EU financial transaction tax

Transcription

1 Briefing EU financial transaction tax Summary On 14 February 2013, the European Commission tabled its proposal for a Council Directive implementing enhanced cooperation in the area of financial transaction tax (the FTT Directive). The proposed FTT Directive intends the FTT to enter into effect on 1 January Although it will be some time before the FTT Directive is adopted, its impact on financial transactions within Europe will be significant. In this briefing we analyse the proposed FTT Directive and describe various national FTTs applicable in the key member states (MSs) of the enhanced cooperation group, as well as in some significant MSs outside that group. For more information please contact Michael Sedlaczek T E michael.sedlaczek@freshfields.com Vittorio Salvadori di Wiesenhoff T E vittorio.salvadori@freshfields.com Axel Haelterman T E axel.haelterman@freshfields.com Cyril Valentin T E cyril.valentin@freshfields.com Ulf Johannemann T E ulf.johannemann@freshfields.com Eelco van der Stok T E eelco.vanderstok@freshfields.com Silvia Paternain T E silvia.paternain@freshfields.com Murray Clayson T E murray.clayson@freshfields.com Freshfields Bruckhaus Deringer llp EU financial transaction tax 1

2 1. Introduction On 14 February 2013, the European Commission published its long awaited (and much leaked) proposal for the FTT Directive 1. The proposed financial transaction tax (FTT) will be wide in scope in almost every respect with few exemptions. Given its potentially global reach, market participants (particularly those that fall within the very wide definition of financial institution ) whom this Directive targets to make a fair and substantial contribution to covering the costs of the recent crisis are predicting the possible end or at least a huge decline in the EU financial services markets. If the FTT Directive is adopted as currently drafted it will certainly change the landscape of the derivatives and other markets in financial instruments in Europe. The French tax authorities have recently worked with industry bodies to minimise the potentially adverse effects of their domestic FTT introduced last year and talks are ongoing with the Italian tax authorities as respects the Italian FTT, so perhaps its scope, particularly its extraterritorial extent, will be reined in during discussions on the proposal. This briefing examines the proposed FTT Directive before going on to look at domestic FTTs that have been recently introduced as well as other equivalents in some EU MSs. 2. Background In September 2011, the European Commission tabled a proposal for a Council Directive on a common system of FTT and amending Directive 2008/7/EC 2. The essence of that proposal was that a low-rate, widebase tax should be applied on all financial transactions with an economic link to the EU (the FTT Proposal). In May 2012 the European Parliament (EP) adopted an opinion supporting the FTT Proposal. However, it was agreed subsequently, at the ECOFIN Council meetings in June and July 2012 that unanimity would not be reached within a reasonable period. Nonetheless, a significant number of MSs were still eager to have a common system on FTT. Therefore, during September and October 2012, eleven MSs, namely Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain, formally requested to proceed through enhanced cooperation 3. They wrote to the European Commission, asking for a Decision to be submitted to the Council to enable them to move ahead as a smaller group, on the basis of the objectives and scope of the FTT Proposal. After having confirmed that all the requirements set out in the EU Treaties for enhanced cooperation were met, on 23 October 2012, the European Commission issued a proposal for a Council Decision authorising enhanced cooperation for the purposes of a FTT between the eleven MSs, and submitted it to the Council. 2 Council Directive 2008//EC of 12 February 2008, concerning indirect taxes on the raising of capital /0045 (CNS). 3 Enhanced cooperation is when a group of at least 9 MSs decide that they will move ahead with an initiative proposed by the Commission when it proves impossible to reach unanimous agreement on it. 2 Freshfields Bruckhaus Deringer llp EU financial transaction tax

