Short sale transactions that make profits by borrowing and selling stocks through loan transactions, by buying stocks at low prices and returning them when the stock price is expected to fall, is necessary to treat fairly about both investment outcomes under the tax law taxing the profits, like taxing capital gains tax on the profit in case where profits are made by buying stocks and selling them at a high price when the stock price is expected to rise. To this end, the following legislative measures are proposed.

First, in a loan transaction that meets certain requirements, the lender is treated as continuing to own the rental stock for taxation. It is clarified that the lender's loan and return are not transfer and acquisition of new stocks under the tax law.

Second, it is clarified that borrowing and return of stocks by short sellers are not also acquisition or transfer of stocks under the tax law as in the case of lenders.

Third, profits from short selling are calculated by subtracting the acquisition price of stocks from the short selling price, and the period of attribution of profits from short selling shall be the tax year in which the return date, the end date of the transaction, belongs.

On the other hand, short sale against the box made while owning stocks is a form of short sale but in substance it only has the same economic effect as selling owned stocks. This transaction does not cause any change in either direction of profit or loss. Since it is only a mean to delay the taxation period, short sales against the box transaction needs to be recharacterized and taxed to prevent tax avoidance as follows.

First, a short sale against the box transaction applies to a tax law, regardless of the transaction form, as transferring the owned stocks at the time of short sale (in the case of returning owned stocks) or as transferring the owned stocks at the time of short sale and acquiring the new stocks at the time of return (in the case of buying and returning in the stock market).

Second, if convertible bonds or bonds with warrant with the nature of stocks are used instead of stocks, or if forward contracts, futures contracts, put option purchase contracts are used instead of short sale, they should also be included in the application of the above legislative measures in view of short sales against the box.

▶ Key Words： short sale, profits from short selling, security lending, short sale against the box, tax avoidance