The Study on The Chinese Taxation System for Restructuring
Asian Tax Journal Vol. 11 No. 3 (2010), pp. 205-233
Abstract
The Chinese taxation system for restructuring was introduced in the latter period of the 1990s as a means of promoting the national competitiveness of domestic enterprises by restricting the tax evasion of the enterprises on foreign capital and supporting a smooth restructuring process of the enterprises on domestic capital. However, despite the fact that income tax law for the enterprises on domestic capital & foreign capital were integrated through the tax reform in 2008, there was a proper revision of the taxation system for restructuring. As a result, the legal basis of taxation system for restructuring became ambiguous and applied discriminate regulations to the restructuring of the enterprises on domestic capital & foreign capital in the same way as before, thus coming under criticism that the tax system for restructuring contrarily hindered a reasonable corporate restructuring and also impeded tax equity. Thus, the Chinese tax authorities have been enforcing a new tax system for restructuring by referring to the tax system for restructuring of industrialized countries in 2009 and 2010. The revised tax system for restructuring in China is showing some characteristics as follows：First, the new tax system subdivided the patterns of corporate restructuring into conversion of corporate legal form, adjustment of liabilities, merger[split－off], asset acquisition, and equity stake acquisition, etc. and supplemented and newly established the tax regulations by each pattern. Second, China made the tax system for restructuring advanced and internationalized by newly establishing the regulations about offshore restructuring while abolishing discriminate regulations for the enterprises on domestic capital. Third, they introduced the concept of tax－free restructuring in which taxable income is postponed or exempted for restructuring that meets certain requirements. Fourth, as for the decision on restructuring transactions, they intensified the restrictions on the restructuring aiming for tax evasion by stipulating the principle of real taxation and intensifying the restrictions on corporate restructuring aiming for tax evasion. However, due to the uppermost limit of socialist market economy and insufficiency in its causal related laws in the existing restructuring tax system in China, there are exposed the uppermost limits as follows：First, the current restructuring tax system in China is not only insufficient in regulations about new forms of merger, such as triple mergers, and reverse mergers but it also lacks precise regulations about physical division and personal division based on tax law, so there needs to be supplementary measures for this. Second, a problem is posed that the sorts of equity stakes[shares] are not clarified in calculation of equity stake which is a major requirement of tax－free restructuring, and their restructuring tax system so inclusively stipulates the principle of real taxation that is a yardstick for judgment of the purpose of tax evasion that there is too much room for an arbitrary decision of the tax office to be intervened. Third, as to whether a tax－paying debtor's restructuring transactions meet the requirement of tax－free restructuring in currently going－on tax system on restructuring in China, tax obligator,or a corporation is imposed an excessive proof responsibility and obligation to submit supporting evidence in reality；thus, there needs to be an improvement for tax system support for rational corporate restructuring.
Keywords
- corporate restructuring
- merger
- split－off
- adjustment of liabilities
- asset acquisition
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