Improving the Chinese General Anti-Avoidance Rule: A Comparative and Functional Approach

Seven years after its introduction in 2008 with the enactment of the new Chinese Corporate Income Tax Law, the Chinese general anti-avoidance rule (GAAR) has become a complex and incoherent piece of legislation. Despite its current shortcomings, the international impact of the Chinese GAAR is expected to grow significantly given China’s increasingly proactive participation in the G20’s fight against international tax avoidance and its embrace of the OECD’s Base Erosion and Profit Shifting (BEPS) initiative. Against this background, this research takes a comparative-functional approach to analyse and evaluate the functioning and efficacy of the Chinese GAAR. The comparative-functional approach is used to critically compare the Chinese GAAR with the GAARs of the Netherlands and the United Kingdom. These jurisdictions were chosen for reasons that are both practical and theoretical, as the comparators both have a large amount of reliable and openly accessible literature and jurisprudence, and strike a balance between civil law jurisdictions and common law jurisdictions. The analysis reveals that for a number of legal, institutional and cultural reasons, the Chinese GAAR is not working as effectively, and is not as balanced, as it could be. On these grounds, the article puts forward some suggestions for reforms on a legal and administrative level that could lead to a more balanced application of the Chinese GAAR. The article does not advocate judicial reforms.