Advanced

Income Taxation of Derivatives and other Financial Instruments – Economic Substance versus Legal Form, A study focusing on Swedish non-financial companies

Hilling, Axel LU (2007) In JIBS Dissertation Series 42.
Abstract (Swedish)
Popular Abstract in Swedish

From an economic viewpoint, derivatives and credit-extension instruments are the basic building blocks of all financial instruments. By structuring these building blocks in various combinations, it is possible to attain the economic substance of any conventional financial instrument – regular shares or bonds, as well as more complex financial instruments such as contingent debt instruments.



The legal form of financial instrument in the Swedish income tax legislation

is not systematically based on the instrument’s economic substance. This creates situations in which the payoff from a certain economic substance is taxed arbitrarily. The payoff from a financial instrument... (More)
Popular Abstract in Swedish

From an economic viewpoint, derivatives and credit-extension instruments are the basic building blocks of all financial instruments. By structuring these building blocks in various combinations, it is possible to attain the economic substance of any conventional financial instrument – regular shares or bonds, as well as more complex financial instruments such as contingent debt instruments.



The legal form of financial instrument in the Swedish income tax legislation

is not systematically based on the instrument’s economic substance. This creates situations in which the payoff from a certain economic substance is taxed arbitrarily. The payoff from a financial instrument is not always taxed similar to the net payoff from its building blocks, a situation that provides tax arbitrage opportunities within the Swedish income tax system.



The study presented in this book addresses the Swedish income tax treatment

of derivatives and other financial instruments held by non-financial companies.

Special emphasis is given to the income tax treatment of and tax arbitrage

opportunities related to hybrid financial instruments and synthetic instruments. Possible ways of dealing with financial instruments used for hedging the business risks of non-financial companies are also discussed. In addition, the book presents methods for improving the tax treatment of financial instruments and preventing existing tax arbitrage opportunities related to them. (Less)
Abstract
The aim of this book is to examine the Swedish income tax treatment of

derivatives, to ascertain the extent to which this treatment provides tax arbitrage opportunities, and to present possible solution that may prevent existing arbitrage opportunities. This study establishes that there are two types of financial instruments that constitute the greatest challenges regarding tax arbitrage opportunities in the Swedish income tax system: hybrid financial instruments and synthetic instruments. These instruments challenge the Swedish income tax system because their legal form is not always in accordance with their economic substance. Accordingly, to prevent tax arbitrage opportunities related to derivatives and other financial... (More)
The aim of this book is to examine the Swedish income tax treatment of

derivatives, to ascertain the extent to which this treatment provides tax arbitrage opportunities, and to present possible solution that may prevent existing arbitrage opportunities. This study establishes that there are two types of financial instruments that constitute the greatest challenges regarding tax arbitrage opportunities in the Swedish income tax system: hybrid financial instruments and synthetic instruments. These instruments challenge the Swedish income tax system because their legal form is not always in accordance with their economic substance. Accordingly, to prevent tax arbitrage opportunities related to derivatives and other financial instruments in the long run, it is necessary to draft relevant income tax provisions in a way that better mirrors the economic substance of these instruments. As a benchmark for such provisions, the international accounting standard IAS 39 Financial Instruments: Recognition and Measurement is presented and evaluated.



The topic and findings are of interest to academics and are highly relevant to

practitioners and government officials in the area of income taxation. Although

the focus is the Swedish income tax system, the material in this book has

application to other countries as well. (Less)
Please use this url to cite or link to this publication:
author
supervisor
opponent
  • Professor, Doctor of Laws Melz, Peter, Stockholm University
publishing date
type
Thesis
publication status
published
subject
keywords
Taxation, Financial instruments, Financial accounting, Derivatives
in
JIBS Dissertation Series
volume
42
pages
225 pages
publisher
Jönköping International Business School
defense location
Jönköping International Business School
defense date
2007-09-21 13:00
ISSN
1403-0470
language
English
LU publication?
no
id
09a4017c-1562-43ef-aff2-cf8849a612f7 (old id 1765411)
date added to LUP
2011-01-24 11:22:27
date last changed
2016-09-19 08:44:54
@phdthesis{09a4017c-1562-43ef-aff2-cf8849a612f7,
  abstract     = {The aim of this book is to examine the Swedish income tax treatment of<br/><br>
derivatives, to ascertain the extent to which this treatment provides tax arbitrage opportunities, and to present possible solution that may prevent existing arbitrage opportunities. This study establishes that there are two types of financial instruments that constitute the greatest challenges regarding tax arbitrage opportunities in the Swedish income tax system: hybrid financial instruments and synthetic instruments. These instruments challenge the Swedish income tax system because their legal form is not always in accordance with their economic substance. Accordingly, to prevent tax arbitrage opportunities related to derivatives and other financial instruments in the long run, it is necessary to draft relevant income tax provisions in a way that better mirrors the economic substance of these instruments. As a benchmark for such provisions, the international accounting standard IAS 39 Financial Instruments: Recognition and Measurement is presented and evaluated.<br/><br>
<br/><br>
The topic and findings are of interest to academics and are highly relevant to<br/><br>
practitioners and government officials in the area of income taxation. Although<br/><br>
the focus is the Swedish income tax system, the material in this book has<br/><br>
application to other countries as well.},
  author       = {Hilling, Axel},
  issn         = {1403-0470},
  keyword      = {Taxation,Financial instruments,Financial accounting,Derivatives},
  language     = {eng},
  pages        = {225},
  publisher    = {Jönköping International Business School},
  series       = {JIBS Dissertation Series},
  title        = {Income Taxation of Derivatives and other Financial Instruments – Economic Substance versus Legal Form, A study focusing on Swedish non-financial companies},
  volume       = {42},
  year         = {2007},
}