I know you keep saying this, but I havenât been able to find anything to support this. I canât speak for most of Europe, but I certainly donât see how this could fit into my local (Latvian) tax code; and when I search in English, all I get is either no mention of taxing or, in fact, explicit mentions that QMMF gains are taxed as interest.
Yes, T212 asks for our permission to allow to invest the money in QMMF. Based on what every source Iâve found seems to focus on, as well as my own intuition, this seems required due to potential differences in money protection schemes: if someone somewhere in the chain goes bust (or gets arrested, etc.), the way to get our money back may be more complicated than if it just sits in a bank account, due to different regulations. No sources mention any taxing differences.
For one thing, again, weâre not directly buying QMMFs. We can do that even on T212 if we want to, e. g. I see people suggesting CSH2. You can buy and sell CSH2 like any other stock on T212. Then youâll actually own the fundâs stock, maybe get dividends, and get capital gains when you sell. When I hold cash in a QMMF-backed interest account, I donât buy or sell stock. If I did, I should be able to access records of each buy, each sell, in my name; heck, I should at the very least be able to tell how much of this stock I own at any time. AFAICT none of the QMMF-backed interest accounts tell you this; you just seem to hold cash in them. Besides, to produce daily gains, if theyâre dividends, the stock should be paying out dividends daily.
My impression is that this is precisely why QMMFs are specially designated and why the âcash equivalentâ phrase is used: the broker is allowed to use them (with your consent) as the backing store because theyâre so reliable, but at the same time make it look like youâre holding plain cash for all intents and purposes. Including taxing.
Edit (inserted paragraph): In other words, weâre asked to allow the broker to back our accounts with some less-liquid storage than theyâre normally permitted to. But the broker still owes us cash, and any income or losses from their assets are theirs to keep. In exchange for this arrangement, the broker promises to share some of that income with us, but itâs the broker that we receive this compensation from, in the form of interest; and itâs the broker that defines how much it will be, whether a middle-term fixed rate (like T212) or a daily rate tied somehow to the fundâs market performance (like Revolut or Wise IIUC).
But even if we suppose that I do own QMMFs directly, Iâm not convinced that even then their gains are always dividends. It may depend on how exactly theyâre held. Some are accumulating funds that declare no dividends, so at least in some jurisdictions*, any income would be capital gains upon selling, and until then, not subject to taxation at all. For distributing funds, the picture is muddier. The fundâs underlying source of income is the money market, which doesnât qualify as dividends here at all, because dividends are defined to come from a companyâs profit and to be unrelated to lending/borrowing: the money market pays interest, not dividends. But the fund itself is traded like a company, especially an ETF. But then, is it âprofitâ? I actually donât know how this should be handled, and I genuinely suspect my tax authority doesnât, either. (*FWIW, if theyâre treated as dividends, then accumulating funds donât help in my jurisdiction: here, accumulated dividendsâbut not interestâmust be reported and taxed the same as distributed ones.)
