Tax swap

Similar financial terms

Withholding tax
The tax payable on payments such as dividends, interest, and debt repayments which are sent to foreign entities. Hence, a tax levied by the country of source on income paid.

After-tax profit margin
The ratio of net income to net sales.

After-tax real rate of return
Money after-tax rate of return minus the inflation rate.

Value-added tax
Value-added tax (VAT) is a method of indirect taxation whereby a tax is levied at each stage of production on the value added at that specific stage.

Two-tier tax system
A method of taxation in which the income going to shareholders is taxed twice.

Taxable transaction
Any transaction that is not tax-free to the parties involved, such as a taxable acquisition.

Taxable income
Gross income less a set of deductions such as allowances, deeds of covenants, and losses.

Taxable acquisition
A merger or consolidation that is not a tax-fee acquisition. The selling shareholders are treated as having sold their shares.

Tax-timing option
The option to sell an asset and claim a loss for tax purposes or not to sell the asset and defer the capital gains tax.

Tax-deferred retirement plans
Employer-sponsored and other plans that allow contributions and earnings to be made and accumulate tax-free until they are paid out as benefits.

Tax deferral option
The feature of the U.S. Internal Revenue Code that the capital gains tax on an asset is payable only when the gain is realized by selling the asset.

Tax shield
The reduction in income taxes or corporation taxes that results from taking an allowable deduction from taxable income.

Tax Reform Act of 1986
A 1986 law involving a major overhaul of the U.S. tax code.

Tax haven
A nation with a moderate level of taxation and/or liberal tax incentives for undertaking specific activities such as exporting or investing. Offshore centres are often established in so-called tax havens.

Tax free acquisition
A merger or consolidation in which (a) the acquirer's tax basis in each asset whose ownership is transferred in the transaction is generally the same as the acquiree's, and (b) each seller who receives only stock does not have to pay any tax on the gain he realizes until the shares are sold.

Tax-exempt sector
The municipal bond market where state and local governments raise funds. Bonds issued in this sector are exempt from federal income taxes.

Tax differential view ( of dividend policy)
The view that shareholders prefer capital gains over dividends, and hence low payout ratios, because capital gains are effectively taxed at lower rates than dividends.

Tax clawback agreement
An agreement to contribute as equity to a project the value of all previously realized project-related tax benefits not already clawed back to the extent required to cover any cash deficiency of the project.

Tax books
Set of books kept by a firm's management for the IRS that follows IRS rules. The stockholder's books follow Financial Accounting Standards Board rules.

Split-rate tax system
A tax system that taxes retained earnings at a higher rate than earnings that are distributed as dividends.

Short-term tax exempts
Short-term securities issued by states, municipalities, local housing agencies, and urban renewal agencies.

Progressive tax system
A tax system wherein the average tax rate increases for some increases in income but never decreases with an increase in income.

Personal tax view (of capital structure)
The argument that the difference in personal tax rates between income from debt and income from equity eliminates the disadvantage from the double taxation (corporate and personal) of income from equity.

Marginal tax rate
The tax rate that would have to be paid on any additional dollars of taxable income earned.

Limited-tax general obligation bond
A general obligation bond that is limited as to revenue sources.

Tax Breaks
Tax Breaks or "incentives" are advocated by the high tech industry - especially on stock options - as one way to help stem the brain drain. Another form of break is an investment tax credit to encourage investment or an R&D credit to encourage companies to undertake more R&D. It is a means for governments to stimulate growth in certain economic activities.

Before-tax profit margin
The ratio of net income before taxes to net sales.

Break-even tax rate
The tax rate at which a party to a prospective transaction is indifferent between entering into and not entering into the transaction.

Cash flow after interest and taxes
Net income plus depreciation.

Corporate tax view
The argument that double (corporate and individual) taxation of equity returns makes debt a cheaper financing method.

Corporate taxable equivalent
Rate of return required on a par bond to produce the same after-tax yield to maturity that the premium or discount bond quoted would.

