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Uncertainty and possibilities in taxation of Australian investment in China: Profit distributions and payments to group members


This paper considers the Australian and Chinese taxation of Australian investment into China with a focus on profit distributions and inter-group transactions. In doing this it identifies that there is significant uncertainty in relation to taxation outcomes in the area and that this would be expected to cause major compliance costs. The uncertainty can be understood at two levels. First it is the product of Australian tax complexity brought about by an extensive law that results in unanticipated outcomes when it is not carefully reviewed in relation to multiple taxpayer levels and over time. Second, it is the product of a Chinese law so lacking in detailed rules of application and reliable ancillary information that it is difficult to know how it applies to numerous transactions.

The combination of these two levels of complexity mean(s) that a failure to engage in very detailed consideration of the law will result in unexpected and highly undesirable taxation outcomes such as double taxation. The expense associated with the necessary consideration and planning would be expected to constitute a major obstacle to investment by many Australian investors into China. At the same time the analysis shows that when significant planning is undertaken, opportunities can arise to minimize tax arguably below that which would be expected by legislators. Finally, the analysis indicates that it is very difficult to ascertain exactly what the ‘correct’ amount of tax is for Australian investment into China. The context necessitates complex planning for a reasonable outcome yet complex planning can result in the payment of minimal taxation. It is difficult to see this as efficient or equitable.

Author profiles:

Dongmei Qiu
Dongmei is a Post-doctoral fellow at Hong Kong University; Research fellow, Center for International Law & Comparative Taxation, Xiamen University.
Current at 1 December 2014
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Nolan Sharkey
Nolan is a Barrister at Francis Burt Chambers and Winthrop Professor of Law at the University of Western Australia (UWA). He is also Professorial Fellow in Taxation at Atax, University of New South Wales and has a professional Sydney base at Clarence Chambers. He is a Fellow of the Institute of Chartered Accountants and a tax agent. He holds a PhD in Law, a Juris Doctor with First Class Honours and a Master of Tax from UNSW. He holds additional qualifications in Accounting, Asian Studies, Psychology and Law. He has been involved in the tax advice industry for two decades and has been a tax academic for 14 years. He has taught postgraduate tax courses at Atax in international anti-avoidance, double tax agreements, international tax, Chinese tax, offshore financial centres and trusts. He currently teaches tax at UWA to students in the Law and Business faculties. He is an examiner in Singapore taxation for the Chartered Institute of Taxation in London. He has published widely on Australian international tax and Chinese tax. Current at 15 April 2015 Click here to expand/collapse more articles by Nolan SHARKEY.
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