US end-users risk tax hit in move to daily settled swaps

Changing treatment of variation margin could benefit banks, but hurt clients

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Capital question: "US tax lawyers are debating the issue. It's… extremely sensitive," says a tax specialist

Changing the treatment of margin on cleared swaps could leave derivatives end-users with a bigger tax bill, setting up a fresh trade-off for the planned move. The margin change promises to cut bank capital requirements dramatically, but on top of the tax question, it also risks upsetting hedge accounting arrangements.

The changes, which have seen all four of the big swaps clearing houses seek supporting legal opinions in recent months, would see daily margin posting as the settlement of a trade,

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