The tax legal system of civil trusts is more complex than that of business trusts and charitable trusts, and China's civil trust tax theory and system construction are still in a blank state. The civil trust tax system should draw on mature trust tax theories and institutional construction experience from overseas, absorb the concept of "substantial taxation" of "conduits", and construct a civil trust income tax system with beneficiaries as the substantive taxpayers, to avoid the occurrence of double taxation of income tax in the form of trust property transfer. At the same time, the civil trust tax system should also adopt the mechanism of "substantialism" where the trustee assumes the "formal tax payment" function, construct the circulation tax and property tax system in China's civil trust property management, and systematically establish supporting mechanisms such as China's civil trust anti avoidance tax system and "withholding and payment" system. 

Civil trust is a type of trust in which the principal transfers family property to others and entrusts others to manage the property for a long time in order to meet the future needs of family members, especially minors, disabled people, and the elderly, such as life, education, care, and care, as well as the inheritance needs of family property. Nowadays, the wealth accumulation of ordinary households in China is already very large, with non cash assets such as real estate and stocks (rights) held by ordinary households accounting for over 70% of household assets. There is a strong demand for entrusted management and inheritance of these assets. Vulnerable groups, ordinary families, private entrepreneurs, and high net worth individuals all have different functions and types of needs for civil trusts. Overseas, civil trusts have always been regarded as the most effective legal tool for wealth management and solving the issue of wealth intergenerational inheritance. Various countries and regions have also established relatively complete trust tax legal systems based on the characteristics of civil trusts. However, in China, due to the lag in civil trust theory and institutional construction, the Trust Law adopts the expression of entrusting property rights to trustees instead of the internationally accepted transfer of property rights to trustees, blurring the legal ownership of trust property. Trusts do not belong to legal entities or individuals, and the taxation of trusts is difficult to apply to the general tax rules of individuals and enterprises formed under the guidance of the traditional "one thing, one right" theory. This has led to many problems in China, such as unclear taxpayers of civil trusts, difficulty in determining tax objects and double taxation, and the lack of trust anti avoidance and tax collection mechanisms, It needs to be resolved and improved as soon as possible. 

1、 Taxpayers of civil trusts

The Notice of the Ministry of Finance and the State Administration of Taxation on Issues Related to Value Added Tax on Asset Management Products (Cai Shui [2017] No. 56) identifies the administrator, also known as the business trust institution, as the taxpayer in the management and operation of asset management products, in line with the characteristics of the business entity engaged in asset management business and the development and sales of asset management products by the business trust institution, It also conforms to the characteristics of a self beneficial trust where the principal and beneficiary are integrated. The beneficiaries of charitable (public welfare) trusts do not bear tax obligations, and in the operation of charitable (public welfare) trusts, the trustee shall bear formal tax obligations in terms of turnover tax and property tax. Civil trusts are generally other beneficial trusts, with several beneficiaries or even intergenerational individuals. The majority of the assets managed by the trustee are non cash assets such as property and equity. According to the Finance and Taxation [2017] No. 56 document and charitable (public welfare) trusts, it is not appropriate to treat the trustee as a single taxpayer. We should learn from foreign trust tax theories and tax systems, and combine the characteristics of civil trusts to establish China's civil trust tax payment subject system. 

（1） Theory and Practice of Overseas Trust Tax Subjects

Overseas trusts are generally divided into private trust and public trust. Private trust includes civil trust and business trust. Business trust institutions are only commercial entities engaged in trust business and are not considered financial institutions that need to obtain franchise rights. There is no essential difference between private trust and civil trust. Overseas scholars have developed "Entity Theory" (also known as "substantialism") and "Conduit Theory" (also known as "Conduit Theory") to address the issue of how to determine the tax subject of private trust. The "substantialism" was first established in the trust income tax system of the Finance Act of 1922 in the UK. According to this theory, trusts are proposed as independent taxpayers, and tax authorities impose taxes on the trust itself, with the trustee assuming formal taxpayer obligations. The tax obligations of the trust itself do not change due to changes in the trustee, And the income from trust property, regardless of whether it is distributed or not, must be taxed in accordance with the law. The early British trust tax legal system was a model for implementing "substantialism". According to the principle of substantive taxation, there is no substantial transfer of ownership of the trust property during the trust establishment stage, so there is no need for taxation during the establishment process. In terms of income tax, trust taxation in the UK mainly occurs during the existence of trusts, which involves taxation of trust income and trust remuneration of the trustee. In the process of trust termination, the beneficiary's behavior of terminating the trust is not subject to income tax. Anglo American legal system countries adhere to the British trust tradition and early adopted "substantialism" as the principle of trust income taxation, assuming that trusts are a type of legal entity. 

In the development process of business trusts in the United States, in order to prevent taxpayers from avoiding taxes through trusts, the "conduit theory" of trust taxation was born. The 1954 US Internal Revenue Act introduced the Throwback Rule, but its use was limited by many exceptions; The 1976 US Tax Reform Act further expanded the scope of the use of retroactive rules, forming the basic system of retroactive rules, marking the transition of the trust legal system from adhering to the "entity theory" to the "conduit theory". The 'conduit theory' holds that trusts do not belong to entities or individuals, but rather to a relationship or 'conduit' between the trustee and the beneficiary. Therefore, the income and expenses of trust property should be treated as the income and expenses of the beneficiary. In the legal relationship of trusts, the beneficiaries of the trust have substantial beneficial rights to the trust property and enjoy the benefits it brings. This characteristic is the legal basis for the emergence of the trust "conduit theory" and also an important basis for the trust tax legal system to classify potential taxable objects into "taxable" and "conduit" entities. This theory takes substantive taxation as its core, directly taxing beneficiaries, and "flowing through" income and cost expenditures in tax law. The taxable income of a certain operating entity is not taxed in the operating entity, but in the owner's link of the operating entity. The taxation result does not change due to the trustee's acquisition of nominal ownership of property, and the concept of substantive taxation is implemented in the trust tax legal system. The Internal Revenue Code, Part A, Chapter 1, Section J, establishes a trust tax system model with "substantialism" as the main approach and "catheterism" as the auxiliary approach, integrating the two. On the one hand, starting from the unique characteristics of prudent wealth management and maximizing the interests of beneficiaries, the trust is formulated as a subject in the sense of taxation, and the trust itself is taxed; On the other hand, trusts are "conduit" tools that impose taxes on the substantial beneficiaries of trust benefits. The Canadian tax system is a separate taxation system for trusts and beneficiaries, without the need for subsequent adjustment mechanisms or supplements. 