3 The EP voted in favour of the proposal on 12 December 2012 by 533 votes to 91 (easily meeting the qualified majority voting requirement), with 32 abstentions 4. The Council adopted the decision authorising the eleven MSs to proceed with the introduction of a FTT through enhanced cooperation on 22 January On 14 February 2013, the European Commission tabled its proposal for the FTT Directive. 3. Next steps The proposed FTT Directive is now being considered by MSs, with a view to its implementation under enhanced cooperation. All 27 MSs can participate in the discussions on this proposal. However, only the MSs participating in enhanced cooperation will have a vote, and they must agree on it unanimously. The EP will also be consulted. As the European Commission had previously indicated, the proposed FTT Directive is based substantially on the FTT Proposal. However, the European Commission has made the following adjustments: Taking account of the new context of enhanced cooperation. This means in particular: that the FTT jurisdiction is limited to participating MSs (ie MSs of the enhanced cooperation group and MSs that decide to adhere to it subsequently); 4 In November 2012, members of the EP s Committee of Economic and Monetary Affairs voted in favour of the launch of enhanced cooperation on the FTT and adopted a report recommending that EP approve the Council Decision. However, several MSs not wishing to participate in this enhanced cooperation for now reiterated that they want to see a detailed analysis of the potential impact of the FTT implemented by 11 or 12 MS (the Netherlands was considering joining in) on the homogeneity of the single market before a vote is held on enhanced cooperation. 5 The decision was taken by qualified majority. The Czech Republic, Luxembourg, Malta and the UK abstained. that transactions carried out within a participating MS that would have been taxed under the FTT Proposal remain taxable; and that Council Directive 2008/7/EC which precludes indirect taxes on the raising of capital (and which the FTT Proposal proposed should be amended) is not amended. The effect of this latest adjustment is that the issue of shares and bonds and the issue of units of undertakings for collective investments in transferable securities (UCITS) and alternative investment funds (AIFs) will be treated in the same way: ie they are excluded from the scope of the FTT Directive (the issue of units would have been taxable under the FTT proposal). Note though that the redemption of shares, bonds and units of UCITS and AIFs will also be treated in the same way and will be within the scope of the FTT Directive. Further strengthening of anti-avoidance and anti-relocation measures. This is achieved by the introduction of: a general anti-abuse provision pursuant to which artificial arrangements that have the essential purpose of avoiding the FTT and lead to a tax benefit will be ignored and treated for tax purposes by reference to their economic substance (noting that the purpose of arrangements will be regarded as avoiding tax, regardless of any subjective intentions of the taxpayer, where it defeats the object, spirit and purpose of the tax provisions that would otherwise apply ); a specific anti-abuse provision treating depositary receipts and similar securities issued with the essential purpose (defined as for the anti-abuse rule) of avoiding FTT on transactions in underlying securities issued in a participating MS, as issued in that MS where a tax benefit would otherwise arise (noting that where trading in the underlying securities has been replaced by trading in depositary Freshfields Bruckhaus Deringer llp EU financial transaction tax 3

4 receipts (or similar securities) to a significant extent then the burden of proving that this was not due to avoiding FTT will be on the person liable to pay the FTT); and the issuance principle as a last resort. This is said to compound the principle of establishment, which remains the main mechanism for determining whether the requisite connection to a participating MS exists. In the European Commission s view by complementing the residence principle with the issuance principle, it will be less advantageous to relocate activities and establishments outside the FTT jurisdictions, since trading in the financial instruments subject to taxation under the latter principle and issued in the FTT jurisdictions will be taxable anyway. A view which, as noted above, the market does not share. The issuance principle applies where none of the parties to the transaction would have been established in a participating MS in accordance with the general rules of the establishment principle but where those parties are trading in financial instruments issued in that MS. This concerns essentially shares, bonds and equivalent securities, money-market instruments, structured products, units and shares in collective investment undertakings and derivatives traded on organised trade venues or platforms. This gives the necessary link to the participating MS in which the issuer is located and the parties to the trade will be deemed to be established in that MS because of that link. The financial institution(s) concerned will then have to pay FTT in that MS (unless it can be proved that there is no link between the economic substance of the transaction and a participating MS when the charge will fall away). The potentially global reach of the proposed FTT Directive is already causing consternation in the markets. 4. Proposed FTT Directive summary Although it may take some time until the FTT Directive is finally adopted, its impact for financial transactions within Europe will be significant. It will be applied by the Eurozone s biggest economies covering two-thirds of EU economic output and the European Commission estimates that it will raise some 30 to 35bn. We briefly describe below the proposed FTT Directive (noting that to achieve agreement in those questions where the proposed FTT Directive has gone further than the FTT Proposal, the usual rounds of horsetrading are taking place). 4.1 Scope of the FTT Under the proposed FTT Directive the FTT will apply to all financial transactions, where (i) at least one party to the transaction is established in a participating MS, and (ii) a financial institution established in a participating MS is party to the transaction (acting either for its own account or for the account of another person, or in the name of a party to the transaction). A number of questions arise. Which financial transactions are covered by the proposed FTT Directive? The following financial transactions will trigger the FTT, whether they are carried out on organised markets or over the counter: the purchase and sale of a financial instrument 6 (eg shares, bonds, derivatives, units in collective investments undertakings, depositary receipts etc) before netting and settlement, so a charge arises for both buyer and seller; 6 As defined in (i) Section C of Annex I of Directive 2004/39/EC of the EP and of the Council of 21 April 2004 on markets in financial instruments (MIFID) and (ii) structured products (ie tradable securities or other financial instruments offered by way of a securitisation within the meaning of Article 4(36) of Directive 2006/48/EC of the EP and the Council or equivalent transactions involving the transfer of risks other than credit risk). 4 Freshfields Bruckhaus Deringer llp EU financial transaction tax

