Designing Foreign Tax Credit Rules in China: The Case of Foreign Loss Limitations

Over the last few years, China’s large trade surplus against other countries, as well as its high domestic savings rate even relative to its high investment rate, have resulted in a very substantial foreign currency reserve that puts the country in the position of a significant capital exporter. The huge amount of foreign currency assets held by the Chinese government— near $1.9 trillion at the end of 2008 — and a breathtaking series of acquisitions made by Chinese firms overseas are now salient items in international business reporting and public discussion. China’s new posture as an exporter of capital has also ushered in a new phase of development in the country’s international tax regime; ‘‘outbound’’ tax policy — how Chinese corporate and individual residents are taxed on income earned abroad — increasingly attracts the attention of taxpayers and practitioners.