Transaction Services. Italian Financial Transaction Tax Webinar

Transcription

1 Transaction Services Italian Financial Transaction Tax Webinar

2 Transaction Services Legal Framework The Italian Financial Transaction Tax law was approved on 24 December 2012 as part of the Stability Law (Law 24 December 2012 n.228 art. from 491 to 500 Published in the Italian Official Gazette on 29 December 2012). The Law entered into force on 1 January A further decree was published by the Ministry of Economy and Finance (MEF) on 1 February as a draft, detailing the law applicability, payments and reporting rules. The Decree, the explanatory notes and other information (in Italian and English), can be found at the link piano/article html 2

3 Transaction Services Overview Applicable to: shares issued by Italian resident companies with a capitalization equal or higher than EURO500 million; Cash equity contracts; Equity Derivatives contracts (including certificates, warrants, covered warrants); Instruments incorporating or representing the shares (ADR, GDR,) regardless the residency of the issuer; High Frequency Trading on cash equities and equity derivatives transactions. The liable party is the investor (net buyer) for cash equities and both parties of the derivatives contract. The tax has to be paid and reported by an intermediary intervening in the contract. In case there are more intermediaries involved in the chain, the tax has to be paid by the one who has received the purchase order or derivative contract subscription request, including non-resident intermediaries. The non-resident intermediary holding a branch or permanent establishment in Italy is required to remit the tax and report through the branch or permanent established entity. The non-resident intermediary responsible for the payment and reporting, that do not hold a branch or a permanent establishment in Italy, may appoint an Italian fiscal representative, which will be jointly liable with the foreign intermediary. The Intermediary can suspend the execution of the relevant transaction if they do not receive the funds needed for the payment of the IFTT. The payments are due on the 16th day following the month of the trade. The first payment date for cash equity trades is 16 July The first payment date for equity derivatives is 16 August The reporting is due annually. 3

4 Transaction Services Cash Equities: The tax is due on the transfer of ownership (settlement) occurring from 1 March 2013 for traded booked after 28 February Transfers of ownership of stake holdings in collective investment undertakings, including the shares of SICAVs registered and authorized in Italy, are excluded from the application of the tax The liable party is the investor Netting is possible per line of stock per day Cases for Exemptions and Exclusions are provided The liable party may opt, for netting calculation, to consider either the Contractual settlement date or the Actual settlement date In scope instruments: Shares issued by Italian resident companies with a capitalisation ti equal to or higher h than EUR500 million (to be calculated l as the average of the month of November of the prior year); The list of exempted companies for 2013 has been published by the Italian Ministry of Finance on 1 February For 2014 and onwards, it will be published no later than 20 December of each year. The list will be based on Consob and Italian issuing companies listed on non-italian markets report submitted to the MEF no later than 10 December of each year; Instruments incorporating or representing shares (ADR, GDR), regardless the residency of the issuer In scope trades: on-exchange and OTC transactions regardless of the place of booking and the residency of the counterparts to the contract The base rate: 0.2 per cent on the value of the relevant transactions (0.22 per cent in 2013 only); Cash equities transactions concluded in Regulated Market or Multilateral Trading Facilities will benefit of a reduced rate of 0.1 per cent (0.12 per cent in 2013 only). The tax is due by the buyer only 4

5 Cash Equities: Roles and Responsibilities The intermediary receiving (not necessarily executing) the purchase order form the investor, is responsible for calculating and remitting the tax to the Tax authority on behalf of the investor. For trades executed by intermediaries acting as riskless principal in a transaction for the benefit of its clients, the tax is due by the investor only, provided that both transactions have the same quantity, price and settlement date. For trades executed by intermediaries for their own benefit (property position), the tax is due by the intermediary that is also responsible for calculation, payment and reporting. In case the investor (liable party) holds different relationships with multiple intermediaries, the netting calculation will be possible across all positions provided that: The investor appoints one intermediary as netting, calculation, paying and reporting agent, AND All other intermediaries accept to provide the appointed agent with all necessary information; ALTERNATIVELY The investor appoints one intermediary paying and reporting agent, All intermediaries provide the Italian CSD with all necessary information to calculate the netting and the tax due, The CSD will provide the intermediary appointed as paying agent with the necessary information to remit the tax due and the reporting. The intermediary may refuse the appointment of netting, calculation, paying and reporting agent for multiple relationships. Intermediaries may appoint the Italian CSD for netting, tax calculation and payment. All responsibilities, including reporting, will remain with the intermediary. When the CSD acts as paying agent the tax is due on the 16 th day of the second following month. 5

