1. Case Background
In the reform and opening up, changing the course of the planned economy does still exist some obstacles, so the macro policy of "open to technology, and management", which is to break the resistance. Thus obtained a foreign tax preferential policies for land and so on. But many foreign investors, it proceeds as a way to get over.
By the National Bureau of Statistics, "the use of foreign capital and foreign-invested enterprises," discussion group completed a report on the study of foreign investment, loss of foreign-invested enterprises for about 2 / 3 of non-normal losses each year in tax avoidance through transfer pricing loss a 30 billion yuan. Super-national treatment to foreign-funded enterprises and tax avoidance by virtue of the means to enable them to explore and occupy a lower price domestic market, domestic enterprises have generated a great crowding-out effect.
Behavior of multinational corporations in China can also provide experience for the Chinese enterprises. Group, globalization is the trend of business development, Chinese enterprises will face in the process a lot of problems to the best multinational study to enhance parent-subsidiary control capability, is the only route to business success.
2. Multinational companies to transfer profits - the success of horizontal control
In the process of globalization, multinational corporations, subsidiary control in their home under the guidance of the overall framework, the overall strategy for the Group to consider, for its many different business areas, in different parts of the distribution subsidiary, the parent company will build according to changes in operating environment effective horizontal control. Assisted in the financial management and control under the Group's overall strategy would be more rapid and effective implementation.
1. Motivation of multinational companies to transfer profits - the profits will belong to the Chinese into their internal
Multinational companies to establish subsidiaries in China have a variety of ways, generally speaking can be divided into two joint venture companies and wholly foreign owned company. In the joint venture company, Chinese partner is not included in the Group's interests in the territory, not part of a group, then the mother of transnational corporations in the natural control system would involve a subsidiary in China, how kind of them to create more profits for the Group , in joint venture to create the case of a fixed profit, according to a joint venture company in the mutual sharing of benefits and risks of multinational companies generally establish the horizontal control joint venture will be asked to find ways to shift the company's overall profit to the parent company as much as possible, or wholly-owned subsidiary, to achieve maximum corporate interests.
We have just mentioned subsidiaries of transnational corporations profit controls to meet the Group's strategy of maximizing profits is the parent company actually controls the horizontal strategy. Horizontal strategy (Horizonta1 Strategy) is to coordinate the relevant business unit goals and strategies, including coordination of existing business units and existing units based on the association with the choice to enter new industries. Horizontal strategy is based on the subordinate group business units in the target, policy harmonization.
So what kind of ways to make such a horizontal control comes into force?
2. The way multinational companies to transfer profits
To implement effective horizontal control, all-round needs of multinational cooperation in a variety of emerging opportunities in their favor, and the opportunity to use the value. Horizontal control of strategic No light, but also have specific operational strategies. Profits of multinational corporations in China to implement control strategies for lateral transfer of the strategies implemented by nothing more than the following two kinds:
(1) the use of brand clamp Partners
Joint ventures, Chinese enterprises often do not own brand, but expect to use the well-known multinational rapid increase brand sales, seize the market. In a joint venture between, this approach does increase sales quickly, but it also established the dependence of China's external employers, the well-known brands from multinational corporations, China is almost impossible to survive. Based on this, multinational companies operating in the joint venture would take the initiative process, the Chinese side to see their tune.
Suppress domestic partners simply can not bring direct benefits to multinational corporations, their horizontal implementation of the strategy has no direct influence, transnational corporations need to further control the joint venture's financial control over the transfer of profits can be achieved. Then fell to the financial control over how the hands of multinational companies do?
(2) the use of technological advantages to master purchase and sale channels
In many joint ventures, the Chinese have more holding power, and normally should grasp the leadership of the Chinese enterprises, but in practice, because of foreign investment to provide the "advanced management experience" and "advanced technology", master the vast majority of the actual decision-making direction. In particular with foreign technical control, in practice controlled procurement of raw materials and components power.
In addition, the conditions established as a joint venture, multinational corporations actually mastered the majority of the Group's marketing rights.
Related to buying and selling, it will inevitably involve financial, procurement of the result of cash flow, sales resulted in cash inflows, which the profits for multinational corporations possible.
