Barclays may not have intended their exchange traded notes (ETNs) to become tax shelters, but if they prove to retain their tax advantages, they just could be. ETNs have a tax advantage over cousin, the exchange traded fund (ETF), because ETNs don’t generate taxable income to investors. ETNs are prepaid forward contracts and any income gets added to the price of the security rather than being paid in cash, reports Allan Sloan for Fortune. ETN holders don’t pay taxes on income until they sell.
No law is settled yet on ETNs, but as their popularity grows and if they retain the tax advantage then we will most likely see more ETNs flood the markets. Right now the House Ways and Means Committee is looking at ETNs, as is the Treasury Department.
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