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Geared equity investments : a case study of tax arbitrage down under
journal contributionposted on 2003-06-01, 00:00 authored by Charles Corrado, J Cheung
Geared Equity Investment (GEI) contracts are an over-the-counter financial derivative product offered by Macquarie Bank, Ltd. to individual investors in Australia and New Zealand as a managed-risk investment in local shares carrying significant tax shield benefits. Upon issuance, a geared equity contract has three stakeholders: (1) the investor; (2) the issuer; and (3) the national tax authority. We assess the value of these contracts to each stakeholder and their support for tax arbitrage. We find that the national tax authority provides a significant subsidy to GEI contracts via tax shield benefits. These benefits support investor tax arbitrage in certain cases and issuer tax arbitrage in all cases examined.