5 the intra-group transfer of a financial instrument (or risk associated with it); the conclusion or modification of a derivative contract 7 before netting and settlement; an exchange of financial instruments which is also considered to give rise to two financial transactions (ie a double charge); and repurchase and reverse repurchase agreements and securities lending and borrowing agreements 8 (including modification of such agreements) though here only one charge will arise. The FTT will not apply to: primary market transactions such as issuing shares, bonds and units in UCITS and AIFs and underwriting activities in relation to such transactions; transactions with the central banks of MSs, the European Central Bank, the European Financial Stability Facility, the European Stability Mechanism and the European Union (so as not impact adversely on State and bank refinancings and monetary policy generally); certain company restructuring transactions; physically delivered commodity transactions (though derivatives over commodities are covered); spot currency transactions (though currency contracts such as options, futures and swaps are included); and transactions in which private households or small and medium enterprises (SMEs) are involved (eg house mortgages, bank borrowing by SMEs, or contributions to insurance contracts). 7 As defined in points (4) to (10) of Section C of Annex I of MIFID, as implemented by Article 38 and 39 of Regulation (EC) 1287/2006. Which financial institutions are covered by the proposed FTT Directive? The term financial institution is defined very broadly, covering a wide range of institutions in order to prevent the tax from being circumvented. It includes investment firms, organised markets, credit institutions, insurance and reinsurance companies, collective investments undertakings (including UCITS and AIFs) and their managers, pension funds and their managers, holding companies, financial leasing companies and special purpose entities. Central Counterparties (CCPs), Central Securities Depositories (CSDs), International Central Securities Depositories (ICSDs) such as Clearstream and Euroclear and public bodies (including MSs) that manage public debt are not financial institutions (provided they are not trading in financial instruments). However, there are record-keeping requirements which they must observe and if tax is unpaid they could become jointly and severally liable for the tax. When is a financial institution regarded as established in a participating MS? A financial institution will be deemed to be established in the territory of a participating MS where any of the following conditions is fulfilled: it has been authorised by the relevant authorities of that MS; it is authorised under passporting arrangements or otherwise entitled to operate, as a financial institutions in that MS; it has its registered seat within that MS; its permanent address or usual residence is in that MS; it has a branch within that MS, in respect of transactions carried out by that branch; 8 Agreements referred to in Article 3 of Directive 2006/49/EC of the EP and the Council. Freshfields Bruckhaus Deringer llp EU financial transaction tax 5

