Structured Products Association to step up lobbying against proposed tax changes for ETNs

By Kenneth Lim

Boston, March 6 - The Structured Products Association is stepping up lobbying efforts to maintain the status quo on the tax treatment of exchange traded notes (ETNs), said its president.

"What happens next is I think we take it as a leaping-off point to take it to Treasury and government officials to explain our position in what I think is a healthy back and forth that includes the mutual fund industry," said association president Keith Styrcula on Wednesday.

Styrcula's remarks came one day after the U.S. House Ways and Means Subcommittee on Select Revenue Measures held a hearing on the tax treatment of certain derivatives, including exchange-traded notes. At the heart of the current debate is proposed legislation by Subcommittee chairman Rep. Richard E. Neal of Massachusetts to tax ETNs and prepaid forward contracts on an accrued interest basis. The current tax system treats income from ETNs capital gains, which will are taxed only upon the sale or maturity of the notes.

No additional hearings are currently scheduled.

"My understanding from what chairman Neal said is they want to come back to us with written questions, and following that there may be another round of hearings," said Styrcula, who testified against the proposed changes on Wednesday.

The coming months will be an important time for the industry, Styrcula said.

"I think the next step is we as an industry will have to explain our position in this matter," he said. "The industry will have follow-up questions from Congress, and we expect to increase our level of expertise in this matter."

Further hearings will be welcomed, Styrcula said.

"What I think it that we have seen an opportunity for us to have a wholesome dialog," he said. "Our testimony provided for the first time, and on the record, a full argument for maintaining the status quo...I hope there will be more discussion, especially if it was something as open and candid as the dialogue we were allowed yesterday, I think."

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