n SA Mercantile Law Journal = SA Tydskrif vir Handelsreg - Challenges in taxing derivative financial instruments : international views and South Africa's approach

Volume 24, Issue 4
  • ISSN : 1015-0099
  • E-ISSN: 1996-2185



Before an investment is made, taxpayers often consider the appropriate funding method since there are tax consequences that flow from the method selected. International investments are often financed by financial instruments, which are contractual rights and obligations to transfer a specific amount of money at a specific point in time. Traditionally there are two main financial instruments that have been used to finance investments: debt and equity. However, over the years, the financial industry developed hybrid financial instruments, which possess characteristics of both debt and equity. As tax authorities internationally were trying to cope with the taxation of hybrid financial instruments, over the last two decades, the financial markets developed yet another category of financial instruments referred to as derivatives.

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