Abstract

With the advancement of the capital market, a total return swap (TRS) contract, a type of derivative, has been widely used in recent years. This study presents tax issues based on the case of Hyundai Elevator for the TRS contract. TRS is a type of derivative product that transfers credit risk and risk of change in value and is used for various purposes such as business combination, exercise of voting rights, credit enhancement, and asset securitization. TRS causes decoupling between the legal owner of the underlying asset and the person who gets the substance of the asset, and in the context of complex detailed contracts and the emergence of new products, it is impossible to tax according to existing tax law. However, tax disputes have arisen due to differences of opinion between the taxpayer and the tax authorities. The main issues of TRS include various issues such as whether the acquisition tax is taxed on the acquisition of assets, the judgment of the taxable entity on the gains and losses generated from the assets, and the denial of the calculation of unrelated expenses and unfair practices. This study aims to reduce tax disputes that can arise in the future and alleviate related tax costs by reorganizing the taxation system for derivatives such as TRS by presenting clear guidelines for the introduction of inclusiveism and income classification for derivatives.

Keywords

• Total Return Swap
• Derivatives
• Negative system
• Principle of substantial taxation

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