6 Cash Equities: Netting Calculation On exchange transactions (regulated markets and MTF) Total Quantity Price countervalue Taxable Tax rate Buy Y 0.10% N - Sell 15 Y Net ON EX -5 OTC Quantity Price Total countervalue Taxable Tax rate Buy Y 0.20% Sell 5 Y Net OTC 10 Overall NET Quantity AVG price Total countervalue Taxable AVG Tax rate Tax Due Y 0.16%

7 Derivatives: The tax is due on derivatives contracts traded on regulated markets and MTF or OTC as from 1 July 2013 regardless of the place of booking and the residency of the counterparts to the contract. Booked is to be considered as the subscription, early cancellation (except when the original derivative is replaced by a new contract) or a modification of the contract. Modification is to be intended as a change in the notional value, the parties to the contract or the contract maturity. The tax is due by both parties in the contract. For derivatives involving the delivery of shares, this is subject to the tax on shares (if applicable) in addition to the tax on derivatives. The delivery of newly issued shares is a reason for exclusion. Derivatives are in scope when their main underlying assets is also represented by one or more instruments included in the Cash Equity tax definition. The portion of the equities of the underlying asset for the derivative to be in scope will be in excess of 50 per cent of the equity component only. Instruments giving the right to buy/sell shares as per the same definition (typically Rights Options) are equally in scope. The tax on derivatives is a flat amount which range from EUR0.025 to EUR200 depending on the relevant instruments and on its notional value. Derivatives contracts concluded in Regulated Market or Multi Trading Facilities may be subject to a reduced tax amount of 1/5 of the above. (detailed amount per derivative type in the following slide). Cases for Exemptions and Exclusions are provided. 7

8 Transaction Services Derivatives: The Tax Amount TABLE: FINANCIAL TRANSACTION TAX (figures in, for each party) Notional value of the transaction (in '000) Financial instrument Futures, certificates, covered warrants, options on share related yields, parameters and indexes Futures, warrants, certificates, covered warrants, options on shares Swap agreements on shares and share related yields, parameters and indexes Forward agreements on shares and share related yields, parameters and indexes Differential financial agreements on shares and share related yields, parameters and indexes Any other transaction involving a cash payment determined with reference to shares, share related yields, parameters and indexes Combinations of agreements mentioned above >

9 High Frequency Trading: The IFTT has introduced a tax on High Frequency Trading executed in the Italian financial market over taxable equities and taxable derivatives that adhere to both the following requirements: generated by a computer algorithm that automatically determines the decisions relating to the sending, modification and cancellation of orders and of the relevant parameters with the exclusion of those used: for the performance of the market-making activity provided that orders placed by such algorithms come from specific desks devoted to market-making activities; solely for the fulfillment of clients orders to comply with best execution requirements provided by Article 21 of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004; they occur at intervals not exceeding half a second. This interval is calculated as the time between the placing of an order for purchase or sale and the subsequent modification or cancellation of the same order by the same algorithm. The tax rate is 0.02 percent on the countervalue of cancelled or amended orders exceeding the day trading threshold of 60 per cent of the transmitted orders The tax is due from: 1 March 2013 for HFT on taxable equities and on 1 July 2013 for HFT on taxable derivatives 9

10 Exempted entities National and European central banks EU and EU institutions Supranational organizations established in accordance with international agreements enforced in Italy; a specific decision of the Tax authority may give notice of the agreements Transactions booked under a product or service classified as ethical or socially responsible For the above cases the tax is not due by any of the parties in the contract Market Maker activity as defined by the EU Directive 236/2012 or ESMA/2013/158 or in absence of this, following specific CONSOB authorization (to be further detailed) In this case the tax is due by the other party intervening in the contract as applicable Pension funds as per EU directive 2003/41/CE included European Pension Funds and the so-called Pension fund pooling vehicles, provided that they are entirely participated by the above mentioned funds Central counterparties (CCP) 10

11 Excluded Transactions Inheritance Donations Share issuance or cancellation Bonds converted into new shares New shares subscribed out of a rights issue Delivery of new shares as part of a derivative contract ADR/GDR issued on newly issued shares Lending and Borrowing REPO contract defined as buy-sell back or sell-buy back Securities pledged as collateral even in the case of full title transfer except cases where the guarantee is enforced Transfer of ownership following a restructuring transaction Intra-group transactions Transactions executed by financial intermediaries acting as riskless principal p in the interest of the investor provided the both transactions have the same quantity, price and settlement date Financial institutions acting as placement agents or distributors provided that the resale occurs within 30 days from the initial acquisition 11