In practice, "conduit ism" has been deeply developed after being introduced into Japan and Taiwan, China. Both Japan's "Income Tax Law" and Taiwan's "Income Tax Law" clearly stipulate that the taxpayer of trust income is the beneficiary of the trust, rather than the trustee or the trust itself. In 1922, the Japanese Income Tax Law stipulated that trust income actually belonged to the beneficiaries of the trust, avoiding taxation on trustees who did not enjoy any benefits. In order to cooperate with the implementation of the newly established trust types in the Trust Law of Japan in 2006 and the anti avoidance of taxes, the Income Tax Law, the Legal Person Tax Law and the Inheritance Law of Japan in 2007 were amended in part of the Revised Law of the Income Tax Law of Japan, which formed the direct penetrating taxation on beneficiaries, the trustee's legal person taxation at the trust stageThe beneficiaries are subject to three main types of trust taxation when they actually receive income (taxation upon receipt, no penetrating taxation, and corporate taxation). To avoid double taxation in Japan, if the trustee withholds and pays income tax on trust income, the ultimate taxpayer (i.e. trust beneficiary) can offset the tax withheld by the trustee. In order to avoid overly complex taxation procedures and to avoid double taxation, Article 3-3 of the "Income Tax Law" in Taiwan has deeply implemented the principle of no income tax levied on the transfer of trust forms. In the process of trust establishment, the transfer of ownership of trust property between the principal and the trustee is not subject to income tax. Although the trustee has superficially acquired ownership of the trust property, they do not enjoy the beneficial rights in the trust property rights, so the trustee is a non taxpayer. As for the income generated by the trust during the management process, the beneficiary should pay income tax on their income. When the beneficiary is not specific or does not yet exist, the tax law takes the trustee as the taxpayer, which also reflects some principles of "entity theory". We will refer to the trust tax system formed by Japan and Taiwan as the main model of "catheterism" and supplemented by "substantialism". 

From the development process of the theory and practice of trust tax subject mentioned above, it can be seen that "conduit doctrine" and "substantialism" are theories on how to determine the tax subject of private trust income tax. Except for the UK, some countries and regions generally adopt a combination and supplement of the two theories to determine the tax subject of trust income tax, in order to respond flexiblyThe need for complex private trust structures for taxation and anti tax avoidance activities. 

（2） The beneficiary should become the substantive subject of civil trust tax payment

The ultimate ownership of trust property in the sense of private law determines the ownership of trust property in tax law, and also determines the taxpayers of income from trust property. The fuzzy treatment of the ownership of trust property in China's Trust Law has led to difficulties in determining who the ownership of trust property should belong to, and the difficulty in dividing the tax liabilities of multiple parties in trust relationships. According to the conduit theory of trust tax subjects, trusts are generally regarded as conduits for the trustor to transmit property to beneficiaries. Trusts are not considered independent tax subjects, and taxpayers should mainly be borne by the beneficiaries. Essentially, the beneficiaries of a trust enjoy the trust property through the distribution of trust benefits, which belongs to the "substantial owner" of the trust property. From the perspective of tax fairness, trust beneficiaries should also be taxed. After the establishment of a trust, the trust property becomes independent from the inherent property of the principal, and the trust property and its generated income no longer belong to the principal. Although sometimes the settlor, as the beneficiary of a trust, can also enjoy the benefits of the trust and may need to be taxed, the occurrence of this tax obligation is based on the settlor's identity as the beneficiary, rather than the settlor's identity. Therefore, it would be unfair for the trustee to bear the tax liability for the trust income generated from the trust property; During the period of trust existence, the trust property is managed and operated by the trustee to generate trust income. On the surface, the trustee is the nominal owner of the trust property, and the trust property has always been under its control. The trustee should bear the responsibility of paying taxes. However, in reality, the income generated by the trust property will be distributed to the beneficiaries in the future and cannot be included in the inherent property of the trustee. In addition to the reasonable remuneration obtained by the trustee for managing the trust property, it is also unfair for the trustee to bear the tax obligation of the trust income. Attributing the tax liability of trust income to the trustee is inconsistent with the principle of substantive taxation in China, so it is not appropriate to tax the trustee on the income generated from trust property. 

Like Japan and Taiwan, the design of China's civil trust tax legal system should follow the guidance of "catheterism", with the beneficiary as the substantive subject of trust income tax. This not only implements the concept of substantive taxation in the trust tax legal system, but also has the following advantages: firstly, it does not conflict with Article 2 of the Trust Law, Cleverly resolve the issue of ownership ownership of trust property. The most fundamental feature of the trust system is the deepening of the separation of ownership and function or the division of ownership itself. However, under continental law, the abstract, singular, and absolute nature of ownership is the basic logic of property rights. The provisions of Article 2 of the Trust Law also consider avoiding conflicts of ownership ownership ownership. Starting from the essence of trust, 'conduit doctrine' recognizes that trust only serves as a conduit for the settlor to convey benefits to beneficiaries, and beneficiaries are the real beneficiaries of the trust's beneficial rights, which can penetrate to the beneficiaries of the trust for taxation. Avoiding disputes over the ownership of trust property, it can be well connected with China's Trust Law, as well as the property rights system and tax system formed under the guidance of the "one thing, one right" theory; Secondly, it can effectively avoid the problem of double taxation of trust income tax. Following the guidance of "catheterism", we have established a system of tax payers for trust income tax in China, which penetrates into the taxation of trust beneficiaries and avoids the problem of double taxation of trust income tax in the process of trust establishment and transfer of trust property. 

