Taxing indirect equity transfers in China

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

Abstract

In the past, China rarely taxed foreign investors on capital gains realized from selling their Chinese equity interests through offshore holding companies due to data and resource constraints. With the outset of a controversial policy adopted by the tax administration in late 2009, China began to tax such gains on the grounds that these offshore holding companies were vehicles to avoid China's income taxes. However, voluntary taxpayer compliance has been a problem due to the lack of a statutory basis for taxing indirect equity transfers, other than the general anti-avoidance rule (GAAR) of the income tax law. Moreover, the GAAR has been unpredictable and difficult to implement because uncertainty often arises as to how acceptable tax planning is distinguished from unacceptable tax avoidance and which transactions fall under the GAAR. The authors suggest that the tax authorities design better rules for taxing indirect equity transfers to ensure adequate compliance with the withholding and reporting requirements by nonresident taxpayers.
Original languageEnglish
Pages (from-to)51-60
Number of pages10
JournalInternational Tax Journal
Volume41
Issue number2
Publication statusPublished - Mar 2015

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Avoidance
Equity
China
Tax
Income tax
Foreign investors
Resource constraints
Tax planning
Design rules
Uncertainty
Capital gains
Authority
Tax administration
Tax avoidance

Cite this

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title = "Taxing indirect equity transfers in China",
abstract = "In the past, China rarely taxed foreign investors on capital gains realized from selling their Chinese equity interests through offshore holding companies due to data and resource constraints. With the outset of a controversial policy adopted by the tax administration in late 2009, China began to tax such gains on the grounds that these offshore holding companies were vehicles to avoid China's income taxes. However, voluntary taxpayer compliance has been a problem due to the lack of a statutory basis for taxing indirect equity transfers, other than the general anti-avoidance rule (GAAR) of the income tax law. Moreover, the GAAR has been unpredictable and difficult to implement because uncertainty often arises as to how acceptable tax planning is distinguished from unacceptable tax avoidance and which transactions fall under the GAAR. The authors suggest that the tax authorities design better rules for taxing indirect equity transfers to ensure adequate compliance with the withholding and reporting requirements by nonresident taxpayers.",
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Taxing indirect equity transfers in China. / SHI, Shanshan; LIN, Zhenpin, Kenny.

In: International Tax Journal, Vol. 41, No. 2, 03.2015, p. 51-60.

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

TY - JOUR

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AU - SHI, Shanshan

AU - LIN, Zhenpin, Kenny

PY - 2015/3

Y1 - 2015/3

N2 - In the past, China rarely taxed foreign investors on capital gains realized from selling their Chinese equity interests through offshore holding companies due to data and resource constraints. With the outset of a controversial policy adopted by the tax administration in late 2009, China began to tax such gains on the grounds that these offshore holding companies were vehicles to avoid China's income taxes. However, voluntary taxpayer compliance has been a problem due to the lack of a statutory basis for taxing indirect equity transfers, other than the general anti-avoidance rule (GAAR) of the income tax law. Moreover, the GAAR has been unpredictable and difficult to implement because uncertainty often arises as to how acceptable tax planning is distinguished from unacceptable tax avoidance and which transactions fall under the GAAR. The authors suggest that the tax authorities design better rules for taxing indirect equity transfers to ensure adequate compliance with the withholding and reporting requirements by nonresident taxpayers.

AB - In the past, China rarely taxed foreign investors on capital gains realized from selling their Chinese equity interests through offshore holding companies due to data and resource constraints. With the outset of a controversial policy adopted by the tax administration in late 2009, China began to tax such gains on the grounds that these offshore holding companies were vehicles to avoid China's income taxes. However, voluntary taxpayer compliance has been a problem due to the lack of a statutory basis for taxing indirect equity transfers, other than the general anti-avoidance rule (GAAR) of the income tax law. Moreover, the GAAR has been unpredictable and difficult to implement because uncertainty often arises as to how acceptable tax planning is distinguished from unacceptable tax avoidance and which transactions fall under the GAAR. The authors suggest that the tax authorities design better rules for taxing indirect equity transfers to ensure adequate compliance with the withholding and reporting requirements by nonresident taxpayers.

UR - http://commons.ln.edu.hk/sw_master/2742

M3 - Journal Article (refereed)

VL - 41

SP - 51

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JO - International Tax Journal

JF - International Tax Journal

SN - 0097-7314

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