Print this pageTax Considerations
For U.S. federal income tax purposes, Barclays Bank PLC and investors agree to treat all iPath ETNs, except certain currency ETNs, as prepaid executory contracts with respect to the relevant index. If such iPath ETNs are so treated, investors should recognize gain or loss upon the sale, redemption or maturity of their iPath ETNs in an amount equal to the difference between the amount they receive at such time and their tax basis in the securities. Investors generally agree to treat such gain or loss as capital gain or loss, except with respect to those iPath ETNs for which investors agree to treat such gain or loss as ordinary, as detailed in the chart below.
iPath ETN Tax Consequences
The following table summarizes certain U.S. federal tax consequences that holders of iPath ETNs and Barclays Bank PLC agree to be subject to pursuant to the terms of iPath ETNs. These tax consequences, however, are not certain and alternative treatments are possible. Please see the applicable prospectus for a more complete discussion of the primary tax treatment and alternative tax characterizations that are possible with respect to each iPath ETN.
TYPE |
TREATMENT AT MATURITY |
RECOGNITION OF CURRENT INCOME |
| Alternatives | Capital gains | No |
| BuyWrite | Capital gains | No |
| Commodities | Capital gains | No |
| Equity | Capital gains | No |
| Fixed Income | Capital gains | No |
| Leveraged | Capital gains | No |
| Currency
- Carry Trade - Exchange Rate - Global Emerging Markets Strategy (GEMS) |
Ordinary Income Ordinary Income Ordinary Income |
No Yes Yes |
Barclays Bank PLC's position on the tax status of ETNs
Barclays Bank PLC is aligned with the Securities Industry and Financial Markets Association (SIFMA) and believes that the tax treatment of investment products should be driven by the product's attributes. Mutual funds and ETNs are taxed differently because they are fundamentally different products. Investors who buy shares in a mutual fund own the underlying securities and receive annual dividend income from those securities, which is taxable. ETN investors do not own underlying securities and receive no dividends while holding an ETN.
Tax Status of Currency ETNs
Revenue ruling 2008-1, issued on December 7, 2007, holds that certain financial instruments linked directly to the value of a foreign currency—regardless of whether the instrument is privately offered, publicly offered or traded on an exchange—should be treated like debt for federal tax purposes. Revenue Ruling 2008-1 is relevant to iPath exchange rate and GEMS ETNs.
Barclays Bank PLC believes that this ruling provides investors clarity on the tax treatment of certain financial instruments linked directly to the value of a foreign currency—regardless of whether the instrument is privately offered, publicly offered, or traded on an exchange.
With respect to the iPath exchange rate ETNs, this means that any interest accrued (net of fees) during the life of those ETNs will be taxed as ordinary income on a current basis, even though that interest is reinvested and not paid out until the holder sells the ETN or the ETN matures. It also means that a gain or loss from the redemption or maturity of these ETNs will generally be ordinary. With respect to iPath GEMS ETNs, this means that interest on these ETNs should be taxed as ordinary income at the time it accrues or is received (iPath GEMS ETNs are designed to pay a monthly coupon). It also means that gain or loss from the sale or redemption of these ETNs should generally be ordinary.
With respect to iPath GEMS ETNs, this means that interest on these ETNs should be taxed as ordinary income at the time it accrues or is received (iPath GEMS ETNs are designed to pay a monthly coupon). It also means that gain or loss from the sale or redemption of these ETNs should generally be ordinary.
The iPath Optimized Currency Carry ETN is different from the instruments described in Revenue Ruling 2008-1. However, due to rules under Section 988 of the Internal Revenue Code, gain or loss from the sale or redemption of this ETN should generally be ordinary.
Tax status of equity, fixed income, commodity, leveraged and certain alternatives ETNs
Revenue ruling 2008-1 likely does not apply to iPath ETNs other than iPath exchange rate and GEMS ETNs. However, on December 7, 2007, the IRS also issued notice 2008-2 asking for comments on the appropriate tax treatment of instruments such as the equity and commodity ETNs. The IRS has not issued additional guidance on this issue.
An investment in iPath ETNs may not be suitable for all investors. Please see the applicable prospectus for a more complete discussion of the primary tax treatment and alternative tax characterizations that are possible with respect to each iPath ETN. Significant aspects of the tax treatment of the ETNs are uncertain. Investors should consult a tax advisor about their own tax situation. An investment in iPath ETNs also involves other risks, including possible loss of principal. See the applicable prospectus for a discussion of these other risks.
Barclays Capital Inc. and its affiliates and BlackRock Investments, LLC, and its affiliates do not provide tax advice and nothing contained herein should be construed to be tax advice. Please be advised that any discussion of U.S. tax matters contained herein (including any attachments) (i) is not intended or written to be used, and cannot be used, by you for the purpose of avoiding U.S. tax-related penalties; and (ii) was written to support the promotion or marketing of the transactions or other matters addressed herein. Accordingly, you should seek advice based on your particular circumstances from an independent tax advisor.
