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, subject
to the possible application of the “constructive
ownership”
rules, 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. The
notes could be treated as “constructive ownership
transactions”
within the meaning of Section 1260 of the Code, in which case any
gain recognized in respect of the notes that would
otherwise be
long-term capital gain and that was in excess of the “net
underlying long-term capital gain” (as defined in Section
1260)
would be treated
as ordinary income, and a notional interest charge would apply as
if that income had accrued for tax purposes at a
constant yield
over your holding period for the notes. Our special tax counsel has
not expressed an opinion with respect to whether the
constructive
ownership rules apply to the notes. Accordingly, U.S. Holders
should consult their tax advisers regarding the
potential
application of
the constructive ownership rules.
The
IRS or a court may not respect the treatment of the notes described
above, in which case the timing and character of any income
or
loss on your
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 described above. 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 the potential application of
the
constructive
ownership rules, 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, our special tax counsel is of the opinion
that
Section 871(m)
should 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. 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 — Risks Relating to the Estimated
Value and Secondary Market Prices of the Notes —
The
Estimated Value of the Notes Is Derived by Reference to an Internal
Funding Rate” in this pricing supplement.