Problems and Improvement Plans of the Bond－related Financial Product Taxation System8) －Focusing on the Introduction of Financial Investment Income Tax－
Asian Tax Journal Vol. 23 No. 6 (2022), pp. 63-89
Abstract
The purpose of this study is to examines the current status and problems of the current bond taxation system, as well as the system applicable to bond－related financial products among the financial investment income tax to be implemented after 2023, and to suggest ways to improve the taxation system. The current taxation system for bond－related financial products is：First, Impairment of tax efficiency and lack of international consistency due to the taxation of the amount equivalent to interest in bond holding period；Second, distortion of economic substance due to income taxation of original issue discount(OID)；Third, there is a problem of taxation of bond income according to the type of bond rather than the economic substance of the bond. The financial investment income tax is evaluated as an improvement of the existing financial income taxation system by introducing the concept of comprehensive financial investment income and enhancing tax neutrality among financial products. However, despite the introduction of financial investment income tax, bond－related financial products are subject to different taxation by bond type. In addition, as the taxation of the amount equivalent to interest in bond holding period is maintained, there is an irrationality in the classification and calculation of capital gains on bond－related financial instruments. Moreover, the problem of tax non－neutrality between bond－related financial products and other financial products still remains. In order to solve this problem, tax law should be amended to unify the classification of bond－related financial products subject to financial investment income tax, to simplify and rationalize the calculation of bond income, as well as to improve the tax neutrality between bonds and other financial products.
Keywords
- bond taxation system
- original issue discount
- the taxation of the amount equivalent to interest in bond holding period
- tax neutrality between financial products
- economic substance
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