Abstract
This chapter provides answers to the research questions. Firstly, it makes recommendations for China in relation to granting tax incentives to adapt to a proper position in the international trade and investment domain. In addition, it provides insight into the WTO and its subsidy regime with respect to the role of taxation. Based on a previous analysis, the EU State aid law acts as a reference for both China and the WTO for the improvement of the legal framework for the control of tax subsidies in certain aspects. In order to make recommendations for the Chinese tax incentives, the chapter returns to the benchmarks first, which serves as the starting point and basis for recommendations. The recommendations for the WTO also take these benchmarks as the basis.
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Notes
- 1.
It has to be emphasized that the testing results are the outcome of the research, based on the research questions and methodologies. It just shows that certain tax incentives may potentially constitute actionable subsidies if they are identified as such according to the testing steps of the ASCM. However, it does not mean that in reality they have caused trade disputes.
- 2.
See also Li and Fang (2013) 151–170.
- 3.
Wang (2010) 50.
- 4.
- 5.
The primary goal of China’s 13th Five Year Plan (2016–2020) is to maintain the economic growth at a mid to high speed. See Keqiang Li, Premier of the State Council, Report on the Work of the Government, delivered at the Fourth Session of the 12th National People’s Congress of the PRC on 5 March 2016. For English version, see China Daily News 18 March 2016, http://language.chinadaily.com.cn/2016-03/18/content_23944369.htm (accessed 28 May 2016).
- 6.
As commented by some authors, the external obligations from the WTO would turn into internal motives for China to reform its legal systems. See Wang (2010) 114–115.
- 7.
Fleming (2011) 12–14.
- 8.
Ibid.
- 9.
Wang (2010) 38.
- 10.
Surrey (1970).
- 11.
Ibid. 16.
- 12.
Li et al. (2004) 3.
- 13.
OECD (2010) 60–63.
- 14.
Many Western countries have established a tax expenditure system, such as the US, Canada, Australia, the Netherlands, Belgium, and Germany. See ibid. 69–132.
- 15.
Some countries include tax expenditure reports as an annex to the budget, such as Austria, Belgium, France, Germany, and the Netherlands; some countries have separate tax expenditure reports but provide additional background information for the budget, such as Australia, Canada, Italy, UK, and the US. See OECD (2010) 69–132 and International Forum on Tax Expenditures Weifang et al. (2004) 9–12.
- 16.
- 17.
Ibid.
- 18.
Burton and Sadiq (2013) 31–32.
- 19.
The US Government Accountability Office has a systematic assessment procedure for the evaluation of tax expenditures. The major evaluation criteria are as follows: what is the tax expenditure’s purpose and is it being achieved? Even if its purpose is achieved, is the tax expenditure good policy? How does the tax expenditure relate to other federal programs? What are the consequences for the federal budget of the tax expenditure? How should the evaluation of the tax expenditure be managed? See United States Government Accountability Office (2012).
- 20.
- 21.
Zee et al., (2002) 1510.
- 22.
Wang (2012) 116–118 (in Chinese).
- 23.
Ibid. 1501–1502.
- 24.
Burton and Sadiq (2013) 55–58.
- 25.
Li (2012), 134–136.
- 26.
Budget Law of the People’s Republic of China (2014 Amendment). The Budget Law was promulgated in 1995 and was amended in 2014.
- 27.
Ibid.
- 28.
Article 27 stipulates that, by function, the expenditure in a general public budget includes expenditure on general public services, expenditure on diplomatic affairs, public security, and national defense, expenditure on agriculture and environmental protection, expenditure on education, science and technology, culture, health, and sports, expenditure on social security and employment, and other expenditure. It does not separate tax expenditure from other expenditures.
- 29.
Article 23, Budget Law of the People’s Republic of China (2014 Amendment).
- 30.
Article 20, Budget Law of the People’s Republic of China (2014 Amendment).
- 31.
Article 3, Law of the People’s Republic of China on the Administration of Tax Collection (2015 Amendment).
- 32.
Li (2012) 132–133.
- 33.
Ibid. 102–103.
- 34.
Ma (2004) 199–202.
- 35.
Article 92, Constitution of the People’s Republic of China (2004 Amendment).
- 36.
Article 91, Constitution of the People’s Republic of China (2004 Amendment). The State Council established an auditing body to supervise, through auditing, the revenue and expenditure of all departments under the State Council and of the local governments at various levels and the revenue and expenditure of all financial and monetary organizations, enterprises and institutions of the state. Under the direction of the Premier of the State Council, the auditing body independently exercises its power of supervision through auditing in accordance with the law, without interference by any other administrative organ or any public organization or individual.
