Universal Journal of Accounting and Finance Vol. 9(4), pp. 820 - 827
DOI: 10.13189/ujaf.2021.090428
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Derivatives as Technological Disruption: A Conceptual Approach on Complex Global Financial Instrument Innovation and Related Tax Policy Tool Responses


Jasper Kim *
Graduate School of International Studies and Law School, Ewha Womans University, Seoul, South Korea

ABSTRACT

Derivatives can be embedded in financial engineered structures involving one or more conduit entities and jurisdictions. Increased innovation led to an emergent market view that assets can be both de- and re-composable, with each iteration version being tradable "aspect[s] of assets" in the marketplace. Conceptual methodology of this article provides a conceptual tax policy analysis arguing that derivatives instrument innovation poses several significant challenges to the traditional tax system. Such factors must be carefully weighed by policymakers, given their respective specific market dynamics and tax objectives, leading to the conclusion that not one approach represents a policy panacea to derivatives financial instruments. This article provides a conceptual tax policy analysis arguing that derivatives instrument innovation poses several significant challenges to the traditional global tax system, which has been traditionally predicated on a clear-cut demarcation regarding: (1) asymmetric tax treatment between debt and equity; (2) the timing rule in terms of income recognition for tax purposes (e.g. accrual versus realization); and (3) income characterization (e.g. ordinary income versus capital gains). The conceptual tax policy responses, including anti-avoidance measures, mark-to-market, bifurcation, integration, and various information-sharing regimes, have their benefits and weaknesses.

KEYWORDS
Financial Derivatives, Financial Innovation, Tax Policy

Cite This Paper in IEEE or APA Citation Styles
(a). IEEE Format:
[1] Jasper Kim , "Derivatives as Technological Disruption: A Conceptual Approach on Complex Global Financial Instrument Innovation and Related Tax Policy Tool Responses," Universal Journal of Accounting and Finance, Vol. 9, No. 4, pp. 820 - 827, 2021. DOI: 10.13189/ujaf.2021.090428.

(b). APA Format:
Jasper Kim (2021). Derivatives as Technological Disruption: A Conceptual Approach on Complex Global Financial Instrument Innovation and Related Tax Policy Tool Responses. Universal Journal of Accounting and Finance, 9(4), 820 - 827. DOI: 10.13189/ujaf.2021.090428.