Transfer of profits on foreign-funded enterprises in the procurement aspect of the premise that foreign adhere to the "principle of the original supply" in Sino-foreign joint enterprises and the host vehicle enterprises with foreign technical control, master of raw materials and parts procurement power. In recent years, joint ventures and wholly foreign-owned enterprises purchase raw materials and spare parts, universal adherence to the "principle of the original supply," Rejection of enterprises.
To auto manufacturers, for example, the establishment of foreign-owned deliberately spare parts in its own enterprises in China to establish joint venture company vehicle. Joint venture company to earn some points to China, but foreign in its own wholly owned parts companies earned profits is completely foreign. Parts enterprises in China to host Sino-foreign joint enterprises and the supply of complementary products vehicle business, must pass the foreign headquarters of "certification." This realization of the "profit-shifting." "Certification" is only a means to transfer the profit is real.
Procurement of raw materials from the parent company and parts are expensive foreign companies "perpetrating a fraud", another great magic weapon. A Japanese auto parts enterprises purchase raw materials from the parent company, its purchasing value in China, tens of times higher than the same raw materials. Authorities told reporters that foreign purchases of raw materials from the parent high and spare parts, and then to the parent company to sell products at low prices, thus bringing profits to the parent company, Sino-foreign joint enterprises to increase costs and reduce the profits of joint ventures.
From the group strategy, to horizontal strategy, to specific operational strategies, multinational companies have shown the effectiveness of lateral control of its subsidiary in China's development strategy has long been included among the Group's overall strategy, until China is aware of the problem When everything seems to have not shaken.
3. Multinational tax avoidance - A strong financial control
In the parent company's control system, most people's attention is no doubt that the financial management and control, because the financial data indicator is the success of parent company control of an important symbol, but also the core of parent company control.
Centralized management is based on the parent company financial control of the following rights:
(1), the parent company of the subsidiaries of the investment and income distribution of the final decision-making;
(2), the parent company of the subsidiary's accounting standard power, the implementation of the parent subsidiary unified accounting system and accounting policies;
(3), the parent has the right of the subsidiary's financial norms.
1. Multinational tax avoidance motive - super-national treatment-induced tax loopholes
In making a reasonable financial controls before the Institute of multinational companies will first situation in the country, according to a specific analysis of the situation, combined with appropriate business development strategy of building financial management.
"The People's Republic of China Foreign Investment Enterprises and Foreign Enterprises Income Tax Law" provides for the production of foreign-invested enterprises operating period of 10 years, from the first profit making year, the first 1 year and 2-year exemption from enterprise income tax, 3 years to 5 years of income tax reduced by half.
For these companies, there are two ways to do not pay taxes: one loss, but only the profit for two years.
Multinational companies may not use this mode of operation, multinational companies have specialized lawyers to study the policies and policy flaws, combined with a variety of cost analysis, make a very legitimate and reasonable financial control, with the horizontal implementation of the strategy.
2. How multinational tax avoidance
Multinational companies in China, we study the ways in which tax avoidance was found, its strong financial management and control is very good with the Group's overall strategy and horizontal strategy, with its global integration of financial management and control system, they developed the program to the successful implementation of tax avoidance . Well, they'll actually do anything to avoid tax?
(1) Transfer Pricing
Problems identified from the practice perspective, the major means of corporate tax evasion the following categories: First, in cross-border trade, and imports through the export of high reported in the reporting of tax relief to the transfer of corporate profits, either through exports imports of high-reporting and reporting to tax relief passed on enterprises with foreign investment at a loss or small profit status. In the former case, companies that offshore tax evasion, not the focus of China's tax authorities, but it is often money laundering or an important channel for hot money influx. In the latter case, it is the damage the tax base; in the trend of economic globalization, transnational business operation that was widely used by Chinese customs and means should be the focus of tax authorities.
Such as Hebei, a food company in 2005, main products, domestic price of 71 yuan / box, but the export price is only 36 dollars / box; Shandong, a pharmaceutical company pricing by way of direct foreign parent company will export unit price will than the national average price of similar products is 40 yuan, in order to reduce sales revenue, profits in disguise the actual transfer of leave. In the current situation, enterprises such acts will not only become a channel of capital flight, resulting in the loss of state tax revenue, but also accused China of dumping in foreign countries a pretext for one.