6 it is party (acting either for its own account or for the account of another person, or in the name of a party to the transaction) to a financial transaction with another financial institution established in that MS, or with a party established in that MS which is not a financial institution; or it is party (acting either for its own account or for the account of another person, or in the name of a party to the transaction) to a financial transaction in a structured product or one of the financial instruments referred to in Section C of Annex I of MIFID (see the description of financial instruments above) issued within that MS, with the exception of instruments referred to in points (4) to (10) of that Section of MIFID (ie derivative contracts) which are not traded on an organised platform. A person that is not a financial institution will be deemed to be established within a participating MS if its registered seat or, in the case of a natural person, his permanent address or usual residence is located in that MS, or it has a branch in that MS, in respect of financial transactions carried out by that branch, or it is a party to a financial transaction in a structured product or a financial instrument in the terms indicated in the above paragraph. When does the FTT become chargeable? The FTT will become chargeable from the moment the transaction or modification occurs. Subsequent cancellation or rectification of a financial transaction will have no effect on chargeability, except for cases of errors. What is the taxable amount on which FTT will be charged? For transactions other than derivatives, the taxable amount of the FTT will be, in principle, everything which constitutes consideration paid or owed, in return for the transfer, from the counterparty or a third party. For derivatives, the taxable amount of the FTT will be the notional amount (ie the underlying nominal or face amount that is used to calculate payments under the derivative). What are the minimum tax rates? The rates of FTT to be applied by participating MSs may not be lower than: 0.1 per cent for financial transactions other than derivatives; and 0.01 per cent for derivatives. The participating MSs will apply the same rates to all financial transactions within each respective category but the rates can be higher. Who is liable to pay FTT? The FTT will be paid by each financial institution (deemed to be established in a participating MS) which fulfils any of the following conditions: it is party to the transaction, acting either for its own account or for the account of another person; it is acting in the name of a party to the transaction; or the transaction has been carried out on its account. The FTT will be payable to the tax authorities of the participating MS in which the financial institution is deemed to be established. 6 Freshfields Bruckhaus Deringer llp EU financial transaction tax

7 It should be noted, therefore, that any financial institution which is party to a transaction or is involved in a transaction will be liable for the tax. A single financial transaction may therefore result in payment of the tax on both sides of the transaction, at the rate applicable in the participating MS of establishment of the financial institution concerned. Further, each party to a transaction, including as noted above persons other than financial institutions (CCPs, CSDs and ICSDs), will be jointly and severally liable for the payment of the tax due by a financial institution in respect of that transaction, if that financial institution fails to pay. This means one party could end up paying the tax twice and indeed that a non-party could end up paying the tax twice. This seems particularly unfair especially where liability is established under the issuance principle. However, where a financial institution acts in the name of or for the account of another financial institution, only the latter will be required to pay the FTT. When should the FTT be paid? The FTT will be paid to the tax authorities of the participating MS: at the moment when the FTT becomes chargeable (ie when the financial transaction occurs), where the transaction is carried out electronically; or within three working days from the moment the tax becomes chargeable, in all other cases. What happens to the FTT after it is collected? Although the FTT will be collected by MSs, the proposed FTT Directive envisages at least part of it being used as a new revenue stream for the EU Budget, resulting in a corresponding reduction in the national contributions of participating MSs. What will happen to other national taxes on financial transactions? Participating MSs will not be allowed to maintain nor introduce taxes on financial transactions other than the FTT or value added tax as provided for in the VAT Directive 9. When must participating MSs transpose the FTT Directive? The proposed FTT Directive envisages that participating MSs will adopt and publish, by 30 September 2013 at the latest, the laws, regulations and administrative provisions necessary to comply with it, and that they shall apply those provisions from 1 January Conclusion While some have expressed surprise at the expected revenues, a key point to note is the potential territorial scope of the proposed FTT Directive. Its effect is that tax will be payable by UK branches of financial institutions established in one of the participating MSs in respect of trades they do in London (or elsewhere) even where they are not trading on their own account (if the client is based in one of the participating MSs). Moreover, financial instruments that are issued in one of the participating MSs will be within the charge even when traded wholly outside the EU. 9 Council Directive 2006/112/EC. Freshfields Bruckhaus Deringer llp EU financial transaction tax 7

