- UBC Faculty of Law, 1822 East Mall, Vancouver, BC, Canada V6T 1Z1
Wei Cui
University of British Columbia, Faculty of Law, Faculty Member
- I am a scholar of tax law and tax policy. I also have a strong interest in social scientific investigations of the Ch... moreI am a scholar of tax law and tax policy. I also have a strong interest in social scientific investigations of the Chinese legal system and Chinese political economy.
As a tax law scholar, my main research interests are in the areas of international taxation, the value added tax (VAT), and tax and development. In the first area, I actively engage with global policy and doctrinal discussions, including about multinationals’ and wealthy individuals’ tax avoidance activities, taxing sovereign wealth funds and other state-owned enterprises, international tax dispute resolution, and tax treaty implementation. I have been a member of the Permanent Scientific Committee of the International Fiscal Association, a consultant to the United Nations, and have presented my scholarly work to the OECD and other policy audiences. My work also engages with current theoretical and empirical research by economists, and has recently examined proposals for destination-based corporate taxation, skeptical arguments against the concept of source in international taxation, and the strength of evidence for tax competition. My work is similarly interdisciplinary in the VAT area. In current research, I critique recent scholarly claims that the VAT is a paradigm of self-enforcement and information reporting, and that large-scale government intervention using information technology represents the future of tax administration. I also examine how research on the incidence of consumption taxes may require revisions to traditional VAT design and doctrinal understandings.
Many social scientists and historians regard the ability to raise tax revenue as a core component of modern state capacity. This idea also drives my study of tax and development, in which I explore the hypothesis that legal systems have played an under-appreciated and under-theorized role in modern tax administration. This hypothesis is fueled by conceptual reasoning but also especially by my study of tax administration in China, which I think of as a system that has gone long ways to cope with the needs of modern tax collection, but all without the rule of law. By analyzing the ways in which a very large administrative apparatus can—and cannot—function without the rule of law, this research also provide new understandings of the relation between law and development in general.
My scholarship on Chinese law is grounded on my teaching, research, policy-advisory and private practice experience in China between 2006 and 2013. During those years, I taught law as an associate professor at China University of Political Science and Law in Beijing, and had the privilege of working repeatedly with ministries and agencies in China’s national government on the development of tax policy. I was also able to continue the practice of tax law with market-leading firms. As a result of this experience, my writing on Chinese law focuses on the workings of the executive branch, which I believe to be crucial to the development of rule of law in China. I think of the presence or absence of a legal order (which I take to be what the “rule of law” refers to) as often having little to do with judicial institutions or ideological discourse about the rule of law. Instead, it is a pervasive and fundamental phenomenon that is endogenous to the design of all kinds of institutions, be it the marketplace, the work place, an administrative agency, or a federalist structure.edit
Responding to calls for reallocating taxing rights over multinationals' profits to reflect the place of user value creation, the OECD recently announced a Program of Work to implement international tax reform. I use the European... more
Responding to calls for reallocating taxing rights over multinationals' profits to reflect the place of user value creation, the OECD recently announced a Program of Work to implement international tax reform. I use the European Commission's 2018 proposal to introduce the "significant digital presence" concept into income tax treaties as an example of the type of approach the OECD favors, and argue that it is inferior to recently proposed digital services taxes (DSTs). DSTs directly address the question of where profits should be allocated and taxed, while SDP proposals subordinate this vital question to superfluous treaty conventions. Global tax coordination deserves better focal points.
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In 2018, the European Council and the UK and Spanish governments each proposed to introduce a Digital Services Tax (DST), to be levied on the revenue of large digital platforms from advertising, online intermediation, and/or the... more
In 2018, the European Council and the UK and Spanish governments each proposed to introduce a Digital Services Tax (DST), to be levied on the revenue of large digital platforms from advertising, online intermediation, and/or the transmission of data. We offer a rationalization of the DST as a tax on location-specific rent (LSR). That is, just as many countries already levy royalties on rent from extracting natural resources, one can think of the DST as levied on rent earned by digital platforms from particular locations. We provide stylized illustrations of how platform rent can be assigned to specific locations, even when users from multiple jurisdictions participate. We then elaborate the analogy between the DST and resource royalties and analyze the DST’s incidence and effect on private and social welfare using a simple model. Finally, we argue that the DST suggests useful directions for redesigning international taxation in the age of labor-replacing AI technology.
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As 2018 nears its end, a digital service tax (DST) seems imminent in Europe, yet elaborations of the DST's motivations have so far come primarily from the European Commission and the UK Treasury: academic and practitioner commentators... more
As 2018 nears its end, a digital service tax (DST) seems imminent in Europe, yet elaborations of the DST's motivations have so far come primarily from the European Commission and the UK Treasury: academic and practitioner commentators remain largely skeptical. This paper offers a new conceptual defense of the DST that is independent of the existing government positions. I argue that a clear case can be made for the DST as a way of taxing location-specific rent earned by digital platforms. While the DST may also be partially motivated by other, potentially conflicting visions for reforming international taxation, such as destination-based apportionment or greater protection of the " source-based " taxing rights, the justification in terms of taxing location-specific rent both is distinct from and arguably offers a more compelling fit with the current policy focus of European governments than these other visions. Conceiving of the DST as a tax on location-specific rent allows principled replies to its critics. Two of the most prominent critiques point to the DST's character as a turnover tax, and the fact it is not coordinated through the renegotiation of income tax treaties. With respect to the first critique, it can be countered that digital platforms enjoy low marginal costs of production, implying that the difference between taxing revenue and taxing profit is small. The fact that many platform companies potentially subject to the DST are in fact loss-making does not make the DST inefficient; indeed, the DST may enhance efficiency by deterring excessive entry and market fragmentation in natural monopoly contexts. With respect to the second critique, it can be argued that a tax on location specific rent requires less coordination through tax treaties since a deduction for DST paid would leave an appropriate corporate tax base for other countries. Moreover, it is unlikely that traditional profit attribution methods under tax treaties would help with the identification of location specific rent (and the consequent allocation of taxing rights). Therefore it is unclear that treaty-based coordination would improve the efficiency of the tax. A conception of the DST as a tax on location-specific rent, however, is in tension with certain specific features of the EC's DST proposal, as well as the EC view that a " long-term solution " that relies on the concept of significant digital presence (SDP) is superior. The conceptual defense of the DST offered in this paper thus casts a new light on both sides of the debate.