Second, trade in services, foreign investment enterprises through the sharing of management fees and consulting fees, patent costs of transfer payments, can be achieved within or outside the company to transfer profits. Such as a ceramic Hebei Co., Ltd., its parent company in Hong Kong signed an agreement provides for an annual 32% of their sales revenue to pay consulting fees to the outside, only the payment in 2005 of 804 million, equivalent to 3 times the profit that year. Petrochemical Co., Ltd. Shenzhen, a total of between 2003-2005 foreign affiliates to pay the transfer fee, service charge and trademark license fees 160 million yuan, 56.3% of total administrative expenses, accounting 鏈讥琛ヤ簭鎹?260 million yuan of 63%. The trade in services a high proportion of expenditure is indeed staggering.
Multinationals in China is clearly the price as the primary means of transfer of profit transfer and tax evasion. In the parent company's financial management and control features, we note the way in financial management, enterprise groups reflected a high degree of overall budget, budget structure and operation of the more complex. TNCs clearly know this perfectly well, the actual operation of the method is very complex, often turn a good number of laps in a foreign country, and has a very sophisticated internal financial accounting software systems, some software system for tax-worker would not operate, control is extremely difficult.
(2) thin capitalization - a false loss of channel
In the capital account transactions, enterprises not only through stock transfer or registration of shell companies the way, the parent company changed to offshore financial centers, regional tax incentives, and profits through related party transactions will be transferred to the parent company; also through weakening of shareholder loans and capital to increase the means, interest on debt to export as much as possible, to reduce pre-tax profit. International OECD weakening of capital is defined as at corporate equity and debt capital ratio of less than 1:1, the U.S. tax system identification of this standard 1:1.5. According to China's current tax law, corporate borrowing interest payable on external debt can be deducted from the corporate pre-tax income.
In order to achieve the purpose of tax avoidance, some foreign-invested enterprises to borrow as much as shareholder loans, equity capital and debt to capital ratio down to well below the international standard of 1:1, to a means of weakening caused by the carrying amount of capital losses, while actual profits by way of interest on debt exchange to the outside of the parent company.
In addition to weakening of foreign capital, and now there are many foreign-invested enterprises through the transfer price of the actual income remitted to the avoidance-based company registered in offshore financial centers, while domestic long-term foreign-invested enterprises in itself at a loss.
In the parent company's financial management and control system, the funds management (Treasury) is an important part. In order to obtain more funds for the development of enterprises to bank loans is almost a must to every business, but the bank interest on loans and to allow a sharp rise in financial costs of enterprises. Even the joint-stock companies can raise through the open market to a lot of money, but the face of the capital market, but still there is a return on investment issues.
Despite the interest generated in the domestic borrowing can be deducted from corporate income before tax, but with the interest Fuji domestic banks, not as a higher interest rate paid to the parent company, while meeting the purpose of tax avoidance and profit transfer.
(3) the new foreign companies to evade taxes is a carrier of the old foreign
Foreign investors under the two exemptions and three half the time, rolling the establishment of new foreign-invested enterprises and foreign enterprises through the territory, or between old and new linkages between domestic and foreign companies to the old foreign trade deficit, the new foreign earnings is another kinds of means to evade tax.
Example of a famous Taiwanese food group, there are constantly added by tax breaks on the trend of foreign-invested enterprises. Taiwan-funded enterprises in the series, set during the first two years, particularly large profits; tax half of the year, profits fell significantly; full pay tax, even immediately break into a critical point or losing money. To adjust the old and new ways to profit enterprises with foreign investment also means the previously mentioned related party transactions. If a Korean and footwear Co., Ltd. Qingdao, import and export price manipulation by foreign parent companies, and to allow foreign companies to take on new and old foreign additional costs shall, to the old foreign perennial large losses, the new foreign extraordinarily high profit margins. The Group's net tax benefits of corporate capital gains rate was as high as 757 percent, and foreign companies operating range of the same continuing loss of old in stark contrast.
