주식워런트증권(Equity Linked Warrant) 거래의 몇 가지 쟁점

This article analyzes realization principle, substance-over-form principle, and mark -to-market with regard to equity linked warrant (“ELW”) transactions conducted by a foreign securities company’s Korean branch (“Branch”). The Branch was not authorized to issue ELW due to a Korean regulator’s ruling so that it chose to participate in the Korean ELW market by making use of over-the-counter options (“OTC options”). The Korean tax authorities made a tax assessment against the Branch by denying its loss on ELW sale transactions for tax purposes. The tax authorities argued that the loss from ELW sales had not been realized due to the OTC option transactions. However, such position cannot be accepted under the realization principle of the Corporate Income Tax Act. In addition, the tax authorities maintained that the Branch should be regarded as an ELW issuer not a liquidity provider, based on the substance-over-form principle. But, the Branch had its own business purpose for the ELW transaction structure. Furthermore, it is difficult to argue that the Branch had set up the transaction structure with its tax avoidance intent. The Supreme Court of Korea rendered a decision in favor of the Branch by rejecting the tax authorities’ arguments. The tax dispute case explained above has originated from the Corporate Income Tax Act’s position to permit mark-to-market for financial instruments in limited circumstances. On the other hand, the United States and Japan have adopted mandatory or elective mark-to-market taxation systems for certain types of financial instruments. From the standpoint of tax policy, the mark–to-market taxation should be applied to financial instruments with generally accepted fair market value.