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I examine one way of taxing international corporate income that has not previously been studied, “residence-based formulary apportionment” or RBFA. I first offer a new taxonomy of different ways of taxing corporate income by reference to... more
I examine one way of taxing international corporate income that has not previously been studied, “residence-based formulary apportionment” or RBFA. I first offer a new taxonomy of different ways of taxing corporate income by reference to individual shareholders, and distinguish what I call the “shareholder attribution” approach from integration, pass-through, and other approaches. I then argue that although traditional international legal norms had led international tax design to avoid taxing foreign corporations “unconnected” with the taxing jurisdiction (e.g. foreign corporations earning only foreign income), these legal norms have gone through substantial transformations in recent years. The exercise of jurisdiction over foreign corporations has vastly expanded in the sphere of international taxation, as has the extent of mutual assistance in tax collection. Consequently, the choice between taxing foreign corporations and taxing shareholders should be made mainly on administrative (including enforceability) grounds other than international legal norms. Against this new landscape of international tax law, I compare the relative administrative advantages of two forms of tax design that implement exclusively-individual-shareholder-residence-based taxation of corporate income: the shareholder attribution approach, and RBFA. I conclude that while otherwise promising, RBFA is infeasible because it is incompatible with most corporations’ need to make pro rata distributions.
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This article offers the first comprehensive scholarly response to proposals for destination-based, cash-flow taxation (DCFT). DCFT proposals have attracted heightened public attention in 2016 because of its incorporation into the U.S.... more
This article offers the first comprehensive scholarly response to proposals for destination-based, cash-flow taxation (DCFT). DCFT proposals have attracted heightened public attention in 2016 because of its incorporation into the U.S. House Republican Blueprint for tax reform and Donald Trump’s subsequent election to the White House. They also continue to fascinate tax specialists by suggesting that corporate profit can not only be taxed in countries of “source” or “residence”, but also (or even exclusively) in the countries where sales to final consumers occur. This Article clarifies the logical structure of DCFT proposals and exposes substantial gaps between their rhetoric and technical details.
I argue first that it is crucial to distinguish between two versions of the DCFT. Version 1 resembles proposals for taxing corporate income by sales-factor-only formulary apportionment. Version 2, which is what the House GOP Blueprint proposes, resembles a destination-based VAT with deductions for labor costs and refundable losses. DCFT Version 2 is merely a species of residence-based consumption taxation and, unlike Version 1, would not allocate revenue to countries of consumer residence as distinct from countries of investor residence. It thus introduces no fundamental new option into international tax design. Instead, it may create substantial trade distortions (and its loss refund feature is also unlikely to be administrable). DCFT Version 1 does present a new option for taxing corporate profit but is un-implementable. I also highlight ways in which DCFT proposals make ad hoc normative and behavioral assumptions. For example, in criticizing the traditional corporate income tax, DCFT proponents only refer to neutrality benchmarks and give no weight to distributional concerns, but when defending the advantage of the DCFT vis-à-vis the VAT, they introduce considerations of progressivity.
Finally, the Article offers a novel explanation of why it is difficult to incorporate information about consumer location into international tax design, and argues that “residence” is more promising than “destination” (when both are understood as capturing information about natural persons) for dealing with problems arising from capital mobility.
I argue first that it is crucial to distinguish between two versions of the DCFT. Version 1 resembles proposals for taxing corporate income by sales-factor-only formulary apportionment. Version 2, which is what the House GOP Blueprint proposes, resembles a destination-based VAT with deductions for labor costs and refundable losses. DCFT Version 2 is merely a species of residence-based consumption taxation and, unlike Version 1, would not allocate revenue to countries of consumer residence as distinct from countries of investor residence. It thus introduces no fundamental new option into international tax design. Instead, it may create substantial trade distortions (and its loss refund feature is also unlikely to be administrable). DCFT Version 1 does present a new option for taxing corporate profit but is un-implementable. I also highlight ways in which DCFT proposals make ad hoc normative and behavioral assumptions. For example, in criticizing the traditional corporate income tax, DCFT proponents only refer to neutrality benchmarks and give no weight to distributional concerns, but when defending the advantage of the DCFT vis-à-vis the VAT, they introduce considerations of progressivity.
Finally, the Article offers a novel explanation of why it is difficult to incorporate information about consumer location into international tax design, and argues that “residence” is more promising than “destination” (when both are understood as capturing information about natural persons) for dealing with problems arising from capital mobility.
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Many economists and legal scholars claim that the traditional conceptual and policy framework for international taxation is defunct. The examples they offer most often to support such claims are failures of residence- or source-based... more
Many economists and legal scholars claim that the traditional conceptual and policy framework for international taxation is defunct. The examples they offer most often to support such claims are failures of residence- or source-based taxation to achieve a variety of normative objectives. This article suggests that there is a very different way of seeing why international taxation has become intellectually controversial. The key problem is not that the globalization of economic activities makes the traditional policy tools outdated; instead, it is that scholars and policymakers have more frequent occasions to disagree about the normative goals of international taxation. Thus most current controversies are actually about the articulation of ends and not the adequacy of means. To illustrate this perspective, this article offers a minimalist account of the meanings of the concepts of source and residence. The account, I argue, successfully deflects most skeptical arguments about residence and source, and shows that the purported inadequacy of the two concepts are consequences, not causes, of inadequate normative criteria for the design of international income taxation. The article also offers a novel analysis illustrating the inadequacy of the principle of avoiding double taxation: by ignoring the economic incidence of tax, devices purportedly mitigating double taxation in fact produce double non-taxation.
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This chapter of the United Nations Handbook on Selected Issues in Protecting the Tax Base of Developing Countries considers the taxation of capital gains realized by non-residents as an important measure for protecting developing... more
This chapter of the United Nations Handbook on Selected Issues in Protecting the Tax Base of Developing Countries considers the taxation of capital gains realized by non-residents as an important measure for protecting developing countries’ tax base. Relative to the existing literature on this subject, the chapter makes five main new arguments. First, there are sound conceptual justifications for taxing non-residents’ capital gains. The prevailing assumption that only gains derived from nonresidents’ sales of immovable property (understood to include mining and mineral rights) should be taxed by the source state lacks sufficient rationale. Second, in light of the sound justifications for taxing capital gains, even Article 13 of the UN Model Tax Convention arguably imposes excessive limits on source countries’ taxing rights. Third, greater attention should be given to how non-residents’ capital gains are taxed, instead of whether they are taxed. Specifically, allowing losses to be taken into account and adopting measures that avoid the multiple taxation of the same economic gain may impart greater legitimacy to, and produce greater compliance with, the taxation of non-residents’ capital gains. Fourth, buyer withholding appears to be the most promising method both for detecting taxable sales and for enforcing the actual tax liability. By contrast, suggestions that the target company (where present) should be made secondarily liable unnecessarily erase the distinction between shareholder and corporate liabilities and are impractical given the target’s dealings with creditors. Fifth and finally, taxing non-residents’ capital gain is an important phenomenon even if it is not indispensable from a revenue perspective: it helps to maintain the fairness and integrity of the tax system, and may contribute to regulating the extensive offshore M&A markets often found for foreign direct investments into developing countries.
