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Equal taxation as a basis for classifying financial instruments as debt or equity - a Swedish case study

Hilling, Axel LU and Vilhelmsson, Anders LU (2015) In eJournal of Tax Research 13(3). p.677-715
Abstract
This article examines the way in which classification of financial instruments as debt or equity has developed in the Swedish income taxation system over the past 25 years. Although the structure of the tax system is based on the assumption that debt instruments are financial instruments with low risk, legal developments have not shared that assumption, resulting in several types of high-risk derivative instruments being covered by the definition of legal debt. This article illustrates how those developments, which can be recognized in most income-tax systems within OECD countries, seriously threatens the fundament of the tax system: equal taxation for capital income and income from labor. The article concludes by illustrating how the... (More)
This article examines the way in which classification of financial instruments as debt or equity has developed in the Swedish income taxation system over the past 25 years. Although the structure of the tax system is based on the assumption that debt instruments are financial instruments with low risk, legal developments have not shared that assumption, resulting in several types of high-risk derivative instruments being covered by the definition of legal debt. This article illustrates how those developments, which can be recognized in most income-tax systems within OECD countries, seriously threatens the fundament of the tax system: equal taxation for capital income and income from labor. The article concludes by illustrating how the standard solution to the problem of classifying financial instruments as debt and equity – by treating them alike – does not fulfill the challenged principle of equal taxation, but actually intensifies the development towards unequal taxation. (Less)
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Debt, Equity, Derivatives, Income tax, Flat tax, Financial theory, Swedish tax law, Horizontal equity
in
eJournal of Tax Research
volume
13
issue
3
pages
677 - 715
publisher
University of New South Wales. School of Taxation & Business Law
external identifiers
  • scopus:84995934771
ISSN
1448-2398
language
English
LU publication?
yes
id
d71a1444-df90-4de8-a677-ea12a5ac5871 (old id 8058200)
alternative location
https://www.business.unsw.edu.au/research-site/publications-site/ejournaloftaxresearch-site/Documents/eJTR_Vol13_No3_2015.pdf
date added to LUP
2015-10-19 16:21:47
date last changed
2017-01-01 06:00:33
@article{d71a1444-df90-4de8-a677-ea12a5ac5871,
  abstract     = {This article examines the way in which classification of financial instruments as debt or equity has developed in the Swedish income taxation system over the past 25 years. Although the structure of the tax system is based on the assumption that debt instruments are financial instruments with low risk, legal developments have not shared that assumption, resulting in several types of high-risk derivative instruments being covered by the definition of legal debt. This article illustrates how those developments, which can be recognized in most income-tax systems within OECD countries, seriously threatens the fundament of the tax system: equal taxation for capital income and income from labor. The article concludes by illustrating how the standard solution to the problem of classifying financial instruments as debt and equity – by treating them alike – does not fulfill the challenged principle of equal taxation, but actually intensifies the development towards unequal taxation.},
  author       = {Hilling, Axel and Vilhelmsson, Anders},
  issn         = {1448-2398},
  keyword      = {Debt,Equity,Derivatives,Income tax,Flat tax,Financial theory,Swedish tax law,Horizontal equity},
  language     = {eng},
  number       = {3},
  pages        = {677--715},
  publisher    = {University of New South Wales. School of Taxation & Business Law},
  series       = {eJournal of Tax Research},
  title        = {Equal taxation as a basis for classifying financial instruments as debt or equity - a Swedish case study},
  volume       = {13},
  year         = {2015},
}