Basic Concept and Rules Design of Special Tax Secondary Adjustment

In terms of legal attribute special tax secondary adjustment rules should be defined as fiction norms,whose core value lies in the utilities of anti-tax avoidance based on expansionary tax power, which can be divided into ex ante utility of deterring aggressive transfer pricing arrangements, interim utility of repatriating the excess profits for deemed tax avoidance, and ex post utility of implementing punitive taxation on not-repatriated profits. If China chooses to introduce secondary adjustment to fight against transfer pricing tax avoidance for multinational enterprises, it should focus on “how to restrain tax adjustment power” and design rules by “overall control” and “details constrains” to make anti-tax avoidance utilities effective and limited. “Overall control” involves the following: rulemaking should be granted legal authorization by tax law, secondary adjustment should be based on primary adjustment, and fictional transaction should be only applied in anti-tax avoidance process. “Details constrains” involve choosing the form of fictional transaction properly, setting the alternative of profits repatriation, and improving supplementary support measures.