Will the Tax-Exempt Status of ETF Futures Index Be Maintained?

Confusion Over Taxation of ETF Futures Index Launched by Exchange in February

The government has begun an internal review regarding the actual tax-exempt effect of the 'TIGER Nasdaq100 ETF Futures.' When using ETF futures, which are exchange-traded derivatives, as the underlying asset, there is almost no change in the tax base reference price, allowing for an expected tax-exempt effect. Although the existing ETFs based on the US Nasdaq100 futures index have a similar profit structure, there is a difference in the taxes that must be paid. The tax authorities have stepped in following industry calls for a clear interpretation.

According to the financial investment industry on the 21st, the Ministry of Economy and Finance is reportedly reviewing the tax system for ETFs based on the 'KRX Nasdaq100 ETF Futures Index.'

Earlier, in February of this year, the Korea Exchange announced four types of indices, including the country's first ETF futures index linked to the return of Nasdaq100 ETF futures prices listed on the futures market, as well as leverage and inverse strategy indices (2X, -1X, -2X) based on it. The KRX Nasdaq100 ETF Futures Index tracks the returns of the 'TIGER Nasdaq100 ETF Futures,' which is listed in the derivatives market.

Capital gains from trading overseas stock-type ETFs listed domestically are subject to holding period taxation. A dividend income tax of 15.4% is levied on the lesser of the capital gains or the increase in the tax base reference price during the holding period. In contrast, since the KRX Nasdaq100 ETF Futures Index is based on ETF futures, which are exchange-traded derivatives, the relevant ETF can enjoy a tax-exempt effect due to no increase in the tax base reference price. When calculating the ETF tax base reference price for taxation, overseas stock-type ETFs include trading gains and losses, but exchange-traded derivatives do not include trading gains and losses, so there is almost no change in the tax base reference price.

Within the asset management industry, opinions are divided between viewing this as an advanced methodology utilizing a sophisticated index and seeing it as contrary to the purpose of exempting exchange-traded derivative securities funds from taxation to revitalize the domestic futures market. Whether a Nasdaq-tracking product without taxation will be launched depends on the Ministry of Economy and Finance’s tax law interpretation.