- 37.
Li (2016) 2.
- 38.
Ibid. 19–20.
- 39.
- 40.
Administrative Reconsideration Law of the People’s Republic of China (2009 Amendment) (ARL); Administrative Litigation Law of the People’s Republic of China (2014 Amendment) (ALL). See also Li (2016) 19–20.
- 41.
Ibid.
- 42.
See Article 53 of the ALL. Where a citizen, a legal person, or any other organization deems that a regulatory document developed by a department of the State Council or by a local people’s government or a department thereof, based on which the alleged administrative action was taken, is illegal, the citizen, legal person, or other organization may concurrently file a request for review of the regulatory document when filing a complaint against the administrative action. The term “regulatory document” as mentioned in the preceding paragraph does not include administrative rules. For the English version of the ALL, see www.lawinfochina.com.
- 43.
As to the application of the ALL, the Supreme People’s Court published an interpretation. Article 21 of the interpretation states a people’s court shall not rely on an illegal regulatory document to determine the legality of an administrative action and shall state so in its legal reasoning. A people’s court issuing an effective ruling shall provide the enacting authority of the regulatory document with recommendations and may also send copies to the people’s government at the corresponding level or the administrative agency at the level immediately above. See Interpretation No. 9 [2015] of the Supreme People’s Court, 20 April 2015. For an English translation, see Chen and Li (2016a). See also Chen and Li (2016b) 116–117.
- 44.
Article 13 of the ALL. The courts shall not accept complaints filed by citizens, legal persons, or other organizations against the following: (2) administrative regulations and rules or decisions and orders with general binding force developed and issued by administrative agencies.
- 45.
There is no constitutional court in China. The NPC is the supreme organ that has the legislative supervisory power. Its standing committee has the power to annul those administrative rules and regulations, decisions or orders of the State Council that contravene the Constitution or the law. See Article 67 (7), Constitution of the People’s Republic of China (2004 Amendment).
- 46.
- 47.
Taxpayers could also apply for administrative reconsideration. Article 7 of the ARL: if a citizen, legal person or any other organization considers any of the following provisions, which is the basis of a specific administrative act of an administrative organ, to be illegal, he or she or it may, when filing an application for administrative reconsideration on a concrete administrative act, file an application to the administrative reconsideration organ to review the provisions: provisions of departments under the State Council; provisions of local people’s governments at or above the country level and their departments; provisions of people’s governments of towns or townships.
- 48.
Peerenboom (2009) 94.
- 49.
Ibid. 79.
- 50.
Li (2016) 22.
- 51.
Schön (2015), available at SSRN: http://ssrn.com/abstract=2707049, Micheau (2014) 458–462, and Traversa (2014).
- 52.
For instance, the European Commission decided that selective tax advantages for Fiat in Luxembourg and Starbucks in the Netherlands were illegal under EU State aid rules in 2015. On 19 May 2016, the European Commission published a Notice on the notion of State aid as referred to in Article 107 (1) TFEU. It explains how to identify tax rulings and tax settlements as State aid. For details, see footnotes 21 and 22 in Chap. 1.
- 53.
Section 3.4.2.2 (3) the Commission’s assessment of Chap. 3.
- 54.
The questions are (1) Is the aid measure aimed at a well-defined objective of common interest, like an efficiency objective, equity objective, or transition to better functioning markets? (2) Is the aid well-designed to deliver the objective of common interest, i.e. does the proposed aid address the market failure or other objectives? Is State aid an appropriate policy instrument? Is there an incentive effect, i.e. does the aid change the behavior of firms? Is the aid measure proportional, i.e. could the same change in behavior be obtained with less aid? (3) Are the distortions of competition and effect on trade limited, so that the overall balance is positive? (4) Is the aid transparent that Member States, the Commission, economic operators, and the public have easy access to all relevant acts and information about the aid? Ibid.
- 55.
Vanistendael (2011) 426–427.
- 56.
Reinisch (2012) 58–76.
- 57.
Li (2012) 144–145.
- 58.
Reinisch (2012) 77–89.
- 59.
- 60.
Xiong (2014) 166–167 (in Chinese).
- 61.
Wang (2012) 118–120.
- 62.
The NPC is the supreme organ of state power in China. See Sect. 4.1 Introduction in Chap. 4.
- 63.
