Top

Published in:

2016 | OriginalPaper | Chapter

3. Exploring the Tax Advantages of Exchange-Traded Funds

Author : A. Seddik Meziani

Published in: Exchange-Traded Funds

Publisher: Palgrave Macmillan UK

Activate our intelligent search to find suitable subject content or patents.

search-config

AI-assisted search

Off

Abstract

Exchange-traded funds (ETFs) were created not only to offer the same diversification and convenience presented by mutual funds, but also to alleviate the tax burden on investors. This chapter examines why mutual funds present a disadvantage relative to ETFs, by reviewing the relevant tax laws and how ETFs operate to produce the significant tax savings reported by their sponsors.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

previous chapter Characteristics of Exchange-Traded Funds: Weighting Myths and Realities

next chapter Understanding the Complex Universe and Role of Fixed-Income Funds as Investment Vehicles

This chapter draws from the author’s previous work on the subject. See A. Seddik Meziani, “Along Came a SPDR: How Tax-Efficient are S&P Depositary Receipts?” in “A Guide to Exchange-Traded Funds,” Institutional Investor (Fall 2001), pp. 144–154.

http://www2.standardandpoors.com/servlet/Satellite?pagename=sp/Page/IndicesIndexPg&l=EN&b=4&f=1&s=6&ig=48&i=56&r=1&xcd=500&fd=EquityTurnover

http://www.morningstar.com

Note that this rate climbs to 39.1% if we add the average rate levied by U.S. states. Corporations headquartered in the countries that make up the Organisation for Economic Co-operation and Development (OECD) pay an average rate of only 25%.

The individual income tax on dividends ramps up to 28.6% if we add to the top federal marginal tax rate the average rate levied by U.S states on dividend income, which is five percentage points higher than the average tax rate of 23.2% faced by taxpayers in the OECD countries.

Internal Revenue Code Section 851(b).

Ibid., Section 4982(b).

Ibid., Section 4982(a).

Ibid., Section 351(a).

Ibid., Section 351(e).

Ibid., Section 1031(a).

Ibid., Section 358(a)(1).

http://money.cnn.com/1999/07/01/zweig_on_funds/taxbomb/

Internal Revenue Code Section 1031.

Internal Revenue Code Section 851(b).

Ibid., Section 1031(a).

Ibid., Section 1031(b).

Internal Revenue Code Section 1211(b).

Ibid., Section 1(h)(11)(b)(iii).

Ibid., Section 163(d)(4)(b).

Ibid., Section 243(a)(c).

Ibid., Section 316.

Title: Exploring the Tax Advantages of Exchange-Traded Funds
Author: A. Seddik Meziani
Publisher: Palgrave Macmillan UK
Book: Exchange-Traded Funds
Print ISBN: 978-1-137-39094-3

Electronic ISBN: 978-1-137-39095-0

Copyright Year: 2016
DOI: https://doi.org/10.1057/978-1-137-39095-0_3