What is Bill of Exchange

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Bills of Exchange are securities, which can act as a form of payment as well as a pledge instrument. They can also be placed on the market, subject a sale or purchase. Only in the latter case the Bill of Exchange are accounted for as securities.

The substance of a Bill of Exchange is a relationship, under which the issuer of the Bill of Exchange is obliged to pay the amount presented on the bill to a certain person. This type of Bill of Exchange is also known as a promissory note. Or the issuer gives an order to a third person (usually a bank) to pay to a certain person at a given time.

When the Bill of Exchange is issued the issuer obtains money presented on the Bill of Exchange from the creditor. This money must be paid back to the creditor when due. As the Bill of Exchange is a publicly tradable security, the creditor can transfer it to another person (usually with a discount).

The tax regime applicable on sale of Bills of Exchange is stricter and each transfer must be treated separately. The capital gain is the difference between the transfer price and the acquisition cost of the Bill of Exchange plus any unpaid accrued interest for the period of holding the security.

Any loss from the sale of a Bill of Exchange is always non-tax deductible. It cannot be included in the cumulative loss or profit from the sale of other securities and it cannot be carried forward.

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