A controversial 15 percent separation tax on structured notes issued by offshore banking units (OBU), which was scheduled to take effect today, was postponed at the last minute by the Ministry of Finance yesterday.
The ministry’s taxation proposal on OBU structured notes sent waves across the financial sector over concerns the tax could lead to a huge capital outflow of between NT$900 billion (US$27.91 billion) and NT$1.5 trillion, local media said.
“The tax would definitely have an impact on capital inflow, although it would not be the only factor,” Chu Hau-min (朱浩民), a professor of finances at National Chengchi University (NCU) said by telephone yesterday.
OBUs in other countries are either exempt from taxation or taxed at a low rate to allure international capital, Chu said, adding that such financial centers play an important role in capital transfer for overseas Taiwanese businesspeople.
Chu said he understood that the purpose of the ministry’s new taxation policy was to build a fair taxation system, but he said that the move could cause capital outflow to Hong Kong and Singapore.
The Cabinet’s Financial Supervisory Commission (FSC) said yesterday that it would push for an amendment to the Act Governing International Financial Business (國際金融業務條例) during the six-month buffer period to implement a legal basis by which structured notes could be exempted from taxes.
“However, we still need to communicate with the ministry on which article in the act should be amended,” FSC Vice Chairman Wu Tang-chieh (吳當傑) said yesterday, adding that the commission would strive to develop and stabilize the financial market.
“We cannot attribute capital outflow completely to the taxation policy as market conditions also have to be taken into account,” Tseng Chu-wei (曾巨威), professor of public finances at NCU told the Taipei Times by telephone yesterday.
Tseng said that the effect of capital outflow was “a little bit exaggerated,” adding that the problem did not lie in whether capital inflow would be affected, but rather in whether a taxation system was fair.
Structured notes are financial products that include fixed income instruments, including time deposits and bonds, and derivative products, which are linked to stocks, funds and currencies.
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