Regressive tax
A tax that tends to take a larger percentage of the incomes of lower income citizens than it takes from the incomes of higher income citizens. Examples: a poll tax, a flat percentage tax on only the first so many dollars of income (like the social security / national insurance contribution) or a sales tax on consumption items of common necessity (like groceries).

Progressive tax
A tax that tends to take a smaller percentage of the incomes of lower income citizens compared to the percentage it takes of the incomes of wealthier citizens. Example: an income tax with steeper rates for those in higher income brackets, or a special sales tax levied only on expensive "luxuries" like Philippe Patek watches or Mercedes-Benz sport cars.

Foreign Investor in Real Property Tax Act of 1980
Under FIRPTA (Foreign Investor in Real Property Tax Act of 1980), and the Economic Recovery Act of 1981, unless an exemption is granted by the IRS, upon the sale of real property owned by offshore (foreign) persons, the agency, attorney or escrow officer handling the transaction is required to withhold capital gains taxes at the closing of the sale transaction. Unless withheld and submitted to the IRS, the party handling the sale transaction is personally liable for the taxes.

Surtax
An additional tax levied as a percentage of an income tax amount. Both individuals and corporations pay surtaxes in addition to their base amount of federal tax.

Amortizing swap
An interest rate swap with a decreasing notional principal amount.

Volatility swap
A volatility swap is a financial instrument where the realized volatility during an accrual period is exchanged for a fixed volatility. Both percentage volatilities are applied to a notional principal.

Total return swap
A total return swap is an exchange of a return on a debt security for LIBOR plus a spread. The return on the debt security includes income such as coupons and the change in its value.

Swaption
A swaption is an option to enter into an interest rate swap where a specified fixed rate is exchanged for floating.

Swap rate
The fixed rate in an interest rate swap that causes the swap to have a value of zero. It can be thought of as the Internal Rate of Return (IRR) of a swap.

Swap
A swap is an agreement to exchange a series of variable cash flows for a fixed amount of cash flows in the future according to a prearranged formula.

Step-up swap
A swap where the principal increases over time in a predetermined way.

LIBOR-in-Arrears Swap
A swap where the interest paid on a date is determined by the interest rate observed on that date (not by the interest observed on the previous payment date).

Amortizing interest rate swap
Swap in which the principal or national amount rises (falls) as interest rates rise (decline).

Swap sale
A swap sale (also referred to as a swap assignment) is a transaction that ends one counterparty's role in an interest rate swap by substituting a new counterparty whose credit is acceptable to the other original counterparty.

Swap reversal
An interest rate swap designed to end a counterparty's role in another interest rate swap, accomplished by counterbalancing the original swap in maturity, reference rate, and notional amount.

Swap buy-back
The sale of an interest rate swap by one counterparty to the other, effectively ending the swap.

Substitution swap
A swap in which a money manager exchanges one bond for another bond that is similar in terms of coupon, maturity, and credit quality, but offers a higher yield.

Rate anticipation swaps
An exchange of bonds in a portfolio for new bonds that will achieve the target portfolio duration, based on the investor's assumptions about future changes in interest rates.

Put swaption
A financial tool in which the buyer has the right, or option, to enter into a swap as a floatingrate payer. The writer of the swaption therefore becomes the floating-rate receiver/fixed-rate payer.

Pure yield pickup swap
Moving to higher yield bonds.

Liability swap
An interest rate swap used to alter the cash flow characteristics of an institution's liabilities so as to provide a better match with its assets.

Call swaption
A swaption in which the buyer has the right to enter into a swap as a fixed-rate payer. The writer therefore becomes the fixed-rate receiver/floating rate payer.

Circus swap
A fixed rate currency swap against floating U.S. dollar LIBOR payments.

Currency swap
An agreement to swap a series of specified payment obligations denominated in one currency for a series of specified payment obligations denominated in a different currency.