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Numerous countries (e.g. Canada, Australia and Japan) tax foreigners on the gain realized on their transfers of interests in foreign entities that invest in real estates in these countries. In the last few years, actions taken by tax... more
Numerous countries (e.g. Canada, Australia and Japan) tax foreigners on the gain realized on their transfers of interests in foreign entities that invest in real estates in these countries. In the last few years, actions taken by tax authorities in India, China, Brazil, Indonesia and other non-OECD countries have highlighted the possibility of taxing a broader range of “indirect transfers” by foreigners. This Article argues taxing indirect transfers can have vital policy significance in countries where foreign inbound investments are actively traded in offshore markets: it may not only deter tax avoidance, but also stanch “legal base erosion” — the substitution of offshore investment structures for deploying legal mechanisms in onshore markets. However, the successful implementation of a broad policy of taxing indirect transfers depends crucially on securing voluntary taxpayer compliance. To this end, this Article proposes to rationalize existing practices for taxing indirect transfers in two major ways: (1) striking a better balance between ex ante and ex post lawmaking, and (2) consistently treating taxable indirect transfers as sales of underlying target assets (thus allowing conforming adjustments in tax basis). These improvements better target tax avoidance, result in fewer arbitrary consequences, and create incentives in the market place that facilitate compliance.
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International tax policy advisors are inevitably challenged in making generalizations about developing countries, as are academics. Perhaps this is why, in commentaries on tax incentives deployed by developing countries, we so often read... more
International tax policy advisors are inevitably challenged in making generalizations about developing countries, as are academics. Perhaps this is why, in commentaries on tax incentives deployed by developing countries, we so often read passages that seem lifted from undergraduate textbooks. In this commentary I suggest that we not confuse this discourse with the real issues faced by policymakers. Tax incentives actually adopted in practice must be more carefully classified and documented. And the political processes that lead to the adoption of tax incentives may need to become a subject of study itself. I illustrate these points by examining literature bearing on the following two questions: Do developing countries try to become tax havens? And, do developing countries offer tax incentives due to tax competition?
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This book integrates legal, economic, and administrative materials about the value added tax (VAT) to present the only comparative approach to the study of VAT law. The comparative presentation of this volume offers an analysis of policy... more
This book integrates legal, economic, and administrative materials about the value added tax (VAT) to present the only comparative approach to the study of VAT law. The comparative presentation of this volume offers an analysis of policy issues relating to tax structure and tax base as well as insights into how cases arising out of VAT disputes have been resolved. Its principal purpose is to provide comprehensive teaching tools - laws, cases, analytical exercises, and questions drawn from the experience of countries and organizations around the world. This second edition includes new VAT-related developments in Europe, Asia, Africa, and Australia and adds new chapters on VAT avoidance and evasion and on China's VAT. Designed to illustrate, analyze, and explain the principal theoretical and operating features of value added taxes, including their adoption and implementation, this book will be an invaluable resource for tax practitioners and government officials.
State-owned enterprises (SOEs) from emerging economies and resource-rich countries have been increasingly active investors in global markets in the last decade, challenging policymakers in Canada and other OECD countries to confront the... more
State-owned enterprises (SOEs) from emerging economies and resource-rich countries have been increasingly active investors in global markets in the last decade, challenging policymakers in Canada and other OECD countries to confront the logic of “state capitalism”. This article develops a novel theory of the income taxation of SOEs and explores its implications for international tax policy. Many countries subject their SOEs to income taxes, but traditional public finance theorists tend to dismiss SOE taxation as superfluous. A popular, contrary belief holds that SOE taxation is necessary to ensure fair competition. This Article shows that both views are mistaken, and suggests an explanation of SOE taxation in terms of the divergent interests between SOE managers and shareholders and the problem these create for dividend policy. The usual solutions for mitigating the agency problem in dividend policy for private firms may not be available for SOEs, and taxing SOEs becomes an alternative mechanism for forcing distributions. The “forced distribution” view of SOE taxation importantly implies that SOEs may be highly tax sensitive. I discuss the factors affecting SOE tax sensitivity using a simple analytic model, and demonstrate its consequences for international tax policies in both countries with strong SOE presence and those facing SOE investments.
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The “pre-collection” of tax on imputed consumption generated by owner-occupied housing plays a crucial role in both consumption tax theory and real-world tax regimes. However, even under current VAT systems with the widest tax bases, the... more
The “pre-collection” of tax on imputed consumption generated by owner-occupied housing plays a crucial role in both consumption tax theory and real-world tax regimes. However, even under current VAT systems with the widest tax bases, the taxation of imputed housing consumption is incomplete because pre-existing housing stock is typically not taxed when the VAT is introduced, and because housing value may appreciate after initial sale. In response, some have recommended taxing residential re-sale to capture previously untaxed consumption value. This paper argues that because the incidence of any properly-designed tax on resale will fall only on economic rent and existing assets, taxing housing resale in itself cannot produce efficiency gains. Moreover, to avoid causing distortions and be consistent with consumption tax theory, a tax on resale must be refined to ensure non-taxation of investment returns other than economic rent. The refinements are alien to normal VAT mechanisms and can no longer be viewed as embodying the “pre-collection” method. Finally, the paper highlights the difference between traditional efficiency concerns about the under-taxation of imputed income/consumption and the equity concerns that likely motivate the proponents of taxing resale. Indeed, in countries where the modern VAT is in place, the aggregate tax burden on housing consumption may be rather high, and under-taxation may not be an issue.
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A common phenomenon in tax administration in developing countries is that tax is collected not according to the rules of law but according to informal agreements between taxpayers and tax collectors. This article offers a novel... more
A common phenomenon in tax administration in developing countries is that tax is collected not according to the rules of law but according to informal agreements between taxpayers and tax collectors. This article offers a novel explanation of this phenomenon in the Chinese context in terms of administrative decentralization. Administrative decentralization is defined as the concentration of government functions at the lowest ranks of a geographically-dispersed bureaucracy. Decentralization increases communication costs associated with the implementation of law, and changes the structure of taxpayers’ costs in obtaining knowledge about the law. As a result, a “semi-compliant” type of behavior, involving many taxpayers who would have been compliant under a rule-based system, emerges where tax is remitted and collected despite both sides being under-informed about the law. The article argues that this dynamic has frustrated tax administration reform in China and, interestingly, explains the underdevelopment of the tax legal profession and of tax litigation.
