Implications of the international use of interest rate derivatives on taxation

• Published in: International tax journal 1998-07, Vol.24 (3), p.12
• Main Authors: Oestreicher, Andreas, Haun, Jurgen
• Format: Article
• Language: English
• Subjects: Agreements; Comparative analysis; Derivatives; Double taxation; Financial instruments; Fiscal years; Futures; Hedging; Interest rates; International; Market value; Permanent establishment; Taxable income; Taxation
• ISSN: 0097-7314

Derivatives are financial instruments whose value is contingent upon the market value of one or more underlying instruments. The taxation problems associated with derivative financial products remain incompletely explained. An article sets forth the national taxation in several countries of the Organization for Economic Cooperation and Development (OCED) and discusses the avoidance of double taxation and the prevention of fiscal evasion that can result from the international use of derivatives. The discussion illustrates the tax consequences of the international use of interest derivatives in a functional area. The national taxation of derivatives in various countries of the OCED are examined for this purpose. The provisions on this subject in the Federal Republic of Germany and the US are dealt with in detail in order to illustrate the spectrum of consequences of taxation. In each case, the type of income, and the timing of income or deductions are examined.