Financial capital and taxation policy

Richard Wood

Fiscal Studies, 2006, vol. 27, issue 2, 127-155

Abstract: This paper suggests a relatively simple analytical framework for taxing all financial arrangements. The debt/equity distinction is determined by the contingency principle. The accruals/realisation distinction is determined separately by the volatility principle. The capital/revenue character distinction is effectively removed directly or by a character hedging regime. Hybrids, synthetics, hedging arrangements and other portfolios are tax-assessed on an aggregate, rather than a bifurcated, basis. The framework could be applied to both classical and dividend-imputation-based business tax systems.

Date: 2006
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