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A prominent strand of recent economic and legal scholarship hypothesizes that third-party information reporting (TPIR) is essential to modern tax collection. The slogan, “no taxation without information,” has captured researchers’... more
A prominent strand of recent economic and legal scholarship hypothesizes that third-party information reporting (TPIR) is essential to modern tax collection. The slogan, “no taxation without information,” has captured researchers’ imagination and is even often presented as self-evident truth. This Article offers a fundamentally different perspective, arguing that the emphasis on TPIR is misplaced. TPIR is used largely in the collection of the personal income tax but not of many other types of modern taxes. Even for the personal income tax, TPIR also has close substitutes which do not involve information transmission to the government. Theoretically, appeals to TPIR are vitiated by the puzzle of payor compliance. And most purported empirical evidence for the effectiveness of TPIR fails to provide causal identification.
I suggest that to better understand the institutional foundations of modern tax collection, we should stop thinking of business firms as “fiscal intermediaries” in a game of deterrence against tax evaders. Instead, it would be more fruitful to conceive of firms as sites of social cooperation under the rule of law. The co-evolution of the business firm and modern regulatory law may have enabled modern governments to practice precisely “taxation without information”.
I suggest that to better understand the institutional foundations of modern tax collection, we should stop thinking of business firms as “fiscal intermediaries” in a game of deterrence against tax evaders. Instead, it would be more fruitful to conceive of firms as sites of social cooperation under the rule of law. The co-evolution of the business firm and modern regulatory law may have enabled modern governments to practice precisely “taxation without information”.
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U.S. taxpayers and the IRS increasingly have to take into account the interactions between U.S. and foreign laws, but they have paid little attention to the administrative law backgrounds of foreign tax laws. In a growing range of cases,... more
U.S. taxpayers and the IRS increasingly have to take into account the interactions between U.S. and foreign laws, but they have paid little attention to the administrative law backgrounds of foreign tax laws. In a growing range of cases, the need for such attention has become urgent. This Article describes a novel class of cases encountered by U.S. taxpayers that emanate from tax treaty implementation in China. In these cases, U.S. (and other foreign) investors face certain rules that conflict with common treaty interpretations, and that, at the same time, are not legally binding under Chinese domestic law. The question arises as to whether U.S. taxpayers should contest such rules in China. Equally, the IRS faces the question of what to do with such errant treaty interpretations.
These questions for U.S. tax law and policy cannot be answered without understanding the Chinese administrative law approach to treaty implementation. This Article suggests that affected U.S. taxpayers cannot simultaneously avoid contesting the applications of the Chinese rules and claim, for U.S. law purposes, that they have taken “all practical and effective remedies” to reduce their tax liabilities. It also suggests that the U.S. rules on what qualifies a compulsory tax payment constitute a way of “exporting” U.S. concepts of the rule of law. But most fundamentally, it argues that to protect their rights and expectations under tax treaties, U.S. taxpayers and the IRS must tap unfamiliar mechanisms that enhance the rule of law, such as legislative, judicial, and executive oversight.
These questions for U.S. tax law and policy cannot be answered without understanding the Chinese administrative law approach to treaty implementation. This Article suggests that affected U.S. taxpayers cannot simultaneously avoid contesting the applications of the Chinese rules and claim, for U.S. law purposes, that they have taken “all practical and effective remedies” to reduce their tax liabilities. It also suggests that the U.S. rules on what qualifies a compulsory tax payment constitute a way of “exporting” U.S. concepts of the rule of law. But most fundamentally, it argues that to protect their rights and expectations under tax treaties, U.S. taxpayers and the IRS must tap unfamiliar mechanisms that enhance the rule of law, such as legislative, judicial, and executive oversight.
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At a superficial glance, Internal Revenue Code Section 892 appears to favor sovereign wealth funds (SWFs) over foreign private investors by exempting the former from tax on a significant range of US investments. This has recently led to... more
At a superficial glance, Internal Revenue Code Section 892 appears to favor sovereign wealth funds (SWFs) over foreign private investors by exempting the former from tax on a significant range of US investments. This has recently led to calls for its abolition. Several authors, however, have challenged this view by pointing out that the impact of US tax on the relative competitiveness of SWFs and private investors should be analyzed in terms of the investors’ comparative, not absolute, advantage. And such analysis hinges on whether foreign private investors are taxed by their home countries on a worldwide basis, as well as on how SWFs are taxed in other countries where they invest. In support of these challenges, I discuss two hitherto under-noticed facts: the prevalence of the practice of worldwide taxation among countries generating the most investments into the US, and the fact that SWFs themselves may be taxed at home. Both buttress the conclusion that current US tax law is unlikely to have disadvantaged private investors. Moreover, the institutional characteristics SWFs imply that they lie in between foreign government pension funds and commercial state-owned enterprises. Changing current US tax law would unjustifiably hurt the former group of foreign investors, while having no policy effect on the latter, more controversial group of investors.
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The House Republican Task Force on Tax Reform released its Blueprint for tax reform in June 2016, at the center of which is a destination-based cash-flow tax (DCFT) to replace the current federal income tax on corporations. The House GOP... more
The House Republican Task Force on Tax Reform released its Blueprint for tax reform in June 2016, at the center of which is a destination-based cash-flow tax (DCFT) to replace the current federal income tax on corporations. The House GOP Blueprint represents the first time that the DCFT has been promoted by political leaders. Initial commentators have stressed the capacity of such a tax (if adopted in the U.S.) to reduce U.S. companies’ incentives for international tax planning and profit shifting, and to allow the U.S. to “leapfrog to the front of the pack” in its tax competitiveness.
In this essay I discuss issues that are crucial for understanding the DCFT. I start off by examining border adjustments required under DCFT, and argue that we should not see the “perennial question” concerning such adjustments as being about whether it is in violation of WTO agreements. Instead, the question should be whether we truly understand the DCFT’s potential impact on trade, aside from WTO legal concerns. I identify a couple of ways in which objections against the DCFT have not been adequately answered. I then examine how the loss carry-forward aspect of the Blueprint interacts with border adjustments, and how things get even more complex when non-corporate entities are also taxed on a destination basis. The implementation issues for the DCFT I highlight would not arise if the U.S. were to adopt a VAT instead. I conclude by comparing the DCFT with the VAT in respect of the issue of progressivity, and considering the question of how other countries would respond to a U.S. DCFT.
