Collecting Unpaid Tax Offshore: Caribbean Tax Havens and Foreign Direct Investment in China

Abstract

This article analyzes the role of Caribbean tax havens in China’s FDI and the evolutionary development since the mid 1990s. The round-trip scheme adopted by Chinese investors is given particular attention. It then discusses the increasingly strict tax measures adopted by China to counter the widespread use of the British Virgin Islands and the Cayman Islands to avoid tax in relation to offshore business since 2008 and recent developments in 2014. These measures range from residence rule, general anti-avoidance rule (GAAR), to the increasingly stringent requirements of tax reporting on outbound investment. The article concludes with the discussion on whether the shares of Caribbean Tax Havens in China’s FDI will diminish or increase.