（3） The trustee should become a formal civil trust "withholding and paying" tax subject

According to "substantialism", trusts are designed as independent taxpayers, with the trustee assuming formal taxpayer obligations. This model of directly taxing the trust itself is very simple and efficient, and the way in which the trustee bears the formal taxpayer is similar to the current provisions of China's Finance and Taxation [2017] No. 56 regarding business trust institutions as taxpayers of asset management products. However, "substantialism" originated in the UK, which has a common law tradition. China belongs to the continental legal system, and its current legal system does not have the legal support environment to draft trusts as independent taxpayers. In addition to the lack of a clear legal environment for the ownership of trust property, China's direct adoption of trust tax "substantialism" in civil trusts will also encounter the following problems: firstly, it conflicts with the existing civil subject system. The Civil Code of China divides civil subjects into natural persons, legal persons, and unincorporated organizations, and trusts cannot be classified among them. The Trust Law of our country does not treat trusts as a legal entity, and there is no legal basis for treating trusts as a legal entity; Secondly, the trust registration system environment for implementing the "substantialism" of the trust tax system does not exist. Article 10 of China's Trust Law stipulates that the establishment of trusts must follow a strict "registration effectiveness principle", but the consequences of non registration are unclear, and the legal status of trusts after establishment but before registration is also unclear. At the same time, due to the lack of a trust registration system in China, it is not possible to establish a trust directly with assets such as equity, real estate, intellectual property that should be registered in accordance with relevant laws and administrative regulations. These assets cannot be effectively transferred to the trustee's name through the establishment of a trust. 

Although China does not have a legal environment to establish trusts as independent taxpayers, trust property is different from the property of the settlor and trustee. The legal meaning of the so-called distinction refers to the trust property being independent of the inherent property of the principal and trustee, and having independence in terms of profit and loss, and the trust property having economic payment ability. In tax law, the subject of tax law rights should be those who recognize their economic or technological ability to pay. In China, trust property is not an independent civil subject recognized by the Civil Code, and does not have the ability to express or execute its own intentions. The trustee is the holder and manager of the trust property, the legal representative of the trust property, and can perform the duties of withholding and payment by the trustee. Tax laws have diverse value objectives. Among them, efficiency and fairness are both fundamental value objectives of tax laws. When formulating a trust tax legal system, it is not only necessary to pay attention to tax fairness, but also to consider tax efficiency and other value goals. The 'conduit doctrine' directly attributes the tax liability of trust income tax to the beneficiaries of the trust, implementing the value goal of fair tax law. However, it needs to be combined with the 'substantialism' to achieve the tax diversified value goal: firstly, to achieve the value goal of trust tax efficiency. When taxation, the tax authorities only need to identify the representative (trustee) of the trust and determine the taxpayer based on the form of ownership of the trust property. This apparent form of taxation procedure and method can easily achieve the purpose of taxation, reduce the cost of taxation, and reflect the principle of tax collection economy; Secondly, achieve the goal of anti tax avoidance value for trusts. Civil trusts are other benefit trusts tailored to the specific management matters of each entrusted property. Compared to business trusts and charitable (public welfare) trusts, civil trusts have more flexibility, and this flexibility design is often used for tax avoidance purposes. In order to avoid income tax on trust income, trust income is not distributed to beneficiaries in a timely manner, but accumulated within the trust. When the interval between the occurrence and distribution of accumulated trust income exceeds one tax cycle for beneficiaries, applying only the conduit theory and corresponding tax generativism will result in tax delay, omission, inability, high cost, and low efficiency. In order to prevent the occurrence of such tax avoidance behavior, the trust should be regarded as an individual related to the income, and the taxpayer qualification should be the trust itself, with the trustee bearing the obligation of withholding and paying taxes; Thirdly, achieve the goal of building a complete trust tax system. China's tax system is composed of direct taxes, such as income taxes, and indirect tax, such as turnover taxes and property taxes. Treating the beneficiary as the substantive subject of civil trust tax payment only solves the problem of income tax payment in the trust tax system. However, the circulation of trust property in China also involves issues such as value-added tax, deed tax, property tax, stamp tax, etc. As the beneficiaries do not participate in the management of trust property, they do not have the qualifications and ability to pay these taxes. Therefore, the trustee should become the formal taxpayer of these taxes. In addition, for some special types of trust tax issues such as discretionary trusts and cumulative trusts that are difficult to solve by 'conduit ism', they should also be withheld and paid by the trustee. To avoid the occurrence of double taxation, after the trustee fulfills the withholding and payment obligations, it is not advisable to impose income tax on the trust beneficiary during the distribution process. 

2、 The Tax Payment Process and Tax Payment Object of Civil Trusts

Unlike business trusts, which primarily consist of funds, the property of a civil trust established by the principal includes property, equity, collectibles, and other assets in addition to funds. Civil trusts use property such as property and equity as tax objects, which differs from business trusts that primarily use funds as tax objects in two aspects: firstly, they face different types of taxes. According to the Personal Income Tax Law of the People's Republic of China (hereinafter referred to as the "Personal Income Tax Law"), a portion of capital gains can be classified as income from interest, dividends, and bonuses, while property gains are classified as income from property leasing, and property and equity transfers are classified as income from property transfers; Secondly, the degree of repeated taxation varies. At present, the double taxation of civil trusts in China is mainly reflected in the following two aspects: firstly, the tax obligations arising from the transfer of trust property during the establishment and operation of the trust, and the tax obligations arising from the true transfer of trust property upon the termination of the trust. Trusts are seen as conduits for the settlor to transport property to beneficiaries, and taxing every form of transfer of ownership of trust property during the establishment and operation of the trust deviates from the principle of trust tax "conduits". In the investment and management of trust assets, relevant taxes such as business tax need to be paid in accordance with relevant regulations; The second is that the income tax liability arising from the trust income during the existence period of the trust overlaps with the income tax liability arising from the distribution of the trust income. Due to the fact that trusts are not considered as independent legal entities with corporate nature in China, trust income should not be subject to double taxation on the trust itself and its beneficiaries. The repeated taxation of business trusts is mainly reflected in the second link above. Therefore, the tax object of civil trusts is more complex than that of business trusts. 

