Tax on ETNs would be unfair, says Sifma

Leslie B. Samuels of the Securities Industry and Financial Markets Association testified today before a U.S. House of Representatives subcommittee on proposed tax revisions that would affect prepaid derivatives contracts and exchange traded notes. In his testimony, Mr. Samuels put forth the viewpoint that the proposal, H.R. 4912, which would require investors to pay tax on such financial products, even though no payoff from such investments is assured, would unfairly limit trade of the financial products. “We are concerned that H.R. 4912 would impose an overly complex tax regime that would single out prepaid derivative contracts for unfavorable treatment by requiring that investors include amounts in income that they have no right to receive and may never receive,” said Mr. Samuels. In defense of his viewpoint, Mr. Samuels pointed out that prepaid derivative contracts and ETNs were not similar to other arrangements already taxed by the government, such as debt, as well as citing the fact that such contracts do not have provisions for default, such as the divvying up of securities upon the dissolving of a mutual fund. He also mentioned that prepaid derivative contracts are not a new financial institution, but one that has existed for fifteen years.