In this essay I discuss issues that are crucial for understanding the DCFT. I start off by examining border adjustments required under DCFT, and argue that we should not see the “perennial question” concerning such adjustments as being about whether it is in violation of WTO agreements. Instead, the question should be whether we truly understand the DCFT’s potential impact on trade, aside from WTO legal concerns. I identify a couple of ways in which objections against the DCFT have not been adequately answered. I then examine how the loss carry-forward aspect of the Blueprint interacts with border adjustments, and how things get even more complex when non-corporate entities are also taxed on a destination basis. The implementation issues for the DCFT I highlight would not arise if the U.S. were to adopt a VAT instead. I conclude by comparing the DCFT with the VAT in respect of the issue of progressivity, and considering the question of how other countries would respond to a U.S. DCFT.
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We analyze how profit reporting and investment behavior of foreign enterprises respond to local tax incentives in China, a large developing country. Using firm-level data between 2000 and 2013 from China’s industrial enterprise survey, we... more
We analyze how profit reporting and investment behavior of foreign enterprises respond to local tax incentives in China, a large developing country. Using firm-level data between 2000 and 2013 from China’s industrial enterprise survey, we first provide strong evidence for tax competition among Chinese cities (especially cities within the same province) over the average effective income tax rate. We then find that, despite stringent capital controls, both reported pre-tax profits and investment of foreign firms respond strongly to local tax incentives, suggesting that subnational tax competition in China is oriented towards both mobile profits and real resources.
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This chapter reviews empirical evidence from China that bears on the general theory of the income taxation of state-owned enterprises (SOEs). Prior theoretical literature has offered three conflicting views of SOE taxation. The first is... more
This chapter reviews empirical evidence from China that bears on the general theory of the income taxation of state-owned enterprises (SOEs). Prior theoretical literature has offered three conflicting views of SOE taxation. The first is that SOE taxation is superfluous, because the government shareholder can simply demand profit distributions. The second is that SOE taxation is necessary to put state-owned and private firms on an equal competitive footing. The third view holds that the significance of SOE taxation lies in the fact that SOE managers, like managers of private firms, are dividend averse; in the absence of other effective mechanisms to secure adequate payout, SOE taxation serves the purpose of forcing distributions.
These conflicting theoretical views should be empirically testable. In particular, the first view suggests that SOEs should be insensitive to the income tax, that they would not pursue domestic tax planning, and that a firm’s tax sensitivity should rise as it becomes more privatized. By contrast, the third view suggests that SOEs are likely to be tax sensitive, and that such tax sensitivity is as much a function of managerial compensation and the degree of shareholder monitoring as it is of the proportion of government ownership. The chapter shows that recent advanced accounting research on Chinese listed companies augments already strong historical and legal evidence that supports the third view. Chinese SOEs, particularly centrally-owned SOEs, engage in extensive tax lobbying, and display degrees of tax planning similar to private firms. The chapter suggests that further empirical research on SOE taxation should be designed with a more explicit aim of testing the above theories, including whether countries that encounter greater problems with SOE corporate governance also rely more heavily on SOE income taxation.
These conflicting theoretical views should be empirically testable. In particular, the first view suggests that SOEs should be insensitive to the income tax, that they would not pursue domestic tax planning, and that a firm’s tax sensitivity should rise as it becomes more privatized. By contrast, the third view suggests that SOEs are likely to be tax sensitive, and that such tax sensitivity is as much a function of managerial compensation and the degree of shareholder monitoring as it is of the proportion of government ownership. The chapter shows that recent advanced accounting research on Chinese listed companies augments already strong historical and legal evidence that supports the third view. Chinese SOEs, particularly centrally-owned SOEs, engage in extensive tax lobbying, and display degrees of tax planning similar to private firms. The chapter suggests that further empirical research on SOE taxation should be designed with a more explicit aim of testing the above theories, including whether countries that encounter greater problems with SOE corporate governance also rely more heavily on SOE income taxation.
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This paper documents some basic empirical facts about the issuance of formal regulations (FRs) and informal policy directives (IPDs) by China's national ministries and agencies from 2000 to 2014. Prior scholarship (e.g. Cui 2011, Howson... more
This paper documents some basic empirical facts about the issuance of formal regulations (FRs) and informal policy directives (IPDs) by China's national ministries and agencies from 2000 to 2014. Prior scholarship (e.g. Cui 2011, Howson 2012) depicts specific instances of Chinese national agencies announcing substantive new policies (many ultra vires by statutory standards) through IPDs. I use FR and IPD quantities as measures of the agencies' propensity to resort to legal as opposed to non-legal, merely bureaucratic mechanisms for announcing policy. I find significant variations across agencies in the quantities of FRs issued, both in absolute terms and relative to the quantities of IPDs. The variations often contradict conventional perceptions about different agencies' political orientations. Budget fluctuations do not predict FR or IPD issuance, nor do the minister's tenure in office. Overall, formal rulemaking has been on the decline in China, accentuating the importance of the question: Why do Chinese bureaucrats bother with rulemaking at all? I suggest a preliminary set of considerations relevant to answering this question. The study sheds new light on the different approaches taken by actors in the Chinese government to establishing basic "rule by law".
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We present a novel account of China's recent move to decentralize legislation through amending the Law on Legislation (LL). Conventional wisdom pervading both Chinese political discourse and social scientific scholarship on China portrays... more
We present a novel account of China's recent move to decentralize legislation through amending the Law on Legislation (LL). Conventional wisdom pervading both Chinese political discourse and social scientific scholarship on China portrays law as incompatible with experimentation and as only suitable for codifying policies adopted after experimentation. Moreover, the value of legislatures is viewed as lying in their independence from the executive branch. We highlight rationales offered by the Chinese Communist Party for the LL amendment that repudiate these assumptions: the Party proclaimed the intention to promote lawmaking as a central instrument of policy experimentation; moreover, the Party's intervention in legislative processes may rescue legislatures from their irrelevance. We trace this new position regarding the role of lawmaking through the amended LL's legislative history and initial implementation. We further show how this new official ideology clashed with the views of legislative officials, for whom "constraining government" has become a central preoccupation-both as a consequence of, and reinforcing, legislation's political irrelevance. We argue that, to understand the political calculus underlying Xi's approach to law, one does well to acknowledge the coherence and appeal of initiatives such as the LL amendment.
