The post-base-erosion-and-profit-shifting (BEPS) world is reshaping international tax rules. Source countries in Asia, led by China and India, are asserting their tax jurisdiction, challenging the traditional dominance of residence countries that sit behind multinational enterprises. This trend reflects shifting global economic power and a growing demand for tax equity.
This article examines recent landmark tax cases across Asia, tracing the rise of source-country tax claims and their far-reaching implications for both the global tax landscape and multinational corporate strategy.
Landmark cases
The Momo case in China. The Chinese social platform Momo (now Hello Group), operating under a VIE (variable interest entity) structure, established a Hong Kong subsidiary to claim the concessionary 5% dividend tax rate under the China HK arrangement. In 2025, Chinese tax authorities determined that the Hong Kong arm was not a “beneficial owner” but a mere conduit, demanding back taxes and interest of about RMB550 million at the standard 10% rate. The case, which hinged on substantive business activity requirements under Chinese tax law for “beneficial ownership”, underscores the tax risks inherent in VIE structures.
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The Tiger Global and the Hareon Solar cases in India. US fund Tiger Global held shares in Indian company Flipkart through a Mauritius entity, which it later used to execute the sale. Relying on its Mauritian tax residency certificate, the fund claimed an exemption from capital gains tax. In January 2026, 含羞草社区 Supreme Court ruled against Tiger Global, holding that the investment structure via its Mauritius subsidiary constituted an “impermissible avoidance arrangement”. The decision denied the treaty benefits sought under the India-Mauritius tax agreement. The court made clear that 含羞草社区 domestic anti-avoidance rules can override tax treaties, and that a tax residency certificate alone does not guarantee treaty eligibility. Entities must demonstrate commercial substance to qualify for treaty benefits. Soon after, the ruling was applied in the Hareon Solar case, where a Singapore shell company was denied treaty benefits.
The Lone Star case in South Korea. The case concluded after eight years of litigation. In April 2025, the Supreme Court of South Korea upheld the tax authorities’ position, ruling that the US fund Lone Star was liable for tax in South Korea despite channelling its investment through European intermediate holding companies. The decision secured approximately KRW160 billion (USD107.5 million) in source-country withholding tax, underscoring Seoul’s resolve to pierce tax-avoidance structures and defend its tax base.
Indonesia’s PMK 112/2025. At the legislative level, Indonesia enacted new regulations in late 2025, systematically incorporating BEPS minimum standards – including the principal purpose test (PPT) and beneficial ownership rules – into domestic law. The move signalled a shift from reactive, case-by-case enforcement to a proactive, comprehensive legal framework against treaty abuse.
Theoretical framework
The recent wave of tax enforcement across Asia marks a historic rebalancing of international taxing rights from the traditional “residence-state preference” towards “source-state primacy”. Historically, the model tax convention of the Organisation for Economic Co-operation and Development (OECD), shaped by developed economies, tended to constrain the taxing powers of source countries in favour of capital-exporting states.
BEPS arms source countries with internationally endorsed legal tools. By elevating the principal purpose test (PPT) and economic substance requirements to global minimum standards, BEPS fundamentally validates the right of source states to deny treaty benefits to entities without genuine commercial purpose. The Multilateral Instrument (MLI) has accelerated the adoption of these rules, while the UN Model Tax Convention – which affords greater protection to source-country taxing rights – has garnered widening international support, further strengthening the legal basis for source-state tax claims. Economic substance has become the common language of global anti-avoidance, conferring international legitimacy on enforcement actions across Asia.
Takeaways
Recent tax enforcement actions across Asia’s source countries have drawn a clear new map of the global tax order: empowered by BEPS, source states are asserting their taxing rights with unprecedented force, driving a global shift from “formal compliance” towards “substantive fairness”. The era of “shell dividends” is over.
In response, multinational enterprises must recalibrate their global tax strategies. On one front, companies need to re-examine their organisational structures and reinforce compliance foundations, conducting comprehensive reviews of existing holding structures to ensure that intermediary entities possess adequate economic substance. For necessary intermediate entities, substantive local operations must be strengthened, including appointing directors with decision-making authority, establishing physical offices, and assuming genuine functions and risks. On another front, enterprises must build robust documentation systems and strengthen forward-looking planning to substantiate the authenticity and rationality of commercial activities. When designing new investment structures, tax compliance should be placed at the core to prevent risks before a crisis.
In summary, within the evolving global tax landscape, only cross-border investment structures grounded in genuine commercial substance will prove resilient and sustainable over the long term.
Carl Liu is a partner at Guantao Law Firm. He can be contacted by phone at +86 135 2060 6732 and by email at liudg@guantao.com
