The International Swaps and Derivatives Association is seeking confirmation from the U.S. Treasury and the Internal Revenue Service that credit-default swaps will not become subject to new taxes. Tom Prevost, North American chair of ISDA's taxation committee and tax director for the Americas at Credit Suisse First Boston in New York, explained that several lawyers have mentioned the possibility of CDS payments being subject to insurance excise tax or cross-border withholding tax. Although the likelihood of this occurring is remote, ISDA is asking the Treasury and the IRS for guidance so that it does not unsettle the market at a later date.
The trade association has made several submissions to the Treasury and the IRS, arguing that current taxation practices in the major CDS markets, including the U.S. and the U.K. are appropriate and that swaps should not be subject to either excise or withholding tax, said Prevost. The association hopes that the regulators will give guidance by June 30, which is the end of the IRS' business year. It has not, however, received any indication as to whether this will occur, he added.