Selected Papers of The Jurist (法学家), Volume 3
Renmin Chinese Law Review: Selected Papers of The Jurist
Edited by Jichun Shi
Chapter 3: Principle or exception: rethinking economic substance as a general principle to tax financial transactions
In the financial world, it is believed to be necessary to tax financial transactions based on economic substance rather than legal form, because financial equivalence permits one category of asset to be replicated using others. However_ form can be ignored according to economic substance doctrine as a judicial method to fight for tax avoidance only when the transaction has no business purpose and/or no economic substance. But not all financial transactions can be treated as tax avoidances. There is no reason to tax all financial transactions based on their economic substance, while only tax-avoidance transactions involving tangible assets are taxed according to their economic substance, because the two of them can be interchanged into each other. There does not exist a substantial difference between financial and non-financial transactions when the economic substance doctrine applies.
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