8 5. Current taxation of the financial sector in the participating MSs There are some MSs within the enhanced cooperation group that already have a form of FTT in place or a legislative proposal for its implementation. Once the FTT Directive is approved, they may have to modify their national legislation to align with the FTT Directive. 5.1 Austria In Austria there is neither an FTT in place nor a concrete proposal for its implementation yet. However, Austria is willing to implement the EU FTT and seems to agree with the FTT Directive as currently drafted. 5.2 Belgium Belgium is willing to implement the EU FTT, however no concrete legislative proposal has yet been issued. The deadline set for the implementation of the FTT therefore appears too optimistic, with it requiring the adaptation and expansion of the current Belgian FTT. The main concern is the impact that the implementation of the new EU FTT will have on the Belgian treasury centres which would fall under the scope of application of such tax, whilst Luxembourg and Dutch treasury centres remain off the hook. Below follows a brief overview of the three current types of financial tax in Belgium and their main characteristics. Belgian Tobin Tax The Belgian Tobin Tax was introduced by a statute in However, this tax has never been implemented, in the absence of its Royal Decree. It is the opinion of the European Central Bank that such tax on spot currency transactions would be incompatible with the free movement of capital. Belgian Bank Levy The Belgian Bank Levy is applicable to all credit institutions licensed by the Belgian National Bank or Belgian branches of foreign banks. The tax is levied on part of the total amount of the saving deposits on 1 January of the tax year (not including the interests of the previous year). That part equals the proportion between the total of the non-taxable income and the total of the attributed income on those saving deposits during the year preceding the tax year. The tax rate is fixed at 0.05 per cent x weighting coefficient. This weighting coefficient is calculated according to the ratio of A over B where A is equal to the monthly average on an annual basis of the European loans that are not attributed to financial institutions and B equals the total of the exempt payments to regulated savings deposits at the end of the year preceding the tax year. Depending on the ratio, the coefficient can vary between 60 per cent (if the ratio exceeds 1 ) and 240 per cent (if the ratio is in the range of ). The tax is levied by a yearly declaration at the competent registration office. Belgian Stock Exchange Tax The Belgian Stock Exchange Tax is the most similar to the EU FTT of the three Belgian financial taxes. However, the proposed EU FTT will probably have a wider range of application than the Belgian Stock Exchange Tax given the broader definition of a financial institution in the proposal, with the result that intra-group transfers will also be subject to the FTT. 8 Freshfields Bruckhaus Deringer llp EU financial transaction tax

9 The scope of the Belgian Stock Exchange Tax covers two types of taxable transaction which are concluded or executed in Belgium and that relate to Belgian or foreign public funds: secondary market transactions (ie all sales, purchases, and, more generally, transfers or acquisitions for consideration); and redemptions of own shares by an investment company with respect to capitalisation shares. The taxable base depends on the underlying transaction: for purchases or acquisitions: the sums paid by the buyer, excluding broker fees; for sales or transfers: the sums to be received by the seller, without deducting the broker fees; and for the redemption of own capitalisation shares by investment companies: the net asset value of the shares, without deducting the lump sum compensation. The rates at which the Belgian Stock Exchange Tax is levied are the following: 0.09 per cent (capped at 650) for transactions relating to securities of the Belgian public debt or the public debt of foreign States, loans issued by local Belgian or foreign authorities, bonds issued by Belgian or foreign companies and certain securities issued by entities established in Belgium representing shares, bonds or other securities; The exemptions to the Belgian Stock Exchange Transaction Tax are multiple (eg if there is no intervention by a professional intermediary or where the transaction is performed for the own account of intermediaries). The Belgian Stock Exchange Transaction Tax is due separately by the seller and the purchaser. The tax is payable by the professional intermediary at the latest on the last working day of the month following the transaction. 5.3 France The French FTT came into force on 1 August Its main features are set out below. Taxable event Unless an exemption applies, the French FTT applies to all acquisitions of equity instruments or assimilated instruments of companies (i) whose head office is located in France, (ii) whose market capitalisation is higher than one billion Euro, and (iii) whose shares are listed on a French or EU regulated market or a recognised foreign market within the meaning of the French monetary and financial code (FMFC) 10. For these purposes: the acquisition is taxed only if it gives rise to a transfer of ownership of the equity instrument. Such a transfer results from the registration of the equity instrument in the title account of the purchaser upon their effective delivery 11 ; and 0.25 per cent (capped at 740) if the transaction relates to any other type of security; and one per cent (capped at 1500) for transactions with capitalisation shares. 10 The ministerial regulation # EFIE A of July 12, 2012 lists such French companies. 11 Intra-day transactions are taxed only on the resulting buying position at the end of the day. In addition, under the Guidelines, an acquisition of equity instruments under a collateral subject to the provisions of FMFC, L is outside the FTT scope despite the fact that it results in a transfer of ownership of the collateral. Freshfields Bruckhaus Deringer llp EU financial transaction tax 9