See Reference from EU State aid law, the identification of a tax aid in Sect. 7.2.2.2.
- 64.
Cui (2011b) 461–462.
- 65.
Xu (2013).
- 66.
Peerenboom (2009) 131–132.
- 67.
Ibid. 71–72.
- 68.
Ibid.
- 69.
Ibid. 71.
- 70.
Ibid. 87–88, 129–132.
- 71.
Ibid. 100–101.
- 72.
Politically sensitive cases are normally complicated and courts may be influenced from various sources. Thus, courts often limit access to such cases and steer disputes to other channels of settlement. See Peerenboom (2007) 100–118.
- 73.
Yu (2010) 257–258.
- 74.
Article 101, Constitution of the People’s Republic of China (2004 Amendment).
- 75.
Article 104, Constitution of the People’s Republic of China (2004 Amendment).
- 76.
Yu (2010) 261–265.
- 77.
Ibid. 269–273; Peerenboom (2009) 92–94.
- 78.
See Sect. 5.2.3.2 (1) b De facto sepcificity.
- 79.
Zhongfa [2015] No. 26, The Guiding Opinions on Deepening the Reform of State-owned Enterprises (the Guiding Opinions), by the Central Committee of the Chinese Communist Party and the State Council, 24 August 2015. See also ‘China Urges SOE Modernization through Mixed Ownership Reform’, China Daily (25 September 2015) <http://www.chinadaily.com.cn/business/2015-09/25/content_21979076.htm> accessed 13 May 2016.
- 80.
Article 17 of the Guiding Opinions states that in the area of oil, gas, electricity, railway, telecom, resource exploration, public utilities, and the like, the government will promote and open projects for non-state-owned investments. Ibid.
- 81.
Article 4 and 5 of the Guiding Opinions. Ibid.
- 82.
See Sect. 4.3 Matrix of the testing results in Chap. 4.
- 83.
Rawls (1999) 4.
- 84.
Van Roermund (2014).
- 85.
Pojman and Westmoreland (1997) 5.
- 86.
See economic analysis in Chap. 2.
- 87.
See Sect. 3.4.2 Compatible State aid in Chap. 3.
- 88.
- 89.
- 90.
Some authors suggest that the WTO must take greater responsibility to tackle tax problems associated with the development of international trade. The efficient way is to clarify and improve its present role on taxation through clarification and guidance in relation to tax provisions, and the establishment of a Committee on trade and taxation. See Farrell (2013) 227–244 and Micheau (2014) 486–500.
- 91.
Rubini took public support to electricity as an example and listed uncertain parts of the subsidy rules: what amounts to a financial contribution? What is the status of tax incentives? What is status of “regulatory” measures? What does “any form of income or price support” actually mean? What does “benefit” mean? Is the specificity test really “specific”? How difficult is it to prove adverse effects? By listing these questions, he claimed that ambiguity must be permissive but not divisive. See Rubini (2015).
- 92.
Schön (2015).
- 93.
The 2016 Notice.
- 94.
The 2016 Notice; Farrell (2013) 227–244.
- 95.
- 96.
Farrell (2013) 227–244.
- 97.
Althunayan (2010) 229.
- 98.
The EP has established two special committees TAXE1 and TAXE2 to work on tax issues following public and political interests in advanced tax ruling practices in Member States. Both of the committees are temporary. TAXE1 started on 12 February 2015 and ended on 30 November 2015. TAXE2 started on 2 December 2015 and ended on 2 August 2016. The two committees filed reports on taxation to the EP during their existence. For information on TAXE1, see <http://www.europarl.europa.eu/committees/en/taxe/home.html> accessed 20 July 2016; for information on TAXE2 see <http://www.europarl.europa.eu/committees/en/tax2/home.html> accessed 20 July 2016.
- 99.
The European Commission’s decisions on the increasing fiscal State aid measures demonstrate that the Commission is gaining more and more tax expertise to address fiscal State aid actions of Member States. See the Commission’s decisions towards Starbucks, Fiat, Macdonald’s and the like in footnotes 21 and 22 of Chap. 1.
- 100.
Gao (2011).
- 101.
Wu (2015) 343–345.
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Xu, D. (2023). Recommendations for Chinese Tax Incentives and the Future for the WTO’s Subsidy Rules. In: Interactions Between Chinese Tax Incentives and WTO’s Subsidy Rules Against the Background of EU State Aid. Springer, Singapore. https://doi.org/10.1007/978-981-99-1164-6_7
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