U.S. Income Taxation of New Financial Products
Posted: 13 Jan 2007
This paper discusses the response of the US federal income tax to financial innovation. Income taxation in the US and elsewhere has traditionally relied on distinction, such as the difference between fixed and contingent returns, that can be undermined by new financial products. The principal tax law responses to innovative products have been: (1) transactional analysis, which aggregates or disaggregates new transactions to conform them to existing legal categories, (2) taxation of changes in market value, rather than realization events, (3) taxation based on an assumed formula, and (4) anti-avoidance administrative procedures.
Keywords: Derivatives, options, corporate tax, financial innovation
JEL Classification: H24, H25
Suggested Citation: Suggested Citation