This study examines China’s asset securitization system and its Trust Act and the Asset Securitization Act, as well as tax theories on asset securitization, and trust taxation theories, thus reviewing China’s asset securitization tax system. Based on the finding results, China’s asset securitization problems and implications are discussed.
First, if the trust taxation theory aims to resolve double taxation problems associated with trust, China’s current asset securitization taxation regulation does not clearly address double taxation problems being created in the trust stage. The regulation also provides that regarding the trust revenue, the revenue that the institutional investors receive as the trust assets in the period for which corporate taxes are not collected is re-recognized as the target of taxable income according to the principle of rights and obligation creation in the institutional investor’s stage, slapping corporate income tax on it. This practice comes from China’s taxation authorities taking an excessive “national coffers” attitude.
Second, it is provided that the margins that Financial institute investors (including banks and non-banking financial houses) acquire by trading asset securities are regarded as operating revenue, thus imposing an operating tax on it. This is the main cause that triggers the problem of double taxation with corporate income tax. The double taxation problem in the stage of imposing taxes on corporate income regarding trust as mentioned earlier involves the problem of imposing taxes on the same income both in the stage of incorporating the asset into trust and in the stage of dividing the asset into the trustor. On the other hand, the imposition of operating tax on the margin of asset securities trading creates the problem of imposting both corporate income tax and operating tax on the virtually same transfer margin.
Third, China’s Corporate Income Tax Act and Tax Collection Management Act provide that the issuer institute and the trustee institute, when transferring, collecting or exchanging credit assets, must observe the price and cost according to the principle of the independent third party’s price, and as such, that if the institutes fail to do so, tax authorities may adjust the price and cost. Also, in the case of corporate income tax, the asset securitization trade tax payer trust institute is required to provide the trust-related tax office and the tax office in the institutional investor’s location with the information of trust assets and the revenue divided to the institutional investor. As such, taxes on asset securitization trading are strictly managed.
Fourth, South Korea and many other nations allow not only special-purpose trust institutes such as SPC, SPV, and SPT, but also offshore trust, thus ensuring free trust trading and developing the asset securitization market. However, with the aim of preventing tax evasion, China allows only local SPT, thus fundamentally banning the establishment of offshore SPC or SPV. This presumably results from the state coffer principle thought.