（1） The formal transfer process of trust property

According to the current tax system in China, as long as the transfer of trust property occurs, it is necessary to tax it as a property transaction in accordance with the corresponding tax laws. For example, if a private entrepreneur establishes an equity trust, during the trust establishment process, as long as there is a transfer of equity, they need to pay a 20% personal income tax in accordance with the tax items for property transfer income in the Personal Income Tax Law. At the same time, in accordance with the Provisional Regulations on Stamp Duty, a stamp duty of 0.05% shall be levied on both the principal and the trustee based on the transfer of property rights. During the duration of the trust, as well as during normal and abnormal termination of the trust, there may also be equity transfer behavior, and a further 20% personal income tax and stamp tax on transaction behavior will be paid for the equity premium. At present, there is a phenomenon of double taxation in the formal transfer of trust property in China. The formal transfer of civil trust property refers to the transfer between legal parties involved in the trust for the purpose of establishing a trust or managing the trust property, not for the purpose of transaction. Therefore, the formal transfer of trust property is not subject to income tax, which is a common practice in the two legal systems. According to the provisions of Article 3-3 of the Taiwan Income Tax Law of China on the five forms of transfer of trust property, the transfer of trust property to the trustee during the establishment of a civil trust, the transfer of trust property between new and old trustees during the existence of a civil trust, and the transfer of property that is not established, invalid, dissolved, revoked, or terminated in a civil trust are all forms of transfer, Mainland China should not impose income tax on the transfer of trust property in the form mentioned above, as this can effectively avoid the problem of double taxation of civil trusts caused by non transaction taxation. 

Although it is a common practice in both legal systems to exempt income tax on the formal transfer of trust property, many countries also pay stamp duty on the establishment of trusts. In the UK, the principal pays stamp duty on trust contracts. Japan pays stamp duty when establishing trust contracts and establishing trust accounting books. Civil trust is the act of transferring its property to the trustee for management out of trust in the trustee. This act is in line with the characteristics of "written taxable vouchers" stipulated in the Stamp Tax Law of the People's Republic of China (hereinafter referred to as "Stamp Tax Law") and should be subject to stamp tax. According to the Stamp Tax Law, the act of establishing a civil trust by the principal to pay stamp duty should follow the following rules: firstly, the taxpayer of stamp duty should be the principal. The establishment of a trust by the principal and the transfer of the trust property to the trustee are only a form of transfer of property ownership, while the trust property belongs to different trustees. After the trust terminates, the ownership of the trust property to the principal or beneficiary is also a form of transfer of property ownership. The taxpayer of stamp duty should be the principal, Rather than the formal owner and ultimate owner of the trust property; Secondly, the tax obligation of stamp duty should occur on the day of the establishment of the civil trust. According to the Stamp Tax Law, the tax liability of stamp duty shall occur on the day when the taxpayer files the taxable certificate or completes the securities transaction. Therefore, the day when a civil trust is established shall be the time when the tax liability of stamp duty occurs. The tax liability of contract trust stamp duty shall occur on the date of the trustee's written commitment, and the tax liability of testamentary trust stamp duty shall occur on the date of the testator's writing of the testamentary trust. The principal or testator of a civil trust shall declare and pay stamp duty to the competent tax authority in their place of residence. By declaring and paying stamp duty, tax authorities can establish a bottom file to manage and track the subsequent tax payment of civil trusts. 

（2） Investment and management of trust property

In the investment and management of trust property, when the managed trust property is funds, it can be implemented in accordance with the current regulations on business trust taxation in China. The trustee's investment tax on funds can be divided into the following three situations: firstly, debt investments with fixed income nature and financial product investments. This type of investment is mainly aimed at obtaining fixed income, and has the nature of "breakeven and guaranteed income". We can refer to the Finance and Taxation [2016] No. 36 and Finance and Taxation [2016] No. 140 documents to recognize such investments with fixed income nature as loans, and calculate and pay taxes based on the obtained interest and off price expenses. After the reform of business tax to value-added tax (VAT), the simplified tax calculation method will be applied based on the Finance and Taxation [2017] No. 5 document. VAT will be paid at a 3% tax rate, and input tax cannot be deducted. Value added tax payable=total interest income and non monetary expenses (including tax value)/(1+3%)×3%；Secondly, asset management products and financial products issued by financial institutions that cannot promise to guarantee principal and return. According to the New Regulations on Asset Management, asset management business is an off balance sheet business of financial institutions, and financial institutions are not allowed to promise to maintain principal and return when carrying out asset management business. Asset management products no longer have the characteristics of "capital preservation and income preservation", and their returns have volatility and equity. Therefore, after the reform of business tax to value-added tax, the trustee does not need to pay value-added tax when investing funds in asset management products issued by financial institutions. However, when the trustee transfers asset management products and other financial products, they can refer to the provisions of the Finance and Taxation [2017] No. 5 document, and the manager of the asset management products or financial products shall be the withholding agent for business tax, and the simplified tax calculation method shall be applied for tax payment; Thirdly, invest in non-financial assets such as equity and real estate. When the trustee invests the managed trust funds in assets such as equity and real estate, there is no issue of paying value-added tax. 

