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The Pricing of Financial Instruments in Tax Disputes

Hilling, Axel LU ; Sandell, Niklas LU and Wilhelmsson, Anders LU (2019) In Derivatives & Financial Instruments 21(2).
Abstract
The pricing of uncertainties, when establishing the market value of financial instruments, is problematic in tax litigation since the outcome of the litigation is binary. Different values can be equally correct, depending on the choice of models, assumptions regarding model parameters and forecasting techniques. The purpose of this article is to illustrate the challenges for tax administrations and courts in terms of the need and ability to price uncertainties in the market valuation of financial instruments. The authors illustrate the complexities with a case based on a publicly traded instrument, which gives a lower limit of the uncertainty associated with valuation. The authors then problematize the valuation of over-the-counter traded... (More)
The pricing of uncertainties, when establishing the market value of financial instruments, is problematic in tax litigation since the outcome of the litigation is binary. Different values can be equally correct, depending on the choice of models, assumptions regarding model parameters and forecasting techniques. The purpose of this article is to illustrate the challenges for tax administrations and courts in terms of the need and ability to price uncertainties in the market valuation of financial instruments. The authors illustrate the complexities with a case based on a publicly traded instrument, which gives a lower limit of the uncertainty associated with valuation. The authors then problematize the valuation of over-the-counter traded and non-publicly traded instruments, which, due to uncertainty, tends to create leeway for tax arbitrage. This illustration shows the necessity to further understand the manner in which courts reason, the dependency on experts and the use of models. (Less)
Abstract (Swedish)
The pricing of uncertainties, when establishing the market value of financial instruments, is problematic in tax
litigation since the outcome of the litigation is binary. Different values can be equally correct, depending on the
choice of models, assumptions regarding model parameters and forecasting techniques. The purpose of this
article is to illustrate the challenges for tax administrations and courts in terms of the need and ability to price
uncertainties in the market valuation of financial instruments. The authors illustrate the complexities with a case
based on a publicly traded instrument, which gives a lower limit of the uncertainty associated with valuation.
The authors then problematize the valuation of... (More)
The pricing of uncertainties, when establishing the market value of financial instruments, is problematic in tax
litigation since the outcome of the litigation is binary. Different values can be equally correct, depending on the
choice of models, assumptions regarding model parameters and forecasting techniques. The purpose of this
article is to illustrate the challenges for tax administrations and courts in terms of the need and ability to price
uncertainties in the market valuation of financial instruments. The authors illustrate the complexities with a case
based on a publicly traded instrument, which gives a lower limit of the uncertainty associated with valuation.
The authors then problematize the valuation of over-the-counter traded and non-publicly traded instruments,
which, due to uncertainty, tends to create leeway for tax arbitrage. This illustration shows the necessity to further
understand the manner in which courts reason, the dependency on experts and the use of models. (Less)
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author
; and
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Taxation, Valuation, Tax litigation
in
Derivatives & Financial Instruments
volume
21
issue
2
pages
11 pages
publisher
IBFD
ISSN
1389-1863
project
Corporate Finance and Accounting in Tax Litigation
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language
English
LU publication?
yes
id
8c8629c4-51b3-48e5-a3ca-7d8e79884943
date added to LUP
2019-05-08 13:19:01
date last changed
2019-05-09 09:34:05
@article{8c8629c4-51b3-48e5-a3ca-7d8e79884943,
  abstract     = {{The pricing of uncertainties, when establishing the market value of financial instruments, is problematic in tax litigation since the outcome of the litigation is binary. Different values can be equally correct, depending on the choice of models, assumptions regarding model parameters and forecasting techniques. The purpose of this article is to illustrate the challenges for tax administrations and courts in terms of the need and ability to price uncertainties in the market valuation of financial instruments. The authors illustrate the complexities with a case based on a publicly traded instrument, which gives a lower limit of the uncertainty associated with valuation. The authors then problematize the valuation of over-the-counter traded and non-publicly traded instruments, which, due to uncertainty, tends to create leeway for tax arbitrage. This illustration shows the necessity to further understand the manner in which courts reason, the dependency on experts and the use of models.}},
  author       = {{Hilling, Axel and Sandell, Niklas and Wilhelmsson, Anders}},
  issn         = {{1389-1863}},
  keywords     = {{Taxation; Valuation; Tax litigation}},
  language     = {{eng}},
  month        = {{04}},
  number       = {{2}},
  publisher    = {{IBFD}},
  series       = {{Derivatives & Financial Instruments}},
  title        = {{The Pricing of Financial Instruments in Tax Disputes}},
  volume       = {{21}},
  year         = {{2019}},
}