Tax Issues Under the VIE Structure How to Achieve Compliance and Optimization in a Globalized Context?

Taxation Issues under the VIE Structure Finding the Balance Between Compliance and Optimization in a Globalized Era

With the deepening of globalization, multinational enterprises are increasingly focused on tax compliance and optimization. As a critical tool for Chinese internet companies to achieve overseas financing and listing, the VIE Variable Interest Entities structure has faced numerous challenges and opportunities in the field of tax planning in recent years. Against the backdrop of tightening global tax regulation, how to ensure compliance while achieving tax optimization has become an urgent issue for many companies.

I. Tax Characteristics and Challenges of the VIE Structure

The VIE structure originated from legal restrictions on foreign investment in certain industries in China. By using contractual arrangements rather than equity control, companies can list overseas without violating China’s foreign investment access policies. The core of this structure lies in a series of contracts that allow the overseas listed entity to control the domestic operating entity and consolidate its financial data into the overseas parent company’s financial statements.

From a tax perspective, the VIE structure typically involves multiple jurisdictions, including China, the Cayman Islands, Hong Kong, and the United States, which complicates cross-border tax planning. On one hand, companies must navigate differences in tax systems and enforcement requirements across countries. On the other hand, as global tax transparency intensifies-driven by initiatives such as the OECD’s BEPS Base Erosion and Profit Shifting Action Plan-tax authorities are increasingly scrutinizing profit shifting by multinational corporations, rendering traditional tax strategies less effective.

II. Recent Tax Policy Changes and Regulatory Trends

In recent years, Chinese tax authorities have significantly strengthened oversight of cross-border tax sources. In 2025, the State Taxation Administration issued a notice requiring more detailed disclosure of cross-border related-party transactions and enhancing scrutiny of transfer pricing and cross-border intangible asset transfers. This policy directly affects VIE-structured companies, especially those transferring profits from China to overseas.

The OECD-led global minimum tax reform also has far-reaching implications for tax planning under the VIE framework. In 2025, over 130 countries, including China, agreed to implement a 15% global minimum tax rate to prevent multinational enterprises from shifting profits to low-tax jurisdictions. This means that traditional strategies-such as setting up holding companies in tax havens like the Cayman Islands or Bermuda-will face increasing challenges.

III. Practical Paths for Tax Optimization under the VIE Structure

Despite the tightening regulatory environment, companies can still achieve tax optimization through rational planning while maintaining compliance. The following areas deserve attention

1. Optimizing Cross-border Cash Flow Arrangements

Companies should reevaluate their cross-border payment structures and reasonably plan the payment of royalties, service fees, and interest to ensure compliance with transfer pricing rules. Establishing intermediary holding companies in jurisdictions with extensive tax treaty networks-such as Singapore or the Netherlands-can help reduce overall cross-border tax burdens.

2. Strengthening Transfer Pricing Documentation Management

With the advancement of the BEPS Action Plan, companies must provide comprehensive comparability data and justifications for commercial rationality in cross-border transactions. VIE-structured companies should proactively prepare complete transfer pricing documentation, including local files and master files, to meet tax authority reviews.

3. Leveraging Preferential Tax Policies

Certain regions in China offer tax incentives for high-tech enterprises and software companies. Domestic operating entities within VIE structures can apply for relevant tax relief by aligning with their business nature, thereby reducing the overall tax burden.

4. Clarifying Intangible Asset Ownership and Pricing

In VIE structures, intangible assets such as brands, patents, and user data often play a key role in cross-border transactions. Companies must clearly define ownership, usage methods, and pricing mechanisms to avoid being perceived as engaging in unreasonable profit shifting.

IV. Case Study Tax Compliance Practices of a Leading Internet Company

Take a major e-commerce platform as an example. Using a VIE structure for overseas listing, the company’s tax planning has evolved from avoidance to compliance and optimization. In recent years, it has proactively adjusted its cross-border related-party transaction structure by introducing intermediary holding companies to benefit from tax treaties. It has also enhanced the preparation and disclosure of transfer pricing documentation. Meanwhile, the company actively applied for high-tech enterprise status in China to benefit from the 15% preferential corporate income tax rate. These measures not only improved its tax compliance but also supported the control of global tax costs.

V. Conclusion

Under the dual pressures of globalization and tax regulation, companies operating under the VIE structure can no longer rely on traditional tax strategies. Instead, they must shift toward a compliance-based and strategy-oriented tax planning approach. Companies should strengthen collaboration with professional tax advisors, tailor strategies based on their business characteristics and evolving global tax policies, and develop flexible, sustainable tax plans. Only in this way can they strike the right balance between compliance and optimization in an increasingly stringent global tax governance environment.