Journal of Chinese Tax and Policy - Volume 3 (1) February 2013
Foreign Direct Investment Decisions & Tax Planning for Chinese Firms
By Thomas Kollruss
This article is concerned with the role of tax planning in the foreign direct investment (FDI) decisions of Chinese multinational corporations (MNCs). It can be shown that tax planning (intergroup debt financing) enables Chinese firms to locate value-added chain and direct investment (e.g. production) in high-taxed foreign countries by offsetting the relatively high tax burden. Therefore, tax planning can be regarded as an instrument to enhance the competitiveness of a foreign country as a location for Chinese firms??? direct investment regarding the net after-tax profits as a key determinant of decisions. In this respect, this article shows how Chinese firms can utilise tax planning to select Germany as a target location for direct investment. Moreover, Chinese firms may use Germany as an intermediary location for tax planning, especially for structuring Chinese FDI in the USA. In this respect, thin-capitalisation and CFC rules must be considered as main restrictions for optimising the tax burden (effective tax rate/ETR).
E-commerce Taxation in China
By Rifat Azam
The rapid growth of e-commerce in Chinese markets has presented great challenges to the Chinese tax system. In response, China started by applying the existing tax rules on income and value added to e-commerce but potential tax revenues were lost in this approach. Gradually, China is introducing special tax norms on e-commerce to close the gap. At the same time, there has been great progress in using technology in the administration of the tax system in different developed countries and the OECD guidelines and experience on the application of the permanent establishment rule to e-commerce provide a guiding taxation framework, both of which could potentially contribute greatly to the application of the Chinese Establishment or Site rule to e-commerce. In studying and evaluating these rules and creating its own, China could gain from the theoretical and analytical analysis of the issue and responses, as researched by the rich academic literature.
Research on Tax Incentives for Charitable Donations of Non-Monetary Assets by Chinese Corporations
By Zhaohui Long and Xiaoling Hu
Corporate donations form a substantial part of social charitable donations in China. Corporate non-monetary asset donations are important in this regard as they bring goods and materials to areas where they are desperately needed. However, the current scope and scale of corporate donations are narrow due to a lack of tax incentives. This paper will explain the incentive effects of the current tax regime by analysing how asset donations are treated by Chinese taxation laws, from the perspective of macroeconomic policies and market demands. It particularly focuses on the relatively heavy tax burden and limited scope for tax exemptions on corporate asset donations in China. In light of this, we propose some pragmatic suggestions on incentivizing policies that are more suitable for China???s current situation, such as increasing the exemptions before tax and allowing exemptions to roll over to future years, developing incentive policies on indirect and property taxes, and establishing the mechanism for third-party price evaluation and equity donation regulation, etc.