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We test the relevance of the selection theory of litigation in a contemporary, civil law setting, using Chinese judicial data that span 25 years regarding lawsuits against government agencies. Civil law systems may be characterized by... more
We test the relevance of the selection theory of litigation in a contemporary, civil law setting, using Chinese judicial data that span 25 years regarding lawsuits against government agencies. Civil law systems may be characterized by lower costs of litigation and lower rates of settlement than the U.S. legal system, and therefore the presence of selection effects cannot be assumed. We show that selection effects are indeed manifest in Chinese administrative litigation, and suggest that this may be explained by hidden or intangible litigation costs. Our test for selection effects builds on the approach of previous U.S. studies and potentially allows the identification of selection effects to help improve inferences from decided cases. Finally, we examine patterns of settlement and plaintiff wins in pre-litigation administrative appeals in China, and do not find sufficient evidence for selection effects in this process. This could potentially be explained if most appellants pursuing administrative appeals do not intend to litigate.
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Lawsuits against the government form a part of the regular functioning of legal systems in democratic countries, and responding to such lawsuits an unavoidable part of governance. However, in the context of authoritarian regimes,... more
Lawsuits against the government form a part of the regular functioning of legal systems in democratic countries, and responding to such lawsuits an unavoidable part of governance. However, in the context of authoritarian regimes, administrative litigation has been viewed as a distinctively valuable institution for promoting the rule of law and individual rights. Moreover, the judiciary is portrayed as the keystone to this institution and to the rule of law in general: the more powerful and competent is the judiciary, the more it is able to “constrain government” through judicial review. Through empirical and comparative analyses of over two decades of administrative litigation in China against one of the state’s essential branches, tax collection, I challenge the utility of this normative conception of administrative litigation. Using conceptual tools that apply across legal systems and regulatory areas, I show that while litigant behavior as well the regulatory environment offer useful explanations of litigation patterns such as case volume and the plaintiff win rate, the relevance of judicial quality is barely discernible. This highlights the intuitive idea that judicial review can operate only when private parties bring suit, and whether and when they will do so cannot be taken for granted. In countries with weak legal systems, the rule of law may fail in certain basic ways that even a competent and well-subsidized judiciary cannot remedy.
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In the study of Chinese law, the theme of “central-local relations” has rarely been the focus of theoretical, empirical, or even doctrinal analysis. Instead, scholars have privileged judicial institutions, the general discourse about the... more
In the study of Chinese law, the theme of “central-local relations” has rarely been the focus of theoretical, empirical, or even doctrinal analysis. Instead, scholars have privileged judicial institutions, the general discourse about the rule of law, and their relations to authoritarianism as themes for inquiry. This is not unlike the study of legal systems elsewhere: the literatures on federalism and on the rule of law, while each vast in themselves, rarely overlap.
In this chapter, I summarize arguments made elsewhere that the allocation of power and responsibilities among different tiers of government has had major influences on the development of the rule of law in China. Specifically, extraordinary legislative centralization has resulted in a radical short supply of legal rules in virtually all areas of governance. At the same time, the extraordinary decentralization of policy implementation has directly reduced compliance with and enforcement of the laws, and indirectly undermined the development of legal institutions and the legal profession. The adverse consequences of legislative centralization and enforcement decentralization are also mutual reinforcing. Overall, these twin arrangements may have held back the development of the rule of law to a greater degree than even China’s authoritarian government itself would like.
In this chapter, I summarize arguments made elsewhere that the allocation of power and responsibilities among different tiers of government has had major influences on the development of the rule of law in China. Specifically, extraordinary legislative centralization has resulted in a radical short supply of legal rules in virtually all areas of governance. At the same time, the extraordinary decentralization of policy implementation has directly reduced compliance with and enforcement of the laws, and indirectly undermined the development of legal institutions and the legal profession. The adverse consequences of legislative centralization and enforcement decentralization are also mutual reinforcing. Overall, these twin arrangements may have held back the development of the rule of law to a greater degree than even China’s authoritarian government itself would like.
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The Administrative Licensing Law (xingzheng xuke fa) will constitute a major addition to Chinese administrative law, and the rhetoric surrounding its drafting promises path-breaking reform of the Chinese regulatory state. This report... more
The Administrative Licensing Law (xingzheng xuke fa) will constitute a major addition to Chinese administrative law, and the rhetoric surrounding its drafting promises path-breaking reform of the Chinese regulatory state. This report critically assesses that promise by chronicling the actual course of shenpi (licensing) reform carried out in Shenzhen in 2001. Shenpi reform derives its novelty from questioning the rationale of regulatory policies and not just the procedures by which they are carried out. In Shenzhen, however, the reform revolved around an effort to achieve quantitative reduction in the number of shenpi procedures, which could reflect either changes in the substance of policies or mere success in cutting red tape. Close examination reveals that Shenzhen's reform was a combination of house cleaning against errant rule-making and an attempt to further increase bureaucratic efficiency, whereas little was accomplished in policy reorientation. A key difficulty in overhauling regulatory policies in China is the extremely insular policymaking process, where policy development falls entirely into the hands of specialised agencies. Not only is legislative and judicial oversight over agency rule-making absent, Shenzhen's experience also suggests that accountability has been difficult to establish even within the executive branch. This is due both to the weakness of internal monitoring institutions and the limited concept of accountability the government employs. The report concludes that incremental reform is possible to allow greater input into the policymaking process and to impose greater accountability on that process, even if robust legislative and judicial supervision is not politically or institutionally feasible in the near future.
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In December 2009, in just weeks of proximity to the issuance of several controversial, arguably ultra vires tax circulars by the Ministry of Finance and by the State Administration of Taxation (SAT), the latter agency promulgated a... more
In December 2009, in just weeks of proximity to the issuance of several controversial, arguably ultra vires tax circulars by the Ministry of Finance and by the State Administration of Taxation (SAT), the latter agency promulgated a seminal regulation governing informal rulemaking activities of all tax authorities in China. This regulation took effect on July 1, 2010, and promises to significantly improve the clarity, transparency, predictability, and quality of tax rulemaking. Ironically, it can also be seen as a rebuke to a cynical view that is rather prevalent among Chinese tax practitioners and reinforced by the recent problematic tax circulars. This is the view that legal order does not matter in Chinese tax administration because the government does not care about such order and taxpayers are unwilling to enforce it, and that therefore informal rules issued by the government should be given full weight even if they contradict law of higher authority and/or are inconsistent with each other.