12 Payment Due Date Payments are due on the 16th day of the month following the month of the trade. The payment of the tax on cash equity and HFT cash equity contracts booked in March, April and May 2013 is due by 16 July The payment of the tax on cash equity and HFT cash equity contracts booked in June 2013 is due by 16 July The payment of the tax on derivatives and HFT derivatives contracts booked in July 2013 is due by 16 August

13 Payment Methodology and Reporting Intermediaries are responsible for the payment and for the reporting Intermediaries acting on behalf of the investor may suspend the payment if the investor has not provided the necessary quantity of cash Intermediaries acting on their own benefit (property positions) are responsible for payment and reporting The tax amount is non-deductible for capital gain purposes or income taxes For non-euro denominated transactions the countervalue subject to tax must be converted as per the rate published by the European Central Bank at the web page Intermediaries resident in Countries that have no agreements in force with Italy for the purposes of the exchange of information or the assistance in the collection of tax credits, listed in a specific decision of the Tax Authority, that are involved for any reason in the execution of the transaction, are considered in all respects as purchasers or final counterparties of the order of execution Foreign intermediaries are responsible as per the above and are mandated to: Act through their permanent establishment entity in Italy OR Appoint a fiscal representative in Italy OR Act directly for reporting purposes the intermediary will be identified through a registration procedure to be defined Reporting is due annually The report is not due if the tax paid is less than EUR 50 The detailed procedures for payment and reporting will be issued by the Tax Authority 13

14 Sanctions and Reimbursements In case of missing or late payment, a penalty of 30 per cent of the missed or late payments amount is applied to the intermediary responsible for the tax payment. Ref is made to Article 13 of Legislative Decree No 471 of 18 December 1997 In case of insufficient or omitted payment of the tax, the Tax Administration has the authority to recover the tax and the relevant interests also against the taxpayer concerned Penalties are also applied in case of incorrect or missing reporting. Ref is made to the Legislative Decree No 471 of 18 December 1997 Reimbursement procedure in case of double charges will be defined by the Tax Authority 14

15 Transaction Services Q&A 15

16 IRS Circular 230 Disclosure: Citigroup Inc. and its affiliates do not provide tax or legal advice. Any discussion of tax matters in these materials (i) is not intended or written to be used, and cannot be used or relied upon, by you for the purpose of avoiding any tax penalties and (ii) may have been written in connection with the "promotion or marketing" of any transaction contemplated hereby ("Transaction") ). Accordingly, you should seek advice based on your particular circumstances from an independent tax advisor. In any instance where distribution of this communication is subject to the rules of the US Commodity Futures Trading Commission ( CFTC ), this communication constitutes an invitation to consider entering into a derivatives transaction under U.S. CFTC Regulations 1.71 and , where applicable, but is not a binding offer to buy/sell any financial instrument. Any terms set forth herein are intended for discussion purposes only and are subject to the final terms as set forth in separate definitive written agreements. This presentation is not a commitment to lend, syndicate a financing, underwrite or purchase securities, or commit capital nor does it obligate us to enter into such a commitment, nor are we acting as a fiduciary to you. By accepting this presentation, subject to applicable law or regulation, you agree to keep confidential the information contained herein and the existence of and proposed terms for any Transaction. Prior to entering into any Transaction, you should determine, without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume these risks) as well as the legal, tax and accounting characterizations and consequences of any such Transaction. In this regard, by accepting this presentation, you acknowledge that (a) we are not in the business of providing (and you are not relying on us for) legal, tax or accounting advice, (b) there may be legal, tax or accounting risks associated with any Transaction, (c) you should receive (and rely on) separate and qualified legal, tax and accounting advice and (d) you should apprise senior management in your organization as to such legal, tax and accounting advice (and any risks associated with any Transaction) and our disclaimer as to these matters. By acceptance of these materials, you and we hereby agree that from the commencement of discussions with respect to any Transaction, and notwithstanding any other provision in this presentation, we hereby confirm that no participant in any Transaction shall be limited from disclosing the U.S. tax treatment or U.S. tax structure of such Transaction. 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