We have already mentioned that multinational corporations have a special legal team to study the law of the country of each subsidiary, and China in attracting foreign investment is now a system deficiencies as part of multinational corporations use. For many local officials, the introduction of foreign investment is equivalent to have a performance, so pay no attention to foreign investment when foreign investment can bring benefits.
On the other hand, we see the horizontal control of foreign capital in China is another manifestation of the group, the profits from one country to another country, as well as a tax shift to foreign countries, as a convenient internal transfer to and low, and ensures that the host country to reinvest in the subsidiary, the financial needs of the time. Lateral control of the content is very rich.
4. Chinese enterprise groups, parent company of the globalization process control reference
Strategy to develop a strategic development of the extended, we believe that a set of strategies of transnational corporations, strategy formulation and implementation was able to so well and smoothly, with their perfect parent-subsidiary control system inseparable. TNCs not only in China, China's special situation for the transfer of profits and tax avoidance, in every corner of the world, as long as the interests of business as it is within the scope of the group, their parent company's control system will influence their Excellent lateral control and financial control as the peerless merging nothing is broken.
For Chinese enterprises, groups and globalization is an inevitable trend. There is no such ambitions, is bound to lag behind other companies. To group, globalization, we must strengthen the parent-subsidiary control.
How to enhance the parent-subsidiary control? Chinese enterprises are not without experience can learn from multinational companies in China, many cases have become a living textbook. Leaving aside the transfer and avoidance of TNCs in Huali Run these two approaches is correct, at least in the lateral aspects of strategic and financial management and control, many Chinese companies worth learning.
1. Horizontal Strategy Group
(1) How to understand the cross-cutting strategy
Horizontal strategy is to coordinate the relevant business unit's objectives and strategies, including coordination of existing business units and existing units based on association with choice to enter new industries. Horizontal strategy can and should be in the group, departments, companies and other levels exist. However, no matter how carefully the individual enterprise's business units to develop strategies, they are only the most irregular horizontal strategy. However, we can see the formation of the association is still a major potential source of competitive advantage. Horizontal strategy should be clear groups, departments and companies strategies.
There is no clear business strategy is difficult to resist the lateral persistence of the individual business unit performance to the detriment of the company to maximize the performance of strong pressure, particularly those with decentralized decision-making the traditional enterprise.
Multinational companies are not limited to their own advantage to a single department or a single geographical area, but from the perspective of corporate interests to maximize the scientific measurement strategy.
Horizontal strategy is based on the Group's competitive advantages, the concept of corporate and sector strategies, horizontal strategy is not portfolio management, which is the essence of corporate strategy.
Horizontal strategy is based on the subordinate group business units in the target, policy harmonization. In many Group companies, there is a long-term strategic importance of inter-related, identify these linkages and access to the strategic benefits associated was brought beyond the group where the difference between the Commonwealth and more businesses.
Group Headquarters horizontal strategy is to achieve through the association management business unit of the synergies between, in the case of the Group of affiliated companies for the creation of a single company can never achieve a competitive advantage to improve the standard control group.
Chinese enterprises in the group phase of the process used to consider overall problem, do not mind too much about being in a particular area or region of the success or failure, by a reasonable strategy for maximizing the interests of the Group is the horizontal emphasis. So, how to develop cross-cutting strategy?
(2) horizontal strategy development
鈪? Recognition Association. First scientific identification of a company's various business units owned existed between the reality and potential of all the visible horizontal relations. In practice, the first step is to check the value chain for each business unit to see if the value of sharing the activities of the various real and potential opportunities. Start, there seems to be on the horizontal relationship between the identification of all; and then, through further analysis, excluding those illusory or no meaningful relationship between the horizontal. Lateral relations in the study, must be possible to provide a common basis for the value of the specific characteristics of the activities of identification.
鈪? Assess the relevance, if the benefits of the transfer of expertise than the cost of the transfer of expertise, the relationship between the cause intangible competitive advantage. If the value of activities, there are many similarities between the value of activities on the industry's competitive advantage is very important and the company's expertise in material on the transfer of competitive advantage, then the transfer of specialized knowledge is useful activities.
