Tax Treatment
You
should review carefully the section entitled “Material U.S. Federal
Income Tax Consequences” in the accompanying product
supplement no.
4-I. The following discussion, when read in combination with that
section, constitutes the full opinion of our special
tax
counsel, Davis
Polk & Wardwell LLP, regarding the material U.S. federal income
tax consequences of owning and disposing of notes.
Based on current
market conditions, in the opinion of our special tax counsel it is
reasonable to treat the notes as “open transactions”
that are not
debt instruments for U.S. federal income tax purposes, as more
fully described in “Material U.S. Federal Income Tax
Consequences—Tax
Consequences to U.S. Holders—Notes Treated as Open Transactions
That Are Not Debt Instruments” in the
accompanying
product supplement. Assuming this treatment is respected, the gain
or loss on your notes should be treated as long-term
capital gain or
loss if you hold your notes for more than a year, whether or not
you are an initial purchaser of notes at the issue
price.
However, the IRS
or a court may not respect this treatment, in which case the timing
and character of any income or loss on the notes
could be
materially and adversely affected. In addition, in 2007 Treasury
and the IRS released a notice requesting comments on the
U.S.
federal income
tax treatment of “prepaid forward contracts” and similar
instruments. The notice focuses in particular on whether
to
require
investors in these instruments to accrue income over the term of
their investment. It also asks for comments on a number
of
related topics,
including the character of income or loss with respect to these
instruments; the relevance of factors such as the nature
of
the underlying
property to which the instruments are linked; the degree, if any,
to which income (including any mandated accruals)
realized by
non-U.S. investors should be subject to withholding tax; and
whether these instruments are or should be subject to
the
“constructive
ownership” regime, which very generally can operate to
recharacterize certain long-term capital gain as ordinary
income
and impose a
notional interest charge. While the notice requests comments on
appropriate transition rules and effective dates, any
Treasury
regulations or other guidance promulgated after consideration of
these issues could materially and adversely affect the
tax
consequences of
an investment in the notes, possibly with retroactive effect. You
should consult your tax adviser regarding the U.S.
federal income
tax consequences of an investment in the notes, including possible
alternative treatments and the issues presented by
this
notice.
Section 871(m)
of the Code and Treasury regulations promulgated thereunder
(“Section 871(m)”) generally impose a 30% withholding
tax (unless an
income tax treaty applies) on dividend equivalents paid or deemed
paid to Non-U.S. Holders with respect to certain
financial
instruments linked to U.S. equities or indices that include U.S.
equities. Section 871(m) provides certain exceptions to
this
withholding
regime, including for instruments linked to certain broad-based
indices that meet requirements set forth in the
applicable
Treasury
regulations. Additionally, a recent IRS notice excludes from the
scope of Section 871(m) instruments issued prior to January
1,
2025 that do not
have a delta of one with respect to underlying securities that
could pay U.S.-source dividends for U.S. federal
income
tax purposes
(each an “Underlying Security”). Based on certain determinations
made by us, we expect that Section 871(m) will not
apply
to the notes
with regard to Non-U.S. Holders. Our determination is not binding
on the IRS, and the IRS may disagree with this
determination.
Section 871(m) is complex and its application may depend on your
particular circumstances, including whether you enter
into other
transactions with respect to an Underlying Security. If necessary,
further information regarding the potential application
of
Section 871(m)
will be provided in the pricing supplement for the notes. You
should consult your tax adviser regarding the
potential
application of
Section 871(m) to the notes.
The Estimated Value of the Notes
The
estimated value of the notes set forth on the cover of this pricing
supplement is equal to the sum of the values of the
following
hypothetical
components: (1) a fixed-income debt component with the same
maturity as the notes, valued using the internal funding
rate
described below,
and (2) the derivative or derivatives underlying the economic terms
of the notes. The estimated value of the notes does
not represent a
minimum price at which JPMS would be willing to buy your notes in
any secondary market (if any exists) at any time. The
internal funding
rate used in the determination of the estimated value of the notes
may differ from the market-implied funding rate for
vanilla fixed
income instruments of a similar maturity issued by JPMorgan Chase
& Co. or its affiliates. Any difference may be based
on,
among other
things, our and our affiliates’ view of the funding value of the
notes as well as the higher issuance, operational and
ongoing
liability
management costs of the notes in comparison to those costs for the
conventional fixed income instruments of JPMorgan
Chase
& Co. This
internal funding rate is based on certain market inputs and
assumptions, which may prove to be incorrect, and is intended
to
approximate the
prevailing market replacement funding rate for the notes. The use
of an internal funding rate and any potential changes
to that rate may
have an adverse effect on the terms of the notes and any secondary
market prices of the notes. For additional
information, see
“Selected Risk Considerations — The Estimated Value of the Notes Is
Derived by Reference to an Internal Funding
Rate” in this
pricing supplement.
The
value of the derivative or derivatives underlying the economic
terms of the notes is derived from internal pricing models of
our
affiliates.
These models are dependent on inputs such as the traded market
prices of comparable derivative instruments and on
various
other inputs,
some of which are market-observable, and which can include
volatility, dividend rates, interest rates and other factors,
as
well as
assumptions about future market events and/or environments.
Accordingly, the estimated value of the notes is determined
when
the
terms of the notes are set based on market conditions and other
relevant factors and assumptions existing at that
time.