Valuation Adjustment Mechanisms in China: Unravelling Tax Treatment, Local Practices and the Future

Valuation adjustment mechanisms (VAMs), commonly known as “earn-out agreements” globally or “bet-on-performance agreements” in China, have gradually evolved into common clauses in China’s capital market transactions. China’s current tax law system does not contain special rules targeting their “contingent consideration” characteristics. This results in differentiated enforcement standards among local tax authorities. By deconstructing the legal attributes and typological characteristics of VAMs, and analysing judicial cases, this article proposes a core rule system centered on the “substantive taxation principle”, coupled with a full-process collection and administration mechanism.