The approval of perpetual futures contracts in the US could potentially expose traders to unforeseen tax and regulatory uncertainty if these products are ultimately deemed to be swaps rather than futures, a concern highlighted by CME Group Chairman and CEO Terry Duffy. In an interview with CoinDesk, Duffy pointed out that there is ambiguity from a tax perspective for all US participants due to the lack of clarity on the classification of perpetual futures. This ambiguity stems from the ongoing legal challenge by CME against the Commodity Futures Trading Commission (CFTC) regarding the regulator's approval of perpetual futures contracts in the US.
The outcome of this challenge could significantly influence how the US approaches the rapidly growing arena of perpetual futures, particularly in terms of taxation by the Internal Revenue Service (IRS). The core issue revolves around whether perpetual futures should be legally treated as futures or swaps, with Duffy arguing that they should be considered swaps due to the periodic funding payments exchanged between long and short positions, which aligns with the statutory definition of a swap under US law.
If perpetual contracts are classified as swaps, they would be taxed under 'ordinary' taxation, as opposed to the blended tax treatment available for futures under Section 1256 of the US tax code. However, legal experts such as Rustin Diehl and Jason Gottlieb note that the issue is complex, with the definition of swaps being extremely broad and the economic function of perpetual futures resembling that of traditional futures. The resolution of this issue may depend on court interpretations, potentially leading to a long and drawn-out process with significant implications for market participants, especially large institutions that could face uncertainty in reporting trades involving perpetual futures.