Income taxation of derivatives and other financial instruments - economic substance versus legal form : A study focusing on Swedish non-financial companies

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 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.