Search results

In Portugal, between 1989 and 2010, capital gains from corporate shares were exempted, while gains from other instruments, like limited liability companies (LLC) equity stakes, were taxed. Inevitably, this non-neutral tax treatment originated a notorious tax arbitrage, consisting in the transformation of the legal status of a LLC into a corporation, the subsequent share sale and tax exemption. In tax litigation, many arbitration rulings were delivered, with widely divergent decisions. The purpose of this paper, using a blend of the legal research method and case analysis, is to discuss three research questions. Should the general anti-abuse clause (GAAC) be applied to this tax planning operation? Why the divergence in arbitration rulings? Is this anomalous arbitration outcome because of the wording the GAAC and its complexity or, contrarily, does it emerge from the disconnection between the set of rules governing capital gains taxation and the legislative intent that is behind such rules?

The methodology used in this paper is based on a mix of the legal research method and case analysis. In the case of legal research, a hermeneutic approach – meaning that documents, texts and their interpretation can produce important fruits to the development of the field – is a tested and fruitful approach. Besides being a hermeneutic discipline, it is an argumentative one. By exposing arguments that confirm or deny particular solutions, legal research (e.g. in criminal, business or administrative law) can influence better legislative choices by political actors. Advantages of case analysis include lessons learned from observation. The author discusses if the application of the GAAC to an arrangement that originated a tax exemption can be validated by the usual interpretative lines that doctrine sustains should be observed when a GAAC is used to void legal schemes. The pros and cons of tax arbitration are also highlighted.

The conclusion of this paper is that the GAAC is not the crux of the problem. Instead, a contradictory or, at least, disconnected relation between the expressed intent of legislators and the wording of capital gains tax clauses is, in our view, the main reason for such divergent arbitration rulings on the same issue.

The author believes that the paper is a contribution to the literature, given the global use of anti-abuse clauses and the interpretative complexities they originate. Moreover, the analysis in this paper is carried out in a legal setting where a disconnection is detectable between the expressed legislative intent and the legal drafting of personal income tax rules related to the exemption of capital gains. Studying the complexity added by this feature of the Portuguese legislation serves as a reminder of the importance of careful and well-crafted wording to achieve consistent court outcomes.

The paper has value to governments, tax authorities and tax managers, given the ever-increasing use of anti-abuse clauses in many countries, and the potential use of arbitration in similar settings.

The current and widespread view in option trading is that early exercise of call options is suboptimal unless there are large dividend payments on the underlying stock (e.g., Finucane, 1997; Hull, J. C. (2008). Options, futures and other derivatives (7th ed.). Upper Saddle River, NJ: Prentice Hall; Poteshman & Serbin (2003)). Our study substantially refines this view by demonstrating that U.S. tax rules governing capital gain holding periods can create incentives for early exercise under certain conditions. Hence, this study adds to the factors that investors likely consider when making option exercise decisions. We further note that recent research documents early exercises in the absence of large dividends, and refers to these option exercises as “clearly irrational.” Predictions of early exercise from our tax-based model are consistent with the observed patterns of early exercise, suggesting that the criteria for denoting an option exercise as “irrational” should be refined to incorporate capital gain holding periods.

When presented with technical topics, undergraduate accounting students can be overwhelmed by information transmitted in a pure lecture format. Further, a lecture format does not allow for much student interaction or enable learning of higher-level skills that could be useful if the underlying content is changed by future regulations. Position paper instructional tools could be a beneficial alternative. A position paper can bring out students' soft skills of communication and critical thinking by making them take a stand, which is key for tax professionals and accountants generally. Since class meeting time is limited and face-to-face interactions are not always possible, a written position paper provides an alternative that can benefit students' understanding of technical information.

This paper provides evidence suggesting capital gains tax affects stock returns and trading volume. The Canadian federal government budget of May 23, 1985 provided individual taxpayers with a cumulative tax exemption for capital gains, up to a lifetime limit of $500,000. The empirical results, using daily stock return and trading volume data from the Toronto Stock Exchange, show that stock prices decreased three days before the announcement of the lifetime capital gains exemption. The empirical results also show that stock trading volume increased two days and four days before the announcement and five days following the announcement. These results are consistent with the argument that the capital gains tax constrained some individual shareholders from selling appreciated shares (often called “lock‐in effect”).

