Taxation of structured products

Just looked for some manged futures ETF/funds and found not one single one on ICTax - Income & Capital Taxes

I have found VT though, at least.

How’s that possible?

I’m trying to find out how I’d be taxed on different funds with different distributions. Managed futures funds tend to distribute almost all of their gains.

I’ve found this in the internet:

“Wer strukturierte Produkte hält, muss noch genauer hinsehen. Beliebte «Strukis» sind sogenannte Renditeoptimierungsprodukte, die wie Obligationen mit einem Coupon locken. Anders als bei Obligationen ist jedoch nicht der gesamte Coupon steuerbares Einkommen. Das hängt mit der Konstruktion der Produkte zusammen. Meist steckt im Coupon nur ein kleiner Zinsertrag. Der «Struki»-Anbieter erwirtschaftet den Löwenanteil der Ausschüttung mit dem Verkauf von Optionen – und diese Erträge unterliegen eben nicht der Einkommenssteuer.”

Now that’s for options. I wonder if it’s the same for futures?

Could you provide us with an example of a managed futures fund/structured product you are holding that has distribution rights to retail clients (presumably you) in Switzerland? (ISIN or ticker)

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I’m not currently holding any MF funds, but looking into them and trying to understand tax implications for CH investors (ratio of non-taxable capital gains vs. taxable distributions/dividends in these funds)

Here are three examples: KMLM, DBMF, CTA. Not available in Switzerland, of course :grin:

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You are looking at the right place. If they aren’t listed in IC tax then either no private individual (qualified investor) taxed in CH is holding these products so far (and there seems to be no way to get an assessment outside of submitting your tax declaration), or there is not enough information publically available in which case the authorities will typically tax all distributions and make it your burden to proof otherwise (in which case I once was told they won’t list them in IC tax).

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Thanks, that’s helpful! Do you have any recommendations on how to deal with this?

The taxation details should generally not be the key to decide whether or not to invest in a specific product (either you believe in the underlaying asset/strategy or not) unless you have a direct alternative and are simply optimizing. My recommendation: Ignore the unknown taxation, it can’t be that bad.

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You may ask IC tax to add the products in their database. However, I don’t know which data provider feeds them with the information. They will most likely show the distribution paid.

Looking at the annual report of KMLM, the fund generates a majority of capital gains.

However, the distribution (December) doesn’t match with the tax year end (March 31).

Fund Documents - KraneShares (page 25).

Without the split between income and gains, you shall be taxed on the amount received (worst case). Good luck trying to convince the tax authorities otherwise.

From a Swiss investor perspective, this product is not tax efficient.

You end up paying income tax on a distribution made from capital gain (not taxable for a Swiss resident).

The fund manager may have a split available somewhere. The split would be useful for a US investor too (dividends, short term gain vs long term gain).

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Absolutely, I agree with you in general.

The issue with managed futures is that they’ll rise high during crises (crisis alpha), e.g. 35% this year, and then maybe stay flat for some years. If my 35% crisis gains are all considered distributions, I’d pay crazy high taxes on these gains, making the fund unattractive altogether.

Excellent, thanks a lot, very much appreciated! So you’d basically just ask the fund manager fir the split and then provide that information to the authorities?

If he can provide a split to the distribution in written

I would recalculate the taxable income as Qty held at distribution * (total distribution per share ./. capital gain included in the distribution).

The tax authorities may challenge the fund provider and ask for additionnal information, calculations etc.

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Great, thanks, will try this!

On another note, if this doesn’t work out: Will it help to just sell before dividend date and then buy again afterwards?

Maybe hold a similar fund in between to stay invested?

It won’t. I would not play this game with the tax authorities :slight_smile:
Abuse of rights selling before the ex-date and rebuying after.

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Yes, makes sense to me :+1:

Update, thanks to your advice I managed to come up with the required split :smile:!

I fear it looks horrible from a CH-tax point of view, almost 100% dividends, am I right?

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Depends on what you are looking for and what are the alternatives.

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Looking for a broadly-diversified trend-following fund as a diversifier to my stock-allocation. Performing well when stocks don’t.

These funds can do great when other assets don’t (“crisis alpha”), so they may generate very high returns in one year (2022: 35%), but maybe close to zero the next 3-4 years.

Now, if my 35% returns consist of 100% dividends, I have to pay insane income tax on them. If, in turn, returns consist of capital gains, I’d have to pay 0% taxes on the 35% returns.

So I’m looking for a trend-following fund with mostly capital gains instead of dividend distributions.

You’re correct [20 charac min]

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Thanks for your help, it’s great to have some expertise on these matters :+1::blush:

May I bug you one more time?

  1. I’ve found another interesting ETF (UPRO, 3x levered S&P 500), but don’t quite understand the ICTax entry.

https://www.ictax.admin.ch/extern/en.html#/security/10301893/20211231

Do I get this right: Share price 2021 is considered CHF 139, and dividend per share only CHF 0.05?

That seems odd, because UPRO price never got higher than USD 76 in 2021. And dividend yield seems extremely tiny.

  1. Can I trade futures without being qualified as professional trader? I’ve read this:
    3.4.3 Direkte Bundessteuer sowie kantonale und kommunale Einkommenssteuern
    Gemäss Rechtsprechung des Bundesgerichts sind Gewinne aus Termingeschäften steuerlich gleich zu behandeln wie solche aus Kassageschäften und stellen deshalb Kapitalgewinne dar.4 Soweit Ka- pitalgewinne durch das Gesetz nicht ausdrücklich erfasst werden, bleiben solche aus Termingeschäf- ten (Futures) und Optionsgeschäften sowohl beim Bund (Art. 16 Abs. 3 DBG) als auch in den Kanto- nen und Gemeinden (Art. 7 Abs. 4 Bst. b StHG) für die Belange des Privatvermögens steuerfrei. Ent- sprechende Verluste im Privatvermögen sind dafür auch nicht abzugsfähig.
    https://www.estv.admin.ch/dam/estv/de/dokumente/estv/steuersystem/dossier-steuerinformationen/f/f-finanzinstrumente.pdf.download.pdf/f-finanzinstrumente.pdf#page15

Correct for the NAV at year end. All distributions must be added to get the total → 0.082 per share.

There was a split in January 2022. 2 for 1. It may have a retroactive impact on past NAV you can see on internet.

https://www.proshares.com/press-releases/proshares-announces-etf-share-splits-122021

They just report the distributions as announced by Proshares.

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https://www.bogleheads.org/forum/viewtopic.php?p=6786514#p6786514

UPRO holds almost zero stocks, and what they do hold don’t pay dividends. They do hold sone treasures so those coupons count as income.

They mostly hold futures and swaps. Swaps are just a bundle of futures. These do not pay dividends. Hence no distributions.

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