Exchange Traded Notes – tax treatment in Ireland

For the past several weeks I have been in correspondence with the Revenue in relation to their treatment of various investment instruments. I was particularly interested in more exotic ones like Exchange Traded Notes (ETNs) Futures Contracts, Options Contracts, CFDs and Spreadbetting.

Perhaps the most surprising result of my questions was that Revenue don’t know how to tax ETNs. They said:

Revenue haven’t encountered these products to date so therefore we haven’t expressed an opinion on their tax treatment.

I don’t know which is more surprising, that they haven’t encountered ETNs or that they have not expressed an opinion on their tax treatment. In the US, ETNs are treated for tax purposes as prepaid forward contracts.

For those who don’t know, here is a good general background to ETNs.

I suppose my next question to Revenue would be, if I profit from buying an ETN like the iPath Dow Jones-AIG Commodity Index Total Return ETN, am I liable to any tax whatsoever?

In relation to Futures contracts the position is more clear:

Future contracts, within the meaning of section 607 (of the Consolidated Tax Act), are not chargeable assets. Accordingly capital gains are not chargeable and capital losses are not allowable. Gains on the disposal of future contracts and traded options, within the meaning of section 608 and which are regarded as investments for the purpose of that section, are not chargeable to CGT. Capital gains & losses on the disposal of future contracts and quoted options, other than in the above scenarios, are chargeable in the normal manner.

Similarly, gains and losses which occur in the course of a financial trade are taxable under income tax rules.

In the case of a futures contract dealt in or quoted on a stock exchange or futures exchange, the requirement that the security be delivered will be met if the person by whom the contract is made closes out the contract by
entering into a reciprocal and opposite contract on the exchange and settles through the exchange on a net payment or receipt basis.

In relation to options contracts:

Gains or losses on options contracts arising in the course of a trade are taxable as income.

I take this to mean that if I buy or sell an options contract before options expiry, the gain is classed as income as oppose to a capital gain.

CFDs are liable to CGT, Spreadbetting is not liable, although there could be an income liability if it becomes your primary source of income.