Principal at Risk Notes - Tax Considerations

Tax Considerations

• It is highly recommend to have your clients seek professional tax advice.
• PARs should be characterized for all tax purposes as a pre-paid cash-settled forward contracts linked to the level of the underlying asset.
• A U.S. holder’s tax basis in a note will equal the amount paid by the holder to acquire the note.
• Upon receipt of cash on the maturity date of the notes, a U.S. holder will recognize a gain or a loss and the amount of such gain or loss will be the extent to which the amount of cash received differs from the U.S. holder’s tax basis in the note. It is uncertain whether any such gain or loss would be treated as ordinary income or loss or capital gain or loss.
• Upon the sale or exchange of a note prior to the maturity date, a U.S. holder will recognize capital gain or loss in an amount equal to the difference between the amount realized on such sale or exchange and that U.S. holder’s tax basis in the note.