new economic development.There are problems in China’s capital weakening tax system,such as the debt ratio under the safe harbor model.The characteristics of different industries have not been taken into consideration,and the identification of“related parties” is flawed.The tax policy is an important lever for the country to implement and control macroeconomic regulation.How to innovate the safe harbor rules to meet the normal financing needs of enterprises,and how to improve the capital weakening tax system according to the latest achievements of the BEPS action plan will be the focus of this article.In addition to the introduction and conclusion,the paper is divided into five chapters.The first chapter is the status quo and case analysis of China’s capital weakening.In the development status quo,the related concepts of capital weakening,the measurement of capital weakening,the evolution of China’s capital weakening tax system are introduced.In the case study,the first case of Shaanxi Province in Chinawas selected.The case of weakening capital has a certain representativeness.The second chapter introduces the defects of China’s capital weakening tax system.For example,the legal system and the collection and management system are imperfect,the definition of related concepts is not clear,and the fixed ratio method lacks flexibility.The third chapter is the international comparison of the methods of weakening the capital,including the safe harbor rules,transfer pricing rules,the merger group capital structure method,the profit stripping method,and the comprehensive adjustment method.The fourth chapter introduces the BEPS Action Plan 4 best practices;the fifth chapter is to improve China’s capital weakening tax system recommendations,including clear definition of related concepts,expand the scope of interest pre-tax deduction,develop specific rules for the financial industry,Consider allowing undeducted interest to be carried forward,and to enhance the identification of motives for capital weakening and tax avoidance.