Collective Investment Schemes in Securities (‘CISS’) and Collective Investment Schemes in Property (CISP’) are common business vehicles in the South African economy. Nevertheless, there is still some uncertainty with regard to the tax treatment of these business structures, as the application of the specific income tax and capital gains tax provisions applicable to CISS and CISP results in several anomalies. The purpose of this article is to identify and highlight these anomalies by discussing the specific income tax and capital gains tax provisions applicable to CISS and CISP, and to suggest how some of these anomalies should be treated for tax purposes. It is submitted that the legislator did not consider the legal nature and practical operation of a CISS when the tax provisions for CISS were drafted. The tax treatment of CISP is also not without difficulties, especially where the CISP is constituted as an open‐ended investment company (OEIC’).

Examines the way in which the 1986 Tax Reform Act affected the status of US real estate as a tax shelter. Demonstrates that because tax benefits previously were an important component of total returns from income producing real estate, its immediate effect is to reduce after‐tax returns from real estate. Argues that if market values fall and rents rise, however, after‐tax returns from income producing real estate should be sufficient to attract individual US investors. Adds that the 1986 Tax Act should attract more US pension funds and foreign investors to US investment real estate given that the buying advantage of US investors has been reduced.

This paper reviews the singular aspects of the dividend policies pursued by Japanese companies. The most notable feature of this is the customary practice of paying a dividend which is 10 per cent on the par value of the share. The paper begins by discussing some relevant and unique features of Japanese company practices. These may conceivably condition managements' attitudes to shareholders and influence their dividend policies.

The purpose of this paper is to provide an overview of how the Employee Retirement Income Security Act (“ERISA”) of 1974, as amended , applies to securities professionals such as registered investment advisers, registered broker‐dealers and individual registered representatives and financial planners who advise, manage, or trade for investment portfolios of private employee benefit plans and individual retirement accounts.

The paper is designed as a primer to familiarize securities professionals with the terminology, scope and subject‐matter of ERISA as it applies to benefit plan investment transactions. When appropriate, the regulatory framework of ERISA is compared and contrasted with the more familiar securities law regulatory scheme.

The various Federal laws loosely known as “ERISA” significantly impact securities professionals in connection with the marketing of financial products and services to employee benefit plans, including IRAs, and it is critical that securities professionals have a general overview of how they do so.

The research set out is only a broad summary, and covers an area of law that is rapidly developing. It should not be considered a definitive summary of the law but a starting‐point for further, in‐depth inquiry.

Any financial professional seeking to develop or market financial products and services to benefit plans can use the paper to become familiar with the framework and terminology of ERISA.

This is a reprint of a paper first published in 2004, with extensive revisions to reflect sweeping changes in the law and new developments in the financial marketplace, plus an overview of “hot topics”.

The purpose of this paper is to critically review the literature on contrarian and momentum trading strategies and identify areas for future research.

Critical review and discussion of the literature.

The extant literature is dynamic and is typified by a number of open questions.

The open questions in the literature relate mainly to the driving forces of investment performance, and the role of risk and asset pricing as well as behavioral human traits. The literature is vast and therefore difficult to classify, cover and discuss.

The paper indicates the possible need for: the development of different asset pricing models and propositions that can have practical implications at a more international context.

The paper provides a critical review of the literature and identifies open issues for future research.

Shareholder‐value proponents claim a new, economically sound way to maximize profits, create wealth, measure performance, and reward executives. That invalid claim is dangerous. Stocks of shareholder‐value firms appreciated barely 15 percent as much as another, time‐tested strategic‐management system. Shareholder‐value strategies are easily countered. Shareholder value mis‐allocates resources, revives old fallacies, and debases the reputation of economics as a useful business discipline.