A considerable degree of complexity is involved in organizing a portfolio investment survey to ensure good quality data. Therefore, compilers should carefully consider all possibilities before deciding on the collection system. This chapter guides compilers on this process as follows:
Traditionally, the core functions of banking were to (1) accept money from, and collect checks for, customers; (2) honor checks for orders drawn on them by customers; (3) keep current accounts, or something of that kind, in which customers’ debits and credits are entered; and, of course, (4) lend. Banks derived their income largely from the margin between the interest rates they paid on money deposited with them and the interest rates they charged on money lent by them.
Insurers are important financial intermediaries. They play a significant role in the financial system as vehicles for savings (policy premiums are not used immediately to meet claims; they are instead invested, earning policyholders a return when they either collect on claims or have their premiums reduced) and risk pooling (insurers pool the risks of different policyholders, so that those whose insured risk eventuates are compensated in part out of premiums paid by those who do not file claims). The insurance office itself provides an intermediary service. It underwrites some of the residual risk of the risk pooling and may assume some of the savings risk. An example of the latter is a traditional, nonparticipating annuity where the insurer guarantees the annuity payment irrespective of the investment performance of the fund from which the annuity is financed.
This paper discusses issues that arise in designing an appropriate tax regime for three broad types of financial institutions that typically play major roles in securities markets—securities firms, investment funds, and pension funds. The focus is on taxes levied on the income or profits of these institutions, rather than indirect taxes on the financial products that they sell.
While the manner in which the national survey is to be conducted is left to the national compiler, the concepts and principles underlying the national survey are to be applied in conformity with the fifth edition of the International Monetary Fund’s Balance of Payments Manual. To assist compilers in meeting this task, the Task Force identified the following areas where practical guidance is required:
The term “innovative financial instruments” is generally taken to mean financial derivatives. A financial derivative (henceforth, simply derivative) is a financial instrument whose price depends on, or is derived from, the price of another asset. The asset underlying a derivative could be a commodity (for example, wheat), a financial asset (for example, a stock), or another derivative. There are two basic building blocks that can be used to construct derivatives: futures contracts traded in exchanges (or forward contracts traded in the over-the-counter market) and options contacts. Derivatives can be used for either hedging or speculative purposes (or both). Some elementary concepts related to derivatives are reviewed in the appendix to this paper.1
The value-added tax (VAT) has been adopted in over 100 countries. While the VAT base has been expanded in many countries to cover a wider range of goods and services, most countries with a VAT have not brought most financial services within the VAT net, especially financial intermediation services and other financial services rendered without explicit fees.
Securities transactions taxes (STTs) are taxes imposed on the transfer of a financial instrument from one owner to another. These taxes are found in more than half of all countries in the Organization for Economic Cooperation and Development (OECD) and in many less developed countries as well. In the last two decades or so, however, there has been a clear trend away from the use of STTs: several OECD countries have abolished them or reduced their rates (as shown in Table 6.1).