The Taxation of Global Trading of Financial Instruments [electronic resource] /
Organisation for Economic Co-operation and Development.
Organisation for Economic Co-operation and Development Special Sessions on Innovative Financial Transactions.Content Provider
Organisation for Economic Co-operation and Development Committee on Fiscal Affairs,Content Provider
Paris : OECD Publishing,
1998.
Technological change and financial deregulation have dramatically globalised financial markets. Financial firms have developed innovative financial instruments, such as swaps and derivatives, to meet the often different global demand of investors and borrowers and have organised themselves to sell such global financial products 24 hours a day. This phenomenon of global trading challenges tax payers and tax administrations to come up with a fair way of allocating and taxing the profits in each country where global trading is carried on. This publication thoroughly reviews the factual background to global trading, analyses the challenges posed to traditional taxation methods and discusses a range of policy options to tackle the problems. Although the paper discusses a specific industry sector, many of the issues raised, for example the high level of global integration of functions and intensive co-operation between different geographic locations, are becoming more common in other industries with the spread of globalisation and the communications revolution.
EXECUTIVE SUMMARY -- GLOSSARY -- I. INTRODUCTION -- II. CURRENT SITUATION -- II - 1. Business background -- II - 2. Factors affecting structure of the business -- II - 3. Organisation of trading activities -- II - 4. Functional analysis -- II - 5. Risk of double or less than single taxation  -- III. THE APPLICATION OF THE ARM’S LENGTH PRINCIPLE -- III - 1. General application and methods -- III - 2. Analysis of global trading functions -- III - 3. Profit split methods -- IV. DETERMINATION OF THE PROFIT TO BE SPLIT FROM GLOBAL TRADING -- IV - 1. The scope of activities and revenues to be included in the profit split  -- IV - 2. Net or gross profit split and deduction of expenses  -- IV - 3. Calculation of the amount of profits  -- V. APPLICATION OF THE ARM’S LENGTH PRINCIPLE TO GLOBAL TRADING CONDUCTED IN A BRANCH FORM -- V - 1. Preparatory or auxiliary activities/mere purchase -- V - 2. Agents -- V - 3. Attribution of income -- V - 4. Treatment of internal payments -- VI. CONCLUSION -- NOTES AND REFERENCE
Prepared by the Special Sessions on Innovative Financial Transactions, appointed by the OECD Committee on Fiscal Affairs.
"A revised and updated version of the discussion draft ... released on the 14th February 1997."
Includes bibliographical references.
Technological change and financial deregulation have dramatically globalised financial markets. Financial firms have developed innovative financial instruments, such as swaps and derivatives, to meet the often different global demand of investors and borrowers and have organised themselves to sell such global financial products 24 hours a day. This phenomenon of global trading challenges tax payers and tax administrations to come up with a fair way of allocating and taxing the profits in each country where global trading is carried on. This publication thoroughly reviews the factual background to global trading, analyses the challenges posed to traditional taxation methods and discusses a range of policy options to tackle the problems. Although the paper discusses a specific industry sector, many of the issues raised, for example the high level of global integration of functions and intensive co-operation between different geographic locations, are becoming more common in other industries with the spread of globalisation and the communications revolution.
Financial instruments