The approval of perpetual futures contracts in the US may expose traders to unforeseen tax and regulatory uncertainty if these products are ultimately classified as swaps instead of futures, CME Group Chairman and CEO Terry Duffy warned. In an interview with CoinDesk, Duffy pointed out that there is ambiguity surrounding the tax implications for US participants due to the periodic funding payments exchanged between long and short positions in perpetual contracts. The dispute centers on whether perpetual futures should be legally treated as futures or swaps, with Duffy arguing that they should be considered swaps due to the recurring payment exchanges, which satisfy the statutory definition of a swap under US law. If perpetual contracts are classified as swaps, they will be taxed under ordinary taxation, rather than the blended tax treatment available for futures under Section 1256 of the US tax code.
This could lead to uncertainty for market participants who have been treating perpetual futures as futures for tax purposes. Legal experts, including Rustin Diehl and Jason Gottlieb, note that the issue is complex and that the definition of swaps is broad, leaving room for interpretation.
The outcome of the court decision and potential IRS guidance will be crucial in determining the tax treatment of perpetual futures.