The new SAT regulation on informal rulemaking is just one illustration of the dynamic development of the rule of law in taxation in China. This essay takes the new regulation as an occasion for examining the question: what is “law” in Chinese tax administration? Three views are described: one that is embodied in the Law on Legislation; another that tends to treat all government announcements as having the force of law; and a third, embodied in the new SAT regulation, that differs from both.
The new SAT regulation on informal rulemaking is just one illustration of the dynamic development of the rule of law in taxation in China. This essay takes the new regulation as an occasion for examining the question: what is “law” in Chinese tax administration? Three views are described: one that is embodied in the Law on Legislation; another that tends to treat all government announcements as having the force of law; and a third, embodied in the new SAT regulation, that differs from both.
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The reform to replace the Business Tax (BT) with the VAT is the largest tax reform initiative in China since 1994. This article assesses the first two years of the reform from a tax policy perspective. It shows that the government has... more
The reform to replace the Business Tax (BT) with the VAT is the largest tax reform initiative in China since 1994. This article assesses the first two years of the reform from a tax policy perspective. It shows that the government has tried to preempt resistance to reform through highly unusual tax design and by allowing local governments to retain revenue from pilot sectors. The VAT for pilot sectors is characterized by two new reduced rates that apply to a wide range of business-to-business transactions as well as consumer services (such as internet and mobile data services) not generally regarded in other VAT systems as requiring reduced rates. Moreover, a broad population of new VAT taxpayers is subject to "simplified collection" — a low-rate cascading levy. One characterization is that a second VAT has emerged that perpetuate many of the BT’s distortionary characteristics while also taking on the flaws of China’s traditional VAT. This renders both the prospects and benefits of extending the reform to further sectors (most consumer services, real estate, and financial services) uncertain.
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The recent policy literature on fiscal federalism in China has concentrated on the large “vertical fiscal gap” resulting in inadequate local provision of public goods and services. Thus there is an evident interest in giving local... more
The recent policy literature on fiscal federalism in China has concentrated on the large “vertical fiscal gap” resulting in inadequate local provision of public goods and services. Thus there is an evident interest in giving local governments more taxing powers. After a brief historical survey, the article discusses a 1993 State Council directive that centralized taxing power. This has led local governments to make use of their control over tax administration to alter effective tax rates, and to the practice of “refund after collection”, whereby local governments disguise tax cuts as expenditures, following a logic opposite to tax expenditures. This study concludes, firstly, that the allocation of taxing power is still done outside the framework of the law, and secondly, that the government has not been able to settle on a stable allocation. Skirmishes over the control of local tax reductions and preferences remain a continuous affair.
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VAT reform constituted the most important tax policy action China took during the global financial crisis in 2008-9. If China had had a more typical tax structure, this specific policy instrument (as well as certain others) would not have... more
VAT reform constituted the most important tax policy action China took during the global financial crisis in 2008-9. If China had had a more typical tax structure, this specific policy instrument (as well as certain others) would not have been available. Conversely, because of the idiosyncrasies of China’s current tax structure, some of the policy measures commonly deployed in other countries also cannot be used. In comparing China and Europe in the tax policies adopted since 2008, therefore, major differences in prior tax structures must be taken into account. There are also two other potential determinants of China’s tax policy. One is the Chinese government’s general propensity (or lack thereof) to use taxation as an instrument of economic policy. The other is the fate of fundamental tax reforms, in the absence of which tax policy options that have macro-economic significance are limited.
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China's revised Partnership Law requires the government to tax partners but not partnerships. Previous partnership tax rules applied only to partnerships with individual partners, and suffered from major flaws, the most important of which... more
China's revised Partnership Law requires the government to tax partners but not partnerships. Previous partnership tax rules applied only to partnerships with individual partners, and suffered from major flaws, the most important of which is that the character of income received by a partnership is not completely preserved when allocated to the partners, with the result that individual partners are overtaxed on both labor and investment income. In other words, there was no true flow-through taxation. The paper recommends improving the flow-through treatment of income, but argues that because Chinese partnerships are unlikely to be prepared in the short-term to maintain capital accounts, the flow-through treatment of losses should be postponed. In addition, partnership tax accounting should begin deploying the concept of outside basis.
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The story of China’s income taxation of corporate reorganisations falls into four distinct periods. The first years of the development of a market economy were a period of benign neglect as tax authorities came to grips with a new tax... more
The story of China’s income taxation of corporate reorganisations falls into four distinct periods. The first years of the development of a market economy were a period of benign neglect as tax authorities came to grips with a new tax system and some domestic taxpayers exploited unintended exemptions for reorganisation transactions. A dialectic emerged during the second period of reform with a shift towards a more conventional company tax system based on widely-accepted normative tax principles, while at the same time concessional rules were enacted for transactions favoured by the economic planners. The third stage saw a winding back of concessional rollovers while the current stage has seen a further rollback of some concessions and at the same time the introduction – and apparent importation from Western countries – of new ones.
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Analogous with the concept of a US "trade or business" in US federal income tax law, the concept of "establishment" under Chinese tax law determines the boundary between net-income and gross-income taxation of inbound investments. As... more
Analogous with the concept of a US "trade or business" in US federal income tax law, the concept of "establishment" under Chinese tax law determines the boundary between net-income and gross-income taxation of inbound investments. As central as the concept is, it has received surprisingly little interpretation. As China increasingly opens to foreign portfolio investment and makes new non-corporate business forms available to foreigners, the term is urgently in need of clarification.
This Article describes the recent regulatory and commercial developments in China that may rekindle interest in elaborating the meaning of "establishment." It then discusses the interpretations that have been given to the concept under existing law and attempts to identify the policy issues that these interpretations implicitly touch on but fail to explicitly confront. Finally, the Article looks at the overall tax policy stance towards foreign portfolio investment that may reasonably be attributed to China.
China's large surpluses in current and capital accounts and currency reserves make it doubtful that China will follow the US model for taxing foreign investment in the near term. Nonetheless, the government would be well advised to adopt an interpretation that permits foreign portfolio investment already identified as beneficial for China.
This Article describes the recent regulatory and commercial developments in China that may rekindle interest in elaborating the meaning of "establishment." It then discusses the interpretations that have been given to the concept under existing law and attempts to identify the policy issues that these interpretations implicitly touch on but fail to explicitly confront. Finally, the Article looks at the overall tax policy stance towards foreign portfolio investment that may reasonably be attributed to China.
China's large surpluses in current and capital accounts and currency reserves make it doubtful that China will follow the US model for taxing foreign investment in the near term. Nonetheless, the government would be well advised to adopt an interpretation that permits foreign portfolio investment already identified as beneficial for China.