When the assets managed by the civil trust trustee are non-financial assets such as equity (stocks), real estate, collectibles, etc., the investment and management methods of these assets differ greatly from those of funds in terms of tax types, tax methods, and taxpayers. Firstly, the trustee operates or holds non financial assets. The trustee can operate trust assets such as real estate, transportation vehicles, collectibles, etc. through leasing. If the real estate is leased, the trustee needs to withhold and pay stamp tax, value-added tax (including urban construction tax and education surcharge), real estate tax, and land use tax related to the rental behavior. For rental income, It should also be withheld and paid by the trustee in accordance with the 20% tax rate stipulated in the Personal Income Tax Law. For dividends and bonus income from equity, the trustee should also withhold and pay them according to the 20% tax rate stipulated in the Personal Income Tax Law; Secondly, the trustee transfers non financial assets. As the contracting party for the transfer of real estate, the trustee is not required to pay stamp tax, but also needs to withhold and pay value-added tax, land value-added tax, stamp tax, deed tax during the transfer process. The trustee is also required to withhold and pay personal income tax on the transferred real estate at the 20% tax rate specified in the Personal Income Tax Law. For the income from equity transfer, the trustee needs to withhold and pay stamp tax on behalf of the trustee, and withhold and pay the personal income tax on the transferred equity at the 20% tax rate specified in the Personal Income Tax Law. 

（3） The distribution process of trust property

The trustee generally distributes funds to the beneficiaries. The definition of the nature of taxable goods in the tax law is a reflection of the economic essence of the goods in the legal ownership structure, and is the foundation of tax structure design. Article 2 of China's Personal Income Tax Law stipulates a total of 9 items for personal income tax collection, among which there are no income from trust income distribution or trust income. Some people classify civil trust income as incidental income in Item (9), but Article 6 of the Regulations for the Implementation of the Individual Income Tax Law (Decree No. 707 of the State Council) clearly stipulates that incidental income refers to income of an individual who has won a prize, won a prize, won a lottery and other income of an incidental nature. The civil trust has definite trust property, and the distribution method of trust property is clearly stipulated in the trust documents. Obviously, it does not have "contingency", and the civil trust cannot be included in the income of individual winning prizes, winning prizes, and winning lotteries. Therefore, the current allocation of funds for civil trust property in China cannot be clearly attributed to the 9 tax items in the Personal Income Tax Law, and there is a lack of legal basis for collecting income tax on the daily distribution of trust property. At present, China does not impose gift tax on funds donated by parents to their children, and parents establish trusts, similar to the form of donating trust assets to children as beneficiaries in the future. Therefore, the Personal Income Tax Law of China does not stipulate the imposition of personal income tax on trust income distribution income, which is complementary to the absence of gift tax in China. If China collects gift tax and inheritance tax in the future, what tax items should be attributed to the distribution of trust income of civil trust and how should it be taxed should be further clarified by the tax authorities of China through issuing documents or approval. Otherwise, while avoiding double taxation, the collection of trust income tax is omitted, which is also inconsistent with the construction of China's civil trust income tax system with beneficiaries as the substantive taxpayers. 

Allocating beneficiaries through non monetary means involves transferring all or part of the ownership of equity and property rights to the beneficiaries. This distribution method often exists during the termination or liquidation of civil trusts. Due to differences in the distribution of property, beneficiaries also need to pay different types of taxes. When distributing equity to beneficiaries, Article 13 of the "Administrative Measures for Individual Income Tax on Income from Equity Transfer (Trial)" (Announcement No. 67 of 2014) issued by the State Administration of Taxation stipulates that inheriting or transferring equity to spouses, parents, children, grandparents, grandparents, grandchildren who can provide legally valid proof of identityIf the income from equity transfer is obviously low for grandchildren, brothers and sisters, as well as the dependents or supporters who have the obligation to directly support or support the transferor, it can be regarded as a legitimate reason, and individual income tax may not be paid. According to the above regulations, when the beneficiary is a close relative of the principal and bears direct support or support obligations to the principal, income tax may not be paid, but stamp duty must be paid. If the beneficiary is another person specified in the above documents, a 20% income tax and stamp duty shall be paid in accordance with the Personal Income Tax Law. When distributing property to beneficiaries, according to existing laws and regulations, if parents give property to their children and close relatives for free, they are exempt from value-added tax, personal income tax, and land value-added tax, but must pay deed tax and stamp tax. According to the above regulations, when the beneficiary is a close relative of the principal, When distributing benefits through real estate, only deed tax and stamp duty are paid. If the beneficiary is not a close relative of the principal, they shall bear all value-added tax, personal income tax, land value-added tax, deed tax, and stamp duty. The taxation time for the above-mentioned civil trust beneficiaries should be the time when the beneficiaries actually receive or enjoy the trust benefits. 

3、 The Anti Tax Avoidance System of Civil Trusts

The separation of ownership and beneficial rights in civil trust property endows the trust structure with flexibility and variability, and this characteristic of civil trust is often used for tax avoidance. At present, the general tax avoidance clause is applicable to trust anti avoidance in China, which means that if a trust is used for arrangements that do not have reasonable commercial purposes, it will be subject to tax adjustment by the tax authorities. However, there is a lack of specialized legal regulatory measures for tax avoidance in special types of trusts such as trustee discretionary trusts, principal trusts, purpose trusts, and offshore trusts. The trust anti tax avoidance system, especially the civil trust anti tax avoidance system in China, is still in its early stages. We should learn from mature overseas trust anti tax avoidance experiences and establish a civil trust anti tax avoidance system. 

（1） Establish a trustor trust anti tax avoidance system

Principal trust refers to a beneficial trust in which the principal retains the right to manage, dispose of, or control the profits of the trust property. Revocable trust is a form of trustor trust. In a trustor trust, as the trustor retains significant control over the trust and can add, delete, or modify the beneficiaries or beneficiary shares at any time, it is difficult to directly tax the beneficiaries. The principal can engage in trust tax avoidance through the following methods. One is to obtain tax benefits through the method of "breaking the whole into parts". The principal disperses the subject of income tax by establishing multiple formal beneficiaries of the trust, seeking to apply a lower income tax rate; Secondly, the principal can also adjust the distribution amount of each beneficiary according to the actual situation, reduce the taxable income of the beneficiary, and apply a lower income tax rate. In the United States, the settlor can reduce the total amount of the settlor's estate and avoid the imposition of inheritance tax by setting up a formal trust. 

