Abstract
ABSTRACT This paper examines the relationship between China’s changing economy and its global business tax diplomacy. Three trends dominate: China is becoming a net capital exporter, emerging as a major consumer market, and is home to digital giant firms including Baidu, Tencent and Alibaba. The resulting drive to promote both ‘going out’ and ‘bringing in’ foreign direct investment has led China to engage selectively and strategically with Western-led institutions. We show how China variously challenges, defends, and develops alternatives to global tax standards in three cases: global efforts to tackle corporate tax avoidance, bilateral tax treaty negotiations, and administrative tax cooperation.
Highlights
In its ‘Made in China 2025’ strategy, China’s State Council set out its goal for the decade to become a major global power, ‘master[ing] core technologies in key areas’, such as information technology, infrastructure, and manufacturing (State Council of the People’s Republic of China 2015, 7)
Recent debate over the taxation of international business, has focused on the importance of the United States and its large tech firms in shaping the global political agenda, especially as attention has turned to the rise of the digital economy, dominated by large US tech firms, principally the ‘FAANGs’ – Facebook, Amazon, Apple, Netflix and Google (Foss, Mudambi, and Murtinu 2018; McGaughey and Raimondos 2019; The Economist 2019)
This has been animated by public dissatisfaction with their aggressive tax planning and use of tax havens, and the consequent transatlantic political spat between US and Europe over the right to tax the profits of digital firms (e.g. Christensen and Hearson 2019; Lips 2019)
Summary
In its ‘Made in China 2025’ strategy, China’s State Council set out its goal for the decade to become a major global power, ‘master[ing] core technologies in key areas’, such as information technology, infrastructure, and manufacturing (State Council of the People’s Republic of China 2015, 7). Chinese engagement with global reforms to re-align corporate tax revenues illustrate its challenge to international tax norms This strategy is in line with China’s unparallelled population size and its shifting focus towards strategic support for and development of local market-heavy services and a globally competitive digital sector – economic foundations that China has sought to protect in global negotiations. This tax diplomacy approach reflects China’s position as a net capital exporter, and a major force in the global digital marketplace, and it aligns China with the United States against large European markets and less developed nations on the matter of special digital taxes It relies on Chinese domestic tax policy leanings that seek to protect strategically important sectors on a clear growth pathway. In studies of the Asia-Pacific business-politics nexus, this calls for paying attention to the individual sectors under scope of regulation or policy and the broader mix of domestic sectors and investment involved, including how closely tied these are to government’s strategic priorities (Hung 2003)
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