How do China’s general anti-avoidance rules work?

A general anti-avoidance rule (GAAR) was first introduced in China under the corporate income tax (CIT) Law which came into effect in 2008. The GAAR empowers Chinese tax authorities to make reasonable adjustments where an enterprise implements an arrangement without reasonable business purposes in order to reduce its taxable income or profit. The CIT Law’s Implementing Rules provide that “an arrangement without reasonable business purpose” refers to an arrangement which has the main purpose of obtaining tax benefits such as the reduction, elimination, or deferral of tax payments.

The GAAR can thus be used as the basis for disregarding the existence of offshore holding companies that are perceived to be tax avoidance arrangements. A general anti-avoidance rule was first introduced in China under the CIT Law which came into effect in 2008. The GAAR empowers Chinese tax authorities to make reasonable adjustments where an enterprise implements an arrangement without reasonable business purposes in order to reduce its taxable income or profit. The CIT Law’s Implementing Rules provide that “an arrangement without reasonable business purpose” refers to an arrangement which has the main purpose of obtaining tax benefits such as the reduction, elimination, or deferral of tax payments.

The GAAR can thus be used as the basis for disregarding the existence of offshore holding companies that are perceived to be tax avoidance arrangements.