“Strangers in a Strange Land”: Chinese Companies in the American Tax System

Ji Li

Volume 68, Issue 3, 503-540

Foreign direct investment (“FDI”) from emerging economies generally exhibits two distinct characteristics: (1) most of the investors thrive in poor regulatory environments, and (2) the visible hand of the state exerts a powerful influence. Due to these two features, emerging market FDI poses novel questions to tax law scholars and U.S. policymakers. For instance, will the investors import noncompliance practices? Or will they adapt to the complex and stringent regulatory regime of the host country? To answer these questions, this Article presents the first empirical study of Chinese multinational companies operating in the U.S. tax system. Despite wide gaps between the two countries in terms of tax administration and compliance, Chinese investors in the United States generally appear to have adapted to U.S. tax law. In terms of tax audits and disputes with the Internal Revenue Service (“IRS”), this study finds preliminary evidence that distinguishes between the investments of state-owned companies and those of privately owned companies. Overall, the findings contribute to several important policy and theoretical debates and have significant, practical implications.

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