10 equity instruments include: shares (ordinary or preferred) and any other securities governed by French law giving access to the capital or the voting rights of a company; any assimilated equity securities (ie any equivalent instruments issued under a law other than French law); and certain securities representing the instruments mentioned above, wherever the corporate seat of the issuer of such securities is located 12. Pursuant to the French tax authorities guidelines (the Guidelines) 13, the scope of the French FTT includes the following: shares; convertible bonds ( obligations convertibles ) (OCs), mandatory convertible bonds ( obligations remboursables en actions (ORAs), bonds convertible into new or existing shares (OCEANEs), bonds exchangeable into shares ( obligations échangeables en actions ) (OEAs), bonds with share subscription warrants attached (OBSAs and OBSAARs); French law CIs ( certificats d investissement stock certificates without voting rights) and CDVs ( certificats de droits de vote voting right certificates); and certificates representing shares that are issued by an entity having its head office in France, even if these certificates are issued by an entity located outside of France. The Guidelines include into this category depositary receipts, including American Depositary Receipts (ADRs) representing chargeable French equity securities. 12 FTT applies to acquisitions of securities referred to under this paragraph that are realised as from 1 December 2012 only. It is worth noting that the acquisition of the bonds referred to above, even though such bonds are within the scope of the French FTT, is exempt from French FTT. However, the acquisition of the underlying shares resulting from the exercise of the exchange, conversion or subscription features attached to such bonds, does not benefit from that exemption and thus attracts French FTT except where that conversion results in the issue of new shares (ie in a share capital increase of the issuer), in which case the primary market issuance exemption applies. The Guidelines indicate that exchange traded funds (ETFs) established in the form of French fonds communs de placements (FCPs) or société d investissement à capital variable (SICAVs) are outside the scope of the French FTT. Exemptions The French FTT is not applicable to the following transactions: purchase of securities completed in the context of the issuance of new shares (including as a result of an underwriting agreement); non-speculative housing markets activities (transactions realised by the clearing house or a central custodian); certain market making activities; certain transactions realised between affiliates of the same group of companies, including mergers and transfer of assets under the French favourable regime (but not the buy-back by a company of its own shares); mergers and spin-off transactions benefiting from a rollover tax regime for corporate income tax purposes; and certain securities lending transactions (securities lending/borrowing, repo or reverse repo transactions, buy-sell back transactions). 13 BOI-TCA-FIN and seq. 10 Freshfields Bruckhaus Deringer llp EU financial transaction tax

11 Payment Where an investment service provider (ISP) is intervening in the transaction, either as a broker executing the trade for the account of a purchaser or as a purchaser acting for its own account, such ISP is liable for the payment of the French FTT. Absent any intervention of an ISP acting as purchaser s broker or as purchaser, the purchaser s custodian, regardless of its location, is liable for the French FTT. Neither the seller nor the purchaser is liable for the payment of the French FTT (except when the purchaser is an ISP acting for its own account). Tax rate The French FTT is levied at a 0.2 per cent rate. 5.4 Germany In Germany there is neither an FTT in place nor a concrete proposal for its implementation yet. However, Germany is willing to implement the EU FTT. 5.5 Italy Separately from the upcoming FTT Directive, Italy has pushed ahead with its own FTT. The Italian FTT was introduced by Art. 1, 491 to 500, of Law 24 December 2012 n.228 (Legge di Stabilità 2013; the Stability Bill), which was published in the Italian Official Gazette on 29 December Pursuant to Art. 1, 500, of the Stability Bill, the Italian Ministry of Economy and Finance (Ministro dell economia e delle finanze; the MEF) shall set out the operational rules, including any reporting obligations, for the application of the FTT in a decree (the Treasury Decree) to be issued within 30 days from the entry into force of the Stability Bill. On 31 January, the MEF published on its website a draft of the Treasury Decree (the Draft Decree) with a view to gathering suggestions from any interested parties, in the context of a public consultation process which ended on 4 February. The final version of the Treasury Decree, which differs in several regards from the Draft Decree, was signed on 21 February and made available, together with an Explanatory Memorandum, on the website of the MEF the following day. The Treasury Decree was then published in the Official Gazette n. 50 of 28 February The Treasury Decree has been amended by the Decree 18 March 2013, published on the MEF website the following day. The Decree 18 March 2013 was enacted to correct material mistakes contained in Art. 17(3) and Art. 19(4) of the Treasury Decree. We set out below the main features of the Italian FTT, based on the provisions of the Stability Bill and of the Treasury Decree. The Director of the Revenue Agency (Direttore dell Agenzia delle Entrate) is required by the Treasury Decree to issue several regulations in relation to the Italian FTT, concerning, among other things, reporting and payment obligations. To date, most of these regulations have not been issued 14. Also, the general guidelines of the Revenue Agency on the Italian FTT have not been published yet and the timing of their publication cannot be predicted. Taxable transactions The following transactions will trigger the Italian FTT: 1. Transactions on shares and other equity instruments The Italian FTT will be due in respect of the transfer of the ownership of certain equity instruments (the Chargeable Equities), namely: 14 In particular, the Director of the Revenue Agency shall still issue specific regulations on: reporting, payment of the FTT and connected instrumental formalities (Art. 19(5)), modalities for the tax identification of foreign persons required to pay and report the tax (Art. 19(8)) and modalities for claiming refunds of the tax unduly paid (Art. 22). Freshfields Bruckhaus Deringer llp EU financial transaction tax 11

