The U.S.-Asia Law Institute is pleased to make available Duoqi Xu and Kai Xiao’s recent article contrasting law and attitudes on tax planning in China and the United States.   Duoqi Xu is an associate professor at KoGuan Law School of Shanghai Jiao Tong University and a 2008-2009 Hauser Global research fellow of New York University Law School. Kai Xiao is an associate professorat KoGuan Law School of Shanghai Jiao Tong University, a deputy prosecutor of the Shanghai Pudong District in charge of white-collar crimes, and was a GuangHua Fellow at the U.S.-Asia Law Institute in fall of 2008.

Tax planning has been gaining popularity with Chinese enterprises in recent years. A dark side of this booming business, however, exposes many new legal issues worthy of exploration to understand and predict the tax law development in China.

Most Chinese tax scholars maintain that tax planning is a carefully prearranged and well-designed scheme of organizing income and investment affairs to reduce taxes. In the Chinese discourse, tax planning is subject to legal constraints and should be lawful. There is even a dangerous misconception that defines tax planning as a gray area of potential deceitfulness.

Before the economic reform, the tax system in China almost had no room in a planned economy sothat all state-owned enterprises (SOEs) were not requiredto pay enterprise income tax. The government, as owner of the SOEs, took all profits instead of taxing the enterprises. Though the tax system started to develop in 1978 when China began its gradual transformation into a market economy, it remains much less comprehensive and systematic than the U.S. tax system. The biggest problem with the Chinese tax system is its lack of a rights-based tax notion that emphasizes the taxpayer’s rights as a fundamental constraint on the government’s power to tax. The Chinese tax system is built on the basis of taxpayers’ obligations rather than taxpayers’ rights. There is only one article on taxation in the Chinese constitution, article 56, which in its entirety states, ‘‘It is the duty of citizens of the People’s Republic of China to pay taxes in accordance with the law.” Therefore, it is difficult to form a rights-based tax notion both in the opinions of government and taxpayers.

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An edited version of this text appears in Chinese (繁体中文版）in the China Times (Taiwan) for July 9, 2009, and in English in the South China Morning Post (Hong Kong) for July 9, 2009.

In 1977 Victor H. Li published a stimulating book entitled “Law Without Lawyers”. China’s Communists, he suggested, because of their country’s distinctive tradition and culture, might blaze a new trail toward modernization, one that, unlike their former Soviet model, had little need for lawyers.

Yet Deng Xiaoping and his colleagues soon demonstrated that they thought otherwise. After Chairman Mao’s death ended the chaos of the Cultural Revolution, China’s new leaders altered the Soviet model for economic development, but resurrected its political-legal system, including its reliance on “socialist lawyers”. Indeed, during the past three decades, the post-Mao leadership has increasingly expanded the roles of lawyers to help settle disputes, promote the evolving “socialist market economy”, foster international business cooperation and legitimate the punishment of serious offenders.

In principle, contemporary Chinese lawyers are no longer Soviet-style “state legal workers” but independent professionals tasked with protecting citizens, including those at odds with the state. In fact, however, although their numbers, education and responsibilities have burgeoned, Chinese lawyers, like their Soviet predecessors, remain subject to significant restraints.

The Law on Lawyers amended in 2007 seemed to promise greater autonomy to human rights lawyers. Yet their plight has actually worsened in the twenty months since the 17th Communist Party Congress. The reconfirmed Hu Jintao-Wen Jiabao leadership placed veteran Party officials, without legal education or experience but with a strong police background, in charge of the Ministry of Justice and the courts as well as the Central Party Political-Legal Committee that instructs all legal institutions. These new appointees seem determined to eviscerate the country’s “rights lawyers”, who constitute a tiny fraction — perhaps one percent — of China’s almost 150,000 licensed lawyers.

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Two more installments in Professor Jerome A. Cohen’s series of informal video coversations regarding his life and career in Asia are now available online.

Part 5- further examines U.S. – China Rapprochement

Part 6- offers thoughts and stories about the Korean peninsula

Professor Eleanor M. Fox, of the New York University School of Law, has kindly permitted us to make her article on China’s new anti-monopoly legislation available online. U.S.-Asia Law Institute research fellow, Oliver Zhong, has written a brief comment on why the article is an important read for China researchers and competition law experts alike.

[Click Here for Professor Fox's Article]

[Click Here for Oliver Zhong's Foreward]

An edited version of this text appears in Chinese (繁体中文版）in the China Times (Taiwan) for June 25, 2009. This article is also published in the South China Morning Post (Hong Kong) for June 25, 2009.

A discreet struggle is taking place in mainland China over justice, law and governance. A rising, confident country is asking itself what kind of legal system best suits its “national circumstances”. A “socialist rule of law with Chinese characteristics” is an attractive political slogan, but troubling to many Chinese legal specialists. What should it mean in practice?

One fundamental question is: what is a “court”? In recent years, all over the mainland, local governments, at great expense, have built imposing, modern courthouses. What should happen inside? And to what extent should judges function outside?

In China, as elsewhere, courts settle legal disputes. But not all legal disputes. As the Sichuan earthquake tragedy demonstrated, some lawsuits, especially those involving numerous plaintiffs, are not accepted and are required to be handled administratively. Many others, in some times and places, are also excluded from judicial purview as “too sensitive”. Tainted milk claims, environmental complaints, land transfers and HIV/Aids discrimination are examples. Mainland judges are too few and overburdened. Last year, they dealt with almost 11 million disputes, and caseloads are expanding.

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