The term “debt security” describes a security pursuant to 93 (3) (1) and (2) of the Income Tax Act 1988. Accordingly, the debt security includes the right to a specific claim (eg a bond, a check or a bill of exchange). The debt securities may also include securities whose issue is not subject to the Capital Markets Act.
Bonds are always debt securities
It may seem that bonds are always debt securities within the meaning of the double taxation treaty. That is not correct. Rather, “bond” is an independent term. A bond may or may not be a debt security. The bond is intended to raise medium and long-term capital. The term “medium to long term” indicates that at least five years are mentioned here. Other types of debt securities may be, for example, debt securities, mortgage deeds, treasury bills and medium-term notes. So-called “certificates of deposit” (bearer bonds) may also count, and convertible and participating bonds are also assigned to the debt securities.
Not every security is a debt security.
We have just seen that. The prerequisite is that the security represents the right to a specific claim. But there are also securities that can not be part of the debt securities from the outset. And these are securities in which substance profit-sharing rights are securitized. Profit participation rights pursuant to 6 of the Participation Fund Act are also included. These papers are taxed at the value of 25%, which has become famous as a withholding tax. The capital gains on the security must also result directly from the security itself, such as in the case of a bill of exchange or check, in order to be fair to the term debt securities. The interest income on these securities is not subject to tax deduction.
The Treasury is satisfied by capital gains tax deduction on the income from domestic and foreign debt securities. This also applies to domestic and foreign convertible and participating bonds. The deduction obligation is always and independent of any criteria such as currency or country of issue.