To prevent the tax avoidance behavior of trustors, the definition standards of trustor and trustee trusts in Article 673 of the United States Tax Code can be used for reference. Trusts can be divided into principal trusts and non principal trusts, with separate tax obligations between the trustee and the trustor. For trustor trusts, a 'conduit based approach' is adopted, and the trust itself is not the subject of taxation, mainly taxing the trustor. Article 673 of the United States Tax Code stipulates that if the principal retains more than 5% of the reversionary interest in the trust property or trust income, the principal shall be deemed to be the owner of the reversionary interest and be taxed. When taxing the trustor, the income generated by the trust, related costs and expenses, and tax deductions should be summarized and calculated to calculate the net income of the trustor's retained trust income, which should be included in the trustor's other taxable income for the current year, and combined to pay income tax. This can effectively prevent the trustor from avoiding tax by accumulating the income in the trust without distribution. In order to prevent the settlor from using trust to evade the inheritance tax that may be introduced in the future, China can also learn from the strategy of the United States to implement inheritance tax and gift tax together. 

（2） Establishing an anti tax avoidance system for trustee discretionary trusts

Civil trusts can be divided into fixed income distribution trusts and trustee discretionary trusts based on whether the beneficiaries and the amount and method of benefit distribution are clearly specified when establishing the trust. Fixed income distribution trust refers to the establishment of a trust that clearly specifies the beneficiaries and the amount and method of benefit distribution. The trustee should strictly follow the provisions of the trust documents to allocate the determined share of benefits to the clear beneficiaries. Fixed income distribution trust has limited planning space for trust tax avoidance. In discretionary trusts, the trust documents do not limit the increase or decrease of beneficiaries, nor do they specify the amount or method of benefit distribution. Instead, they grant the trustee a certain degree of discretion based on the actual situation. This flexible discretion can be used for tax avoidance. For the regulatory method of this trust tax avoidance method, the trust itself can be regarded as the proposed tax subject, which is withheld and paid by the trustee. The specific situation is as follows: 

One is the situation where there is no clear limit on the number and scope of beneficiaries. The establishment of a trust without a definite beneficiary is invalid, but a civil trust that establishes a basic beneficiary meets the requirements for the trust to be effective. The number and scope of other beneficiaries are determined by the trustee at their discretion according to the situation, which is beneficial for reducing the tax on the trust property, as the trustee can easily minimize the tax on the trust by specifying beneficiaries. The method of tax avoidance by setting multiple formal trust beneficiaries and adjusting beneficiary shares through the trustee is consistent with the previous method of tax avoidance by the principal. In discretionary trusts, it is difficult to tax trust beneficiaries according to 'conduit doctrine' due to the difficulty in determining the number and scope of beneficiaries in advance. For this tax avoidance method, the tax collection and management department not only timely obtains the information of the beneficiaries determined by the trustee, but also distinguishes between the close relatives beneficiaries of the principal and non close relatives beneficiaries. The tax authorities can supervise the annual settlement and payment status of personal income tax for non close relatives beneficiaries. 

The second is the situation where the accumulated income in the trust is not distributed in a timely manner. The trustee may use their discretion to decide to accumulate trust income within the trust, and the income generated by the trust will not be distributed to the beneficiaries in the year in which the income is generated. Therefore, for cumulative income trusts, it is not possible to determine which trust beneficiary the undistributed trust income belongs to, nor to tax a specific trust beneficiary. For the behavior of accumulated trust income not being distributed within the trust, the early UK established the anti accumulation principle, which directly limits the duration of accumulated income, and later limits it from the perspective of anti tax avoidance. For the year in which the accumulated trust income occurs, the trustee must first pay tax at the standard tax rate of 25%, followed by an additional tax rate of 10% (totaling 35%), Suppressed the trustee's behavior of using the mechanism of trust income accumulation for tax avoidance. The above experience in the UK is worth learning from. For the accumulation of trust income in civil trusts, in addition to withholding and paying trust income tax on the trustee's management of trust property, a fixed additional tax can also be added to regulate the non distribution of trust income accumulation and promote timely distribution of trust income. 

（3） Establishing an offshore trust anti tax avoidance system

Offshore trust refers to a trust established by a principal for a specific purpose in another jurisdiction (usually an offshore island country) and managed by a professional trustee in that jurisdiction. The main ways in which Chinese tax residents use offshore trusts for tax avoidance are as follows: firstly, the use of trust structures corresponds to the non distribution or reduction of profits belonging to individual Chinese tax residents. In order to avoid the provisions of Article 8 (2) of the Personal Income Tax Law, the profits that should belong to individual Chinese tax residents shall be placed in offshore trusts, achieving the tax avoidance purpose of not distributing or reducing distribution; Secondly, utilize the flexible advantages of private trust companies or discretionary trusts to avoid taxes. Offshore trusts can usually adopt discretionary trusts to accumulate trust benefits in the trust, or to distribute trust benefits to different beneficiaries, by flexibly adjusting the distribution amount of each trust beneficiary, so that each beneficiary can apply a lower income tax rate; Thirdly, by designing the structure of offshore trusts and reasonably arranging tax residents from different countries as trust parties, the effect of tax avoidance can be achieved. 

