SPA to Congress: Handle Tax Changes with Care (structuredretailproducts.com)

by Lori Pizzani, US news reporter
StructuredRetailProducts.com

WASHINGTON D.C. (March 5, 2008) -- The US Structured Products Association (SPA) today asked US lawmakers to take a slow and even-handed approach when considering tax changes to all financial instruments and investments as they consider a bill seeking to impose higher taxes on derivative products.

Giving testimony earlier today to the House of Representatives Ways and Means Subcommittee on Financial Derivatives Taxation, the industry body asked whether adding potentially burdensome taxes on those investing in structured products would deepen the competitive financial market chasm that has developed between the US and other nations globally.

The testimony, given by Keith Styrcula, chairman and founder of the SPA, implored Congress to be thoughtful when considering tax changes to an array of financial products. "We agree wholeheartedly with the Subcommittee that new legislation on the taxation of retail financial instruments is in order. Such legislation, however, should analyse all investment vehicles at the ground-level -- inclusive of ETFs, closed-end funds, mutual funds, convertible bonds, managed accounts, insurance products, unit investment trusts and single-stock positions -- to arrive at a fair and consistent approach to taxation of financial instruments," said Styrcula.

"Any attempt to single out financial derivatives, prepaid forwards, and structured products in the absence of a full consideration of all other financial instruments is a potentially dangerous precedent that could have vast and unforeseen consequences in the global arena."

Styrcula highlighted the growing local structured products industry, which grew from $64bn in 2006 to $114bn by the end of 2007, and asked the committee to consider any unintended consequences of a sudden change in tax laws, including widening the current competitive gap between the US capital markets and its global rivals.

He also said that capital-guaranteed investments had the potential to follow the European model and become, "the dominant investment vehicle for prudent American investors, if it weren't for a significant drawback -- an exceptionally disadvantageous tax treatment."

If, however, the tax treatment of capital-guaranteed products were simple and reasonable to the investor, the US financial services industry would be able to promote them on a larger scale while generating substantial revenue for the Treasury, he predicted, citing analysis from SRP.

Following pressure from the Investment Company Institute, the US trade organisation representing the $11tr mutual fund and exchange-traded fund industry, Representative Richard Neal introduced a bill (H.R. 4912) to the House of Representatives on 19 December 2007 seeking to impose more stringent taxes on derivative instruments, including prepaid forward contracts (such as exchange traded notes).

Click here <http://www.structuredretailproducts.com/uploads/news/SPA_tax_testimony.pdf> for the full written testimony of the US SPA.

Ways & Means Hearing on Taxation of Prepaid Forwards -- Links

Subcommittee on Select Revenue Measures
Hearing on Tax Treatment of Derivatives
Wednesday, March 05, 2008
Hearing Advisory

Neal Announces Hearing on Tax Treatment of Derivatives

Witness List and Testimony (Printer Friendly)
Witnesses

Panel 1:

Michael J. Desmond, Tax Legislative Counsel, United States Department of Treasury

Alex Raskolnikov, Associate Professor of Law, Co-Chair, Charles E. Gerber Transactional Studies Program, Columbia Law School

Reuven S. Avi-Yonah, Irwin I. Cohn Professor of Law, University of Michigan Law School

Keith A Styrcula, Chairman, on behalf of Structured Products Association


Panel 2:

George U. “Gus” Sauter, Chief Investment Officer, The Vanguard Group; Managing Director, Quantitative Equity Group

William M. Paul, Covington & Burling, LLP, on behalf of Investment Company Institute (ICI)

Leslie B. Samuels, Partner, Cleary Gottlieb Steen & Hamilton LLP on behalf of Securities Industry and Financial Markets Association (SIFMA)

Michael B. Shulman, Partner, Shearman & Sterling LLP
Submissions for the Record

Click here to provide a submission for the record.
Hearing Transcript

Not Yet Available
Printed Hearing

Not Yet Available

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Additional links:

www.structuredproducts.org -- SPA Official website

http://waysandmeans.house.gov/news.asp?formmode=release&id=628 -- Neal Opening Statement at March 5, 2008 Hearing on Tax Treatment of Derivatives -- "This topic is not for the faint of heart. Just explaining the different types of derivatives can fill volumes. Plus, the market is constantly evolving and growing. The Bank for International Settlements recently estimated the market for derivatives has exceeded $500 trillion in notional amounts just for the first half of last year. And for those taking notes, 500 trillion is half a quadrillion."