Dividing the Spoils of Foreign Investment: China's Shifting Tax Treaty Policy
(2017) 23(3) New Zealand Journal of Taxation Law and Policy 350-369
20 Pages Posted: 6 Dec 2017
Date Written: September 1, 2017
Abstract
China attracted considerable foreign investment following the opening of its economy in 1979. With the switch to a quasi-market economy, China became reliant on taxes to fund government, opening the door to potential double taxation of profits from foreign investment, first in China and second in the investors’ home countries. The issue was resolved in a series of tax treaties that divided taxing rights between China as a host country and the “residence” countries of the foreign investors. In many respects, China was able to extract generous concessions from the treaty partners, particularly OECD countries anxious to invest in China. Several decades later, the tables started to turn, with Chinese investment outbound climbing and eventually surpassing inward investment. Following renegotiation, a number of the original treaties were replaced or revised. This article studies the extent to which China achieved a new division of taxing rights in its treaty network.
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