Impact of Tax Factors on Chinese FDIs

Abstract

The chapter explains that investment treaties are not the only drivers of Chinese foreign direct investments (FDIs). Tax factors also play an important role in impacting foreign direct investment into China (FDIs into China) and Chinese investment to other countries (Chinese outbound investment). This chapter examines the following questions: what are the impacts of tax factors on FDIs? Is the Chinese experience on using tax instruments consistent with these empirical findings? Whether China’s implementation of anti-tax avoidance measures might drive FDIs away from China? What are the tax competition concerns for China? The last section contains a conclusion. This chapter demonstrates that, despite the fact that debates are still ongoing about the impact of tax factors on FDI, Chinese experience shows that tax factors are used extensively by the Chinese government in both attracting FDIs into China as well as relieving tax disadvantages of Chinese outbound investment. Although China’s experience still cannot solve the mystery of whether tax incentives are effective on impacting FDIs, its implementing anti-tax avoidance measures in recent years have disclosed that tax transparency and certainty are important tax factors impacting business decisions. Therefore, China should take further into account the impact of tax factors on business before FDIs are scared away when implementing aggressive anti-tax avoidance measures.