1. In terms of tax rates, some countries implement proportional taxes and some implement progressive taxes for the same tax. Progressive tax can be divided into excess progressive tax and full progressive tax; and the exemption amount, progressive grade span, and tax rate are all very different. This inevitably brings about differences in tax burdens and also provides tax avoiders with objective conditions for tax avoidance.
2. In terms of tax base, countries are also different. For example, differences in tax preferential policies and different provisions on deduction items will lead to differences in tax bases, and tax avoiders will try their best to seek countries with small tax bases as sources of income.
3. There are also differences in the extent and methods of taxation between countries. For example, most countries adopt corporate income tax, property tax, personal income tax, and capital gains tax simultaneously, while my country basically does not levy property tax and capital gains tax. Even taxes with the same name have different connotations and denotations.
4. Countries use tax jurisdiction differently. Most countries exercise both resident jurisdiction and source of income jurisdiction, and many countries exercise single jurisdiction.
5. Countries have different methods of avoiding double taxation, creating opportunities for international tax avoidance. The main methods adopted by various countries to avoid double taxation include credit method, deduction method and tax exemption method. When a full tax exemption is adopted, it is easy to create opportunities for international tax avoidance. The adoption of a comprehensive credit limit approach also leads to international tax avoidance by multinational companies.
II. Methods and methods of international tax avoidance
1. Use transfer pricing method to avoid tax
The so-called transfer pricing refers to the order by which multinational companies obtain the overall value of the enterprise group. In the best interest, in transactions between related enterprises, the behavior is lower or higher than the normal market transaction price. The use of transfer pricing between related enterprises to transfer income and expenses is the most common method used by multinational companies to avoid international taxes. Multinational companies often use this method to transfer the profits of affiliated companies in countries with high tax burdens, thereby reducing the group's overall tax burden and improving the overall interests of the multinational enterprise group. There are various methods of transfer pricing, which are mainly reflected in the following aspects:
First, by controlling the price of raw materials and parts to affect product costs.
The second is to affect the cost of products through the purchase and lease of fixed assets of affiliated companies.
The third is to control the level of royalties collected through the transfer of intangible assets such as patents, proprietary technologies, and trademarks, thereby affecting the costs and profits of affiliated companies.
The fourth is to transfer profits by charging higher or lower transportation costs, insurance premiums, loan interest fees, management fees, etc. between affiliated companies.
Economic globalization has made the use of transfer pricing more common and hidden, which poses a challenge to the country's tax jurisdiction.
2. Abuse of tax preferential policies to avoid taxes
Developing countries are at a disadvantage in the process of economic globalization. In order to attract international investment and advanced technology, we have formulated many preferential tax policies and measures to attract cross-border investment. The so-called abuse of various tax preferences mainly refers to the fact that multinational companies take advantage of the differences in the tax systems of various countries to avoid tax burdens to the greatest extent by using investment and business forms and income items with lighter tax burdens (i.e., low tax points). In recent years, a large number of foreign businessmen have abused tax incentives in our country. For example, my country's tax law stipulates that productive foreign-invested enterprises with an operating period of more than 10 years can enjoy the "two-year exemption and three-year half-off" preferential treatment starting from the year when they start to make profits. Since the prescribed tax exemption period is calculated from the profit year, some foreign investors try every means to postpone the arrival of the profit year, so that the enterprise will be in a state of no tax burden for a long time; or when the tax exemption period is about to expire, they try to separate part of the original enterprise. , establish new foreign-invested enterprises to seek to enjoy the new tax exemption period.
It is worth noting that under the current low foreign-related tax rate in my country, the so-called "reverse tax avoidance" phenomenon has emerged. Reverse tax avoidance means that multinational enterprises take advantage of the tax preferences of developing countries to avoid the relatively light tax burden in the country where they invest, and pay a relatively heavy tax burden on their profits in the country of residence. On the surface, it seems unreasonable for taxpayers to bear heavy taxes, but the real reason is that the decision-makers of multinational companies want to monopolize after-tax profits. Although the tax burden increases, it avoids sharing profits with the country where the investment is made.
3. Use thin capitalization to avoid taxes
Thin capitalization generally manifests itself in two aspects: First, the capital structure is unreasonable. When the company is established, there is insufficient capital contribution and borrowing. There are too many funds, or even false capital contributions; second, the capital is substantially reduced after the company is established, and multinational companies withdraw funds instead of replenishing capital. Multinational taxpayers often exploit the second aspect of thin capitalization for international tax avoidance.
According to my country's tax law, interest paid by a company is generally allowed to be deducted as an expense, while dividends paid are not deductible and must be included in the total taxable income. This makes many multinational taxpayers often deliberately design the source of funds structure when raising funds for investment and operations, and do everything possible to invest with debt, increase the proportion of borrowed funds, and expand the ratio of debt to property rights, resulting in "weak capitalization." Among foreign-related enterprises in my country, the proportion of foreign-owned funds is generally low. Even in the process of expanding production scale, domestic and foreign bank loans are used as investment capital as much as possible to reduce tax costs and ultimately achieve tax avoidance. After my country joins the WTO, when certain income or expense items are highly flexible and can be controlled by multinational taxpayers, they are likely to become tools used by multinational taxpayers to avoid taxes. For example, the price difference between my country's foreign exchange quotation price and the adjustment price is very large. However, my country's tax law and accounting system regulations stipulate that the actual price difference incurred by foreign-related enterprises in foreign exchange adjustments can be calculated as exchange gains and losses, and accordingly be deducted from the enterprise's taxable income.
4. Use e-commerce to avoid taxes
E-commerce refers to the transaction of goods and services by both parties using the Internet, local area networks, and intranets. At present, 52% of enterprises around the world have carried out e-commerce activities. E-commerce activities have the characteristics of stateless and regional transactions, concealment of transaction personnel, electronic currency of transactions, virtualization of transaction venues, digitization of transaction information carriers, and ambiguity of the source of transaction commodities. E-commerce provides a safer and more concealed environment for multinational companies to avoid international taxes. Multinational enterprises take advantage of the concealment of e-commerce to avoid becoming permanent establishments and resident legal persons and evade income tax; they use the rapid liquidity of e-commerce to operate in virtual tax havens to evade income tax, value-added tax and consumption tax; they take advantage of the corrosiveness of e-commerce to the tax base. , conceal the quantity of import and export goods transactions and services, and evade tariffs. Therefore, the rapid development of e-commerce not only promotes the development of world economy and trade, but also raises new international anti-tax avoidance issues for the tax systems of various countries, including my country.