鈪? To develop horizontal strategy to encourage companies, without a co-ordination between business units and the horizontal transfer of skills, organizational mechanisms can not successfully develop with each other. Determine the appropriate business units, corresponding to the composition of groups and their departments and business units set up to encourage managers to work in the reward system and that sort of measures crucial to the success of these enterprises.
Previously described is a horizontal strategy for the general development process, the group in developing horizontal strategies, must recognize their parent-subsidiary control system, can not leave the parent company's control framework.
2. Group's financial control
From our earlier analysis shows that implementation of the strategy requires horizontal multinational group financial management and control of the match. For financial control, no stranger to Chinese enterprises, small enterprises have re-finance, also need financial management. However, different firm size, financial management requirements are different. Then the group's financial management and control of the requirements of what is it? How to implement the financial control it?
(1) financial management and control requirements
The ideal parent company's financial management and control system is unable to control the so death can not put in too open, and effective control system.
Group of financial management is a key part of the strategy, business plan and budget their management, this is the most important strategic means of implementation and follow.
Sound financial analysis and reporting system is to implement an effective means of management control, and support the Group's senior leadership decision-making basis for important information.
Reduce the cost of financial management, which is a measure of a company's management and operation mechanism of the important indicators.
Observation of multinational financial management and control system in China can be found, their financial management and control system is to focus on the efficiency of financial control, cost and effectiveness with the strategy above.
(2) how to implement the financial control
鈪? A sound financial system
If the accounting system is not perfect, will give operators the opportunity caused by irregularities. Prior accounting system is the prevention, accounting is a thing of, immediate supervision, and supervision of the audit is afterwards. Certain period of chaotic financial management system and financial control of the lower, often a main reason for the failure of corporate finance.
鈪? Financial budget control
Through the preparation of financial budgets, the company can fully grasp the process of their production and operations. Financial budget issued, it becomes the company's business objectives, implementation of the general need for adjustment. Special circumstances need to be adjusted, according to the procedure, to the Board for approval. Group headquarters on the financial budget of the dynamic management of subsidiaries and branches can main financial activities of the implementation of effective control.
鈪? Effective control of cash
Unlisted cash cycle must first eliminate all the cash into the bank account system must be. Second, ensure that all can focus on cash management. Companies can set up internal financial settlement center for unified management of funds, operating funds to keep abreast of the direction of a subsidiary. Third, do the work of the budget settlement. Daily expenses to achieve budget in advance, after a settlement. Fourth, more than a certain amount of expenditure to go through the Board for approval. Fifth, the unity of capital raising, which operates direct control of the investment plan, allocation of funds, profit distribution and other major policy decisions have a direct control, centralized management.
鈪? On corporate control of the assets and liabilities
Assets and liabilities is a measure of an important indicator of good or bad business. Investor the right to operate to the operators, in fact separation of ownership. This requires the investor to grasp the operators strict control of the assets, the purchase of approval when archiving log file when end of life, and have the person responsible for checking accounts and property.
As the debt is too high can lead to the destruction of capital, so investors must balance by means of the rationalization of the scale of control from time to time. Investor will balance the general relationship with the bank, so deal with credit and debt between banks is to control corporate assets and liabilities of the principal means.
鈪? Financial Risk Control
Financial risk is that due to borrowing to bring about corporate earnings uncertainty. Enterprises leverage their funds will affect the profitability, due to liability to pay interest, the debtor company's assets have priority rights, if operated properly, or have other adverse factors, the company's insolvency, bankruptcy will increase the risk. On the other hand, the effective use of debt, can greatly enhance the business benefits, while a good profitable business, the high debt will bring business growth. Reasonable control and use of financial risk is another factor in business success.
鈪? Strengthen the supervision system of internal audit
Internal audit and supervision of the whole system of financial control is extremely important part of the overall objective to ensure the smooth implementation group, the company should establish an internal audit system, establish an audit department. Which on the one hand the internal audit systems, standards, regular, on the other hand help to carry out regular and ad hoc audits, such as the audit of the financial revenue and expenditure, economic responsibility, financial decision-making audit, audit to ensure the group timely access to accurate financial information, improve operational decision-making more scientific.