In 2018, China began implementing the OECD Common Reporting Standard (CRS) to assist in combating international tax evasion, which has to some extent achieved transparency of tax information for offshore assets and controllers. However, due to the current imperfect CRS supporting system in China, the information exchanged cannot be used in a timely manner for tax collection and anti avoidance of offshore trusts. After the tax information of offshore trusts is exchanged back to China through CRS, we should strengthen the construction of offshore trust anti avoidance systems in the following aspects: firstly, analyze the trust trustor, beneficiary, controller, trust property, and other information exchanged by overseas licensed trust companies. If it is believed that the establishment of the trust does not have a "reasonable commercial purpose", Chinese tax authorities can make tax adjustments to beneficiaries with Chinese tax resident status in a reasonable manner; Secondly, for private trust companies controlled by individual tax residents in China, as well as those jointly controlled by individual tax residents and resident enterprises, or "discretionary trusts" that are nominally trustees but are actually controlled by the principal, they can be recognized as "principal trusts". According to the above, tax authorities can tax the principal; Thirdly, in the case of arranging tax residents from different countries as parties to the trust to achieve tax avoidance, we can refer to the practice of the Canadian Taxation Bureau based on the distinction between domestic resident trusts and non domestic resident trusts in the tax laws or international tax agreements of various countries, where the location of the controlling party is used as the standard. According to Canada's definition of resident trust, a trust is considered a resident trust in Canada when a Canadian resident is the principal; If a Canadian resident is the beneficiary and has immigrated to Canada within 60 months, or has moved out of Canada within 60 months, the "contact asset contributor" (principal). Overseas non resident trusts are treated as Chinese trusts for tax purposes (global taxation) under the following circumstances: 1Chinese tax residents are contributors to trust assets. 2. There are Chinese tax residents who are beneficiaries of the trust; Moreover, the contributor of the trust assets was a Chinese tax resident within 5 years prior to the transfer or death of the asset, or became a Chinese tax resident within 5 years after the transfer of the asset. 

（4） Establishing an anti tax avoidance system for purpose trusts

According to the nature of the purpose, purpose trusts can be divided into charitable (public welfare) trusts and private purpose trusts. The former is stipulated in China's Trust Law, while the latter is not clearly defined. Article 2 of China's Trust Law stipulates that a trust can be established for a specific purpose, providing a normative basis for the existence of a purpose trust. However, Article 9 also stipulates that the beneficiary or the scope of the beneficiary must be specified in a written document. Article 11 further stipulates that "if the beneficiary or the scope of the beneficiary cannot be determined, the trust is invalid." From the perspective of legal texts, There is a contradiction in the recognition of purpose trusts in the Trust Law. At the same time, the Trust Law lacks regulations on the establishment and effectiveness of narrow purpose trusts, and the purpose trust system is still unable to operate. The so-called Purpose Trust in British and American law refers to a trust where there is no beneficiary or the beneficiary cannot be determined. It is also known as an incomplete obligation trust. The beneficiary of a purpose trust usually does not exist or cannot be determined, and at this time, it is not possible to tax the beneficiary of the trust according to 'conduit doctrine'. In English law, private purpose trusts usually include trusts established for the construction and maintenance of cemeteries and tombstones, for the maintenance of certain animals, and for gifts to non corporation. Japan also recognized purpose trusts in Article 258 of the new Trust Law in 2006. For a purpose trust where the beneficiary does not exist, the trustee shall be the taxpayer, and the trust property income of the trust shall be distinguished from the inherent property income of the trustee, and corporate tax shall be levied. In Taiwan, both Article 3-2 (4) and Article 3-4 (3) of the "Income Tax Law" stipulate that when the beneficiary is not specific or does not already exist, the trustee should be the taxpayer. From the perspective of countries around the world, recognizing purpose trusts is the trend. In the following areas, some people in China have a strong demand to establish purpose trusts: firstly, enterprises seek benefits for employees; Secondly, seeking welfare for specific areas and populations such as hometown; Thirdly, making religious donations and donating to unregistered groups; Fourth, maintain ancestral temples, tombstones, etc. to commemorate deceased loved ones; Fifth, take care of specific animals. Purpose trusts may also accumulate trust income within the trust without distribution, and the objects used for distribution or care may be untrue or non-existent for tax avoidance. China should also take precautions to establish a private purpose trust tax system and an anti tax avoidance system, in accordance with the requirements of "substantialism", The trustee shall act as the formal taxpayer for withholding and payment. 

4、 Introduce systematic legal norms for civil trust taxation

Establishing a legal system for civil trust taxation is a systematic project that requires detailed and comprehensive regulations on the substantive legal norms of civil trust taxation and procedural legal norms such as "withholding and payment" of trust taxation, in order to provide a good institutional support environment for the smooth implementation of the trust taxation system. 

（1） Issue of the Trust Tax Regulations

Compared to business trusts and charitable trusts, the tax legal system of civil trusts is the most complex and complete, and its content can cover most of the tax systems of business trusts and charitable trusts. Just like the Trust Law of our country, most of its basic content is about the provisions of civil trusts, but business trusts and charitable trusts also need to follow these regulations. At the same time, the Trust Law also makes relevant provisions for the characteristics of business trusts and charitable trusts. Our country's trust tax legal system should also refer to the Trust Law, which stipulates civil trust tax as the basic content of the entire trust tax system. Based on the characteristics of business trust and charitable trust tax, corresponding provisions should be made for the special institutional trustee withholding and payment system of business trust and the tax preferential system of charitable trust. At the legislative level, the trust tax legal system is not about levying taxes on a new type of tax, and does not require legislation from the National People's Congress and Standing Committee. However, it requires authoritative interpretation and integration of laws and regulations related to the trust tax system, such as the Trust Law, Charity Law, Income Tax Law, Stamp Tax Law, and Provisional Regulations on Value Added Tax. Therefore, The State Council needs to introduce a "Trust Tax Regulations" to interpret and implement the aforementioned laws and regulations. On the one hand, the Trust Tax Regulations belong to the administrative regulations of the State Council, with higher effectiveness than departmental regulations issued by the national tax collection and management department, and have authority; On the other hand, adopting a unified "Trust Tax Regulations" has avoided the cumbersome practice of modifying seven tax bills in Taiwan after its "Trust Law" was enacted, improving legislative efficiency. 

