세무학연구 | The Effects of Fund Taxation on Rate of Return of Mutual Funds

This study investigates whether tax factors affect the rate of return on a fund by performing
empirical analysis. With regards the traditional financial instruments, such as stocks and bonds,
previous studies empirically demonstrated that the rate of return on assets affected by changes in
taxation also experience changes.
On June 1, 2007, the Korean government implemented a temporary tax act previously proposed on
January 16, 2007 for overseas investment funds with the aim of vitalizing foreign investments and
stabilizing the foreign currency market. The main provision of the act is tax exemption on gains from
the disposal or evaluation of foreign listed stocks invested through the overseas investment funds under
the Indirect Investment Asset Management Business Act.
This study investigates whether the tax exemption rule for the overseas investment funds affects pre
－tax returns on the funds by considering the announcement or enforcement of the exemption as
events. This study finds that both a tax capitalization effect and a lock－in effect exist on returns for
funds when a tax exemption is introduced. In particular, after the announcement of the tax exemption
introduced, the rate of returns for overseas investment funds significantly increased (tax capitalization
effect), whereas upon the enforcement of the tax exemption, the rate of returns for overseas investment
funds significantly decreased (lock－in effect).
Given that a fund is less dealt with in a tax empirical study area compared with traditional financial
instruments such as stocks and bonds, this study contributes to the tax study area by performing the
empirical tests comprehensively with the aim of identifying whether tax factors affect rate of return
earned by funds.