Equal taxation as a basis for classifying financial instruments as debt or equity - a Swedish case study

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This article examines the way in which classification of financial instruments as debt or equity has developed in the Swedish income taxation system over the past 25 years. Although the structure of the tax system is based on the assumption that debt instruments are financial instruments with low risk, legal developments have not shared that assumption, resulting in several types of high-risk derivative instruments being covered by the definition of legal debt. This article illustrates how those developments, which can be recognized in most income-tax systems within OECD countries, seriously threatens the fundament of the tax system: equal taxation for capital income and income from labor. The article concludes by illustrating how the standard solution to the problem of classifying financial instruments as debt and equity – by treating them alike – does not fulfill the challenged principle of equal taxation, but actually intensifies the development towards unequal taxation.


Research areas and keywords

Subject classification (UKÄ) – MANDATORY

  • Law and Society
  • Business Administration


  • Debt, Equity, Derivatives, Income tax, Flat tax, Financial theory, Swedish tax law, Horizontal equity
Original languageEnglish
Pages (from-to)677-715
JournaleJournal of Tax Research
Issue number3
Publication statusPublished - 2015
Publication categoryResearch

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