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This paper argues that anti-avoidance rules are being applied in China not in the absence of the rule of law, but in parallel to the rule of law. Chinese taxpayers and tax administrators collectively have the choice of pursuing... more
This paper argues that anti-avoidance rules are being applied in China not in the absence of the rule of law, but in parallel to the rule of law. Chinese taxpayers and tax administrators collectively have the choice of pursuing discussions about the boundary between legitimate and illegitimate tax planning along two alternative paths. In one of these paths the rule of law figures as an important norm, while in the other it does not. This paper discusses how each works.
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The author, in this article, considers some of the key features of the China-United Kingdom Income Tax Treaty (2011), with particular reference to the provisions on technical fees, permanent establishments, passive and other income, and... more
The author, in this article, considers some of the key features of the China-United Kingdom Income Tax Treaty (2011), with particular reference to the provisions on technical fees, permanent establishments, passive and other income, and anti-avoidance rules.
The comparative study of income taxation provides fresh perspectives from which to examine and evaluate a particular national system. Comparative Income Taxation presents a comparative study of different solutions adopted by nine... more
The comparative study of income taxation provides fresh perspectives from which to examine and evaluate a particular national system. Comparative Income Taxation presents a comparative study of different solutions adopted by nine industrialized nations to the common problems of income tax design. In this informative work, a distinguished group of tax experts examines the treatment of important structural issues such as taxation of fringe benefits, child care deductions, taxation of disputed income, and the classification of business entities in their national systems. The study covers Australia, Canada, France, Germany, Japan, the Netherlands, Sweden, the United Kingdom, and the United States. Comparative Income Taxation comprises several parts: + Part One presents individual country descriptions outlining how each system developed its own set of approaches and principles; + Part Two deals with basic income taxation, + Part Three covers taxation of business organisations, + Part Four addresses international taxation, and + Part Five concludes the study with a detailed bibliography. Within each part, the subparts and sections outline various structural issues or problems which have arisen in the area under consideration. The author describes the countries-- responses to the problems with a view toward identifying common patterns or approaches and highlighting unique or interesting solutions. This innovative work provides a comprehensive introduction to foreign approaches to income taxation for academics, practitioners, and policymakers.
税务行政诉讼在中国发生的频率相对较低。税务顾问和法律学者一般认为这是司法缺乏独立性以及诉讼会遭到政府报复造成的结果。然而，这些流行的看法实际上只是一种猜测，并没有建立在实证研究的基础上，也无法解释税务诉讼的实际模式。本文以截至目前为止最大的税务案例判决为样本，对之加以系统内容分析，得出如下结论：诉讼当事人表现出的行为与法院在税法裁判中中立、有效地审判的可能性是不相冲突的。虽然公开的法院判决无法代表所有进入司法程序的纠纷，但本文通过研究独立获得的有关纠纷和诉讼参与者的信息并分析... more
税务行政诉讼在中国发生的频率相对较低。税务顾问和法律学者一般认为这是司法缺乏独立性以及诉讼会遭到政府报复造成的结果。然而，这些流行的看法实际上只是一种猜测，并没有建立在实证研究的基础上，也无法解释税务诉讼的实际模式。本文以截至目前为止最大的税务案例判决为样本，对之加以系统内容分析，得出如下结论：诉讼当事人表现出的行为与法院在税法裁判中中立、有效地审判的可能性是不相冲突的。虽然公开的法院判决无法代表所有进入司法程序的纠纷，但本文通过研究独立获得的有关纠纷和诉讼参与者的信息并分析案例诉讼、公开的筛选过程造成的种种偏差，对上述结论做出一定确证。换言之，实证研究的结果说明，现有证据不能支持通说将税务诉讼数量少归咎于司法体制或诉讼会带来的不利后果的观点。税务诉讼量少，更多可能是由于税法遵从的外部环境和税法的内容造成的。
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The Spratlys are a scattered group of islands in the South China Sea over which China, the Philippines, Vietnam, Malaysia, and Brunei have made conflicting jurisdictional claims. Although there has been significant academic discussion of... more
The Spratlys are a scattered group of islands in the South China Sea over which China, the Philippines, Vietnam, Malaysia, and Brunei have made conflicting jurisdictional claims. Although there has been significant academic discussion of this dispute, the Author argues that much of it is hampered by a discourse obsessed with the regional balance of power and security-related strategies that are only tenuously related to each nation's specific legal claims in the Spratlys. In this Article, the Author suggests that a more productive approach to the Spratly disputes is one focused on finding a solution that is fair to all the parties. The Article then examines several distinct substantive notions of fairness potentially applicable to the Spratly disputes and applies these notions to various existing proposed solutions, ultimately rejecting proposals that call for an allocation of rights in the Spratlys. Finally, the Author proposes that a multilateral management authority might satisfy each party's interest in fairness, at least in terms of participation in the ongoing process of allocation.
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I document an important tax collection practice that is previously unknown to research on tax administration: mandatory taxpayer self-inspections. The practice emerged spontaneously across China in the 1990s and persists to this day... more
I document an important tax collection practice that is previously unknown to research on tax administration: mandatory taxpayer self-inspections. The practice emerged spontaneously across China in the 1990s and persists to this day despite having no basis in law. If taxpayers report additional liabilities after self-inspections, no penalties are imposed. Unlike tax amnesties, self-inspections are (i) backed up by the threat of government inspections with a significantly higher-than-normal audit probability, and (ii) used as a basic, routine revenue-generation technique. I show that self-inspections represent roughly 50% of the activity in China’s “tax inspection” (jicha) system and assume even greater importance in the larger “revenue management” (shuiyuan guanli) system. Evidence suggests that selfinspections are much more effective at generating revenue than costlier government inspections. I argue that self-inspections show that the presumed centrality of audits to tax administr...
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The story of China’s income taxation of corporate reorganisations falls into four distinct periods. The first years of the development of a market economy were a period of benign neglect as tax authorities came to grips with a new tax... more
The story of China’s income taxation of corporate reorganisations falls into four distinct periods. The first years of the development of a market economy were a period of benign neglect as tax authorities came to grips with a new tax system and some domestic taxpayers exploited unintended exemptions for reorganisation transactions. A dialectic emerged during the second period of reform with a shift towards a more conventional company tax system based on widely-accepted normative tax principles, while at the same time concessional rules were enacted for transactions favoured by the economic planners. The third stage saw a winding back of concessional rollovers while the current stage has seen a further rollback of some concessions and at the same time the introduction – and apparent importation from Western countries – of new ones.