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Chinese transfer pricing rules apply to transactions between a Chinese business and domestic and foreign related parties. A related party includes enterprises meeting one of eight different tests, including 25% equity ownership in common, overlapping boards or management, significant debt holdings, and other tests.
The setting of the amount of related party charges is commonly referred to as transfer pricing. Many jurisdictions have become sensitive to the potential for shifting profits with transfer pricing, and have adopted rules regulating setting or testing of prices or allowance of deductions or inclusion of income for related party transactions.
A Controlled Foreign Corporation [4] is any corporation organized outside the U.S. (a foreign corporation) that is more than 50% owned by U.S. Shareholders. A U.S. Shareholder is any U.S. person (individual or entity) that owns 10% or more of the foreign corporation. Complex rules apply to attribute ownership of one person to another person. [5]
India faces more difficulties in proliferating its income tax than a country like China, who subjects 20% of its population, because there is an emphatically low amount of formal wage earners. [27] Even though India's income tax was instituted in 1922 by the British, their tax history explains their high degree of tax delinquency today. [27]
This system leaves room for abuses by multinational companies as it can be considered as incentive to transfer income to low taxed countries. Therefore, high tax countries implement controlled foreign corporation (CFC) rules to prevent the erosion of their tax base. If a country has CFC rules the companies have less scope in their tax planning ...
Lower foreign tax rates entail smaller credits for foreign taxes and greater ultimate U.S. tax collections (Hines and Rice, 1994). [59] Dyreng and Lindsey (2009), [ 4 ] offer evidence that U.S. firms with foreign affiliates in certain tax havens pay lower foreign taxes and higher U.S. taxes than do otherwise-similar large U.S. companies.
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The domestic international sales corporation is a concept unique to tax law in the United States. In 1971, the U.S. Congress voted to use U.S. tax law to subsidize exports of U.S.-made goods. The initial mechanism was through a Domestic International Sales Corporation (DISC), an entity with no substance which received tax benefits.