The Prospect of New Partnership Taxation in China
10 Pages Posted: 18 Jan 2009 Last revised: 8 Jun 2020
Date Written: May 7, 2007
Abstract
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.
Keywords: Chinese taxation, partnership tax
JEL Classification: K34
Suggested Citation: Suggested Citation