（2） Establishing legal norms for trust tax entities

After long-term practice, some well-known trust rules, such as fixed income distribution trusts and discretionary trusts, have been jointly recognized by parties, courts, and regulatory agencies overseas, especially in the Anglo American legal system; The establishment of civil trust taxpayers, objects, and anti tax avoidance systems is related to the scientific classification of trusts, such as trustor trusts and revocable trusts. Overseas tax authorities have established precedents and regulations for the tax collection, management, and dispute resolution of these well-known trusts. However, the content of China's Trust Law is too principled and does not make provisions for these well-known trusts. The Trust Tax Regulations should scientifically classify these well-known trusts, facilitate tax authorities to determine the taxpayers and taxable amounts, and timely formulate anti tax avoidance measures. 

The Trust Tax Regulations should absorb the concept of "substantial taxation" of "conduits", directly penetrate the trust pipeline, and establish a tax declaration system for income tax of trust beneficiaries. In fixed distribution income trusts, the beneficiaries of the trust need to declare and pay taxes to the tax authorities based on the amount of trust income distribution available for each tax year. In discretionary trusts, in the year in which the trust income is generated, the trustee may use their own discretion to distribute a portion of the income to the beneficiaries of the trust. For those whose portion of the income accumulates in the trust and is not distributed temporarily, a fixed additional tax may be prescribed. For the portion allocated to the beneficiaries in the year of income generation, it shall be incorporated into the beneficiaries' income and declared and paid taxes by the beneficiaries. If the beneficiary is a person with incomplete civil capacity, their legal representative or guardian shall fulfill the obligation to declare and pay taxes. Due to the global taxation implemented by tax residents in China, if the beneficiary of a trust receives distribution income from an overseas trust, the beneficiary of the trust will voluntarily declare and pay the tax. If the trust income has already been taxed overseas, a tax credit can be applied to the domestic tax authority. If the beneficiary of the trust does not voluntarily declare overseas trust income, after conducting a CRS exchange, the tax authority shall collect and pay it based on the exchanged tax information, and impose penalties in accordance with corresponding regulations to prevent domestic trust parties from using overseas trusts for tax avoidance. 

（3） Establish a "withholding and payment" system for trust taxation

The Trust Tax Regulations should adopt "substantialism", with the trustee assuming the function of "formal taxation", and establish a withholding and payment system for trust tax in China. Withholding and payment is a tax payment method in which a unit or individual who is obligated to withhold and pay taxes in accordance with tax laws deducts the tax payable from the taxpayer's income and surrenders it to the tax authorities. In the early stages of reform and opening up, China began to implement the mechanism of withholding and paying personal taxes as an agent. This system was eventually legalized by Article 4 of the Tax Collection and Management Law and became an important system for tax management in China. After years of practice and summary, China has established a relatively complete system of withholding and payment. For the trust property management process and specific trust types that apply "substantialism" as analyzed earlier, the trustee needs to declare and pay taxes on the trust income to the competent tax authority in the year of generation of the trust income, and withhold it from the trust property. At the same time, during the existence of the trust, the trustee should establish a special account for the entrusted trust property in a commercial bank based on the principle of setting up an account according to a trust document or plan, and establish specialized books and accounting records to record the various receipts and expenditures of the trust in detail, and conduct independent accounting for the trust property of different trusts, Withholding and paying taxes to the competent tax authority based on financial records. For cases where the trustee of a trust colludes with other parties to the trust and fails to fulfill the withholding and payment obligations with kindness and loyalty, corresponding punishment rules should also be formulated to urge the trustee to honestly fulfill the withholding and payment obligations. For the income accumulated in the trust that is not yet distributed to the beneficiaries of the trust, this part of the income can be included in the trust property, and the trustee shall fulfill the obligation of withholding and paying taxes. To establish a trust tax "withholding and payment" system, two issues need to be considered simultaneously: firstly, the impact of the time value of the tax amount and changes in interest rates on the evaluation of the value of the tax object needs to be considered. Implementing the trust tax "withholding and payment" system will result in a situation where the trust benefits obtained by the beneficiary are taxed first and the actual benefits obtained by the beneficiary are later. From the perspective of tax fairness, the time value of the tax amount should be considered, and a certain amount of tax refund should be made to the beneficiary according to the changes in interest rates; Secondly, it is necessary to consider the adjustment of the taxable amount. For discretionary trusts and revocable trusts, the trust benefits ultimately obtained by beneficiaries may change due to the exercise of discretionary power by the trustee or the exercise of revocation power by the principal, or the reduction of distributable trust property may be caused by system economic risks and investment management errors. The tax payable of the trust can be adjusted based on the above situation. 

Recently, the China Banking and Insurance Regulatory Commission issued a notice to trust companies on matters related to adjusting the classification of trust business. Trust business will be divided into three categories: asset management trusts, asset service trusts, and public welfare/charitable trusts. Among them, asset service trusts include four categories: wealth management trust services, and wealth management trust services include family trustsInsurance fund trusts, testamentary trusts, special needs trusts, family service trusts, other personal wealth management trusts, and wealth management trusts for enterprises and other organizations can all be included in the broad civil trust category. The development of civil trust not only shoulders the heavy responsibility of the transformation of the trust industry, but also shoulders the historical mission of "entering the home of ordinary people" in the context of common prosperity. The lack of trust tax system and trust registration system has become two key factors hindering the development and growth of civil trusts in China. Establishing a legal system for civil trust tax in China has become an important fundamental, inclusive, and bottom-up measure to ensure people's livelihood. We should formulate the Trust Tax Regulations, absorb the international concept of "conduit based" substantive taxation, and construct a civil trust income tax system in China with beneficiaries as the substantive taxpayers, in order to avoid the occurrence of double taxation in the transfer of trust property. At the same time, according to "substantialism", the trustee is entrusted with formal taxpayer obligations and the functions of "withholding and paying" circulation tax, property tax, and other taxes in the management of civil trust property. On this basis, establish an anti tax avoidance system for civil trusts in China, providing a suitable tax legal environment for the development of civil trusts. 

The article was reprinted from the official account of "Political Science and Law Forum".