Similarly, we also called on the corporation's financial management and control strategies to meet the group, in particular, to comply with the framework of parent company control, or financial control will be the same as the castles in the air, it takes more attractive appearance, can not make a substantial contribution to the Group. In this context, multinational companies in China made a very good example.
How the Chinese government to strengthen regulation of transnational corporations
The profits of multinational corporations in China, the transfer and tax avoidance is indeed a manifestation of these multinational corporations horizontal strategic and financial management and control capabilities, but we can not deny that the introduction of foreign capital in China, there is still room for improvement in some systems.
1. Multinational companies to phase out "super-national treatment"
Since the reform and opening up of China, for foreign policy is "close", "a release", both on the proportion of joint ventures and export of certain requirements. In terms of taxation, foreign investment has preferential tax policy. The nature of foreign investment to promote domestic economic development, and introduction of foreign capital and local government officials linked to assessment criteria, on the one hand the promotion of local to foreign investment, but on the other hand, the introduction of too much foreign capital will impact the local economy more.
Ministry of Commerce promulgated the "Eleventh Five-Year Business Development Plan" proposed phasing out of foreign investment "super national treatment" to foreign-funded enterprises and fair competition in the same starting line, let the world see China's opening up is and the International integration.
Rational reconstruction of our preferential tax policies for foreign tax law is also in an urgent task. Various favorable policies of deletion update, make use of preferential policies for foreign-invested enterprises lost their conditions of international tax avoidance.
2. Work to strengthen international anti-avoidance
鈪? Regulate transfer pricing tax system, establishment of an international market price information system
In practice, should do the following four aspects: first, the implementation of transfer pricing tax system set up specialized agencies to develop specific implementation plans and systems. Second, the tax investigation and adjustment of accounts simultaneously, the effective protection of the interests of the Chinese joint venture. Third, the strict implementation of China's certified public accountants audit the accounts of the foreign enterprise system, so that part of the transfer pricing adjustment in the audit stages. Fourth, tax departments should establish and improve a system of international market price data collection system for transfer pricing adjustments and provide the basis for recognition.
鈪? Improve the tax legislation, expanding the power of anti-avoidance tax department
In the tax law should be a separate anti-avoidance provisions, the main contents include: a clear concept of associated enterprises, in order to provide the legal basis of international anti-avoidance; complete avoidance of transfer pricing regulations to prevent, in the formulation of laws and regulations, refer to the normal trading internationally accepted the principle of burden of proof shifted to compromise principle and the principle of taxation on cross-border pricing is based on the principle of normal trading after the adjustment; clear the tax authorities make well-informed, and conclusive data on the situation, the right to make adjustments and punishment decisions; the development of the taxpayers do not with the tax authorities with the rules of punishment; clearly relevant departments in line with international anti-avoidance function, the development of the departments do not match and the violation of the penalty clause; as soon as possible amendments and additions to applicable tax provisions related to electronic commerce, Internet commerce tax liability clear time of occurrence, tax period, tax site, tax rates and tax information reporting, storage system and so on.
鈪? Adapt to new situations, take corresponding measures to prevent international tax avoidance e
First of all, should be established to meet the requirements of e-commerce tax collection system, strengthening the tax authority's own network construction, as early as possible on the Internet and banking, customs, business users to connect online, real online monitoring and auditing, and strengthen national tax the online collaboration. Second, the implementation of e-commerce taxation registration system, taxpayers in the process of the online transaction process must be followed to the tax authorities for tax registration of e-commerce. Third, from the payment system and e-commerce revenue collection and management to solve problems, eliminate sources of tax revenue loss. May consider the establishment and use of e-commerce payment system as auditing, tracking and monitoring transactions means. Fourth, the organization has developed intelligent tax software to create online auto taxation system can automatically identify network transactions by taxable goods or services, to determine the applicable taxes, tax rate will automatically calculate taxes, the tax automatically assigned to the account designated among the tax authorities. Fifth, to strengthen international tax cooperation to improve international tax agreements.
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