12 (a) shares issued by companies having their registered office in Italy and, in the case of listed shares only, an average market capitalization in November of the previous year of more than EUR 500m 15 ; (b) certain participating financial instruments, issued by companies having their registered office in Italy; and (c) securities representing the shares and instruments in (a) and (b) above, irrespective of the residency of the issuer (depositary receipts) 16. Transactions in collective investment undertakings (including ETFs and SICAVs) are outside the scope of the FTT. In particular: the FTT will be due irrespective of the place where the transactions are executed and irrespective of the country of residence of the counterparties; 15 Under Art. 17 of the Treasury Decree, the MEF must draft and publish on its website, by 20 December of each year, a list of companies with a market capitalization of less than EUR 500m. For 2013, the list, which at present includes only Italian resident companies whose shares are negotiated on an Italian regulated market or multilateral trading facility (MTF), is attached to the Treasury Decree ( Alegato_Decreto_FTT.pdf). Art. 17(3) states that the MEF would publish another list by 1 Mar. 2013, including Italian resident companies whose shares are negotiated on a foreign regulated market or MTF. For the purpose of drafting this second list, which has not been published yet, Italian resident companies whose shares are negotiated on a foreign regulated market or MTF must send to the MEF (in theory by 20 February 2013, even though the Treasury Decree was published after that date) a written communication certifying the value of their own capitalization, enclosing thereto an ad hoc certification issued by the relevant regulated market under MIFID or by the operator of a MTF, if more relevant in terms of exchange value. 16 Article 15(1)(i) of the Treasury Decree excludes from the scope of application of Italian FTT transactions in depositary receipts representing shares issued by Italian companies with an average market capitalization in November of the previous year lower than EUR 500m, as per the list published annually by the MEF. the FTT will be due at the ordinary rate of 0.2 per cent, reduced to 0.1 per cent 17 for transactions concluded in regulated markets or in multilateral trading facilities (MTFs) ; 17 For 2013 only, the rates are increased to, respectively, 0.22 per cent and 0.12 per cent. 18 According to Art. 1(2)(f) of the Treasury Decree, regulated markets and MTFs are the markets and systems recognized pursuant to Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004, relevant to the Economic European Area, as included in the list published in the specific section of the European Securities and Markets Authority [ESMA] website ( for the purposes provided for in paragraph 2 of Article 13 of (EC) Regulation 1287/2006 of the Commission of 10 August 2006, provided that they are established in States and territories included in the list referred to in the Ministerial Decree issued in accordance with Article 168-bis of TUIR [the Italian Income Tax Code]. In the case of the States to which the aforesaid provisions do not apply, regulated markets and multilateral trading facilities are considered those in regular operation and authorized by a National Public Authority with State supervision, including therein those recognized by CONSOB [Commissione Nazionale per le Società e la Borsa] pursuant to Article 67, paragraph 2 of the TUF [Testo Unico della Finanza, the Italian Finance Code], provided that they are established in States and territories included in the list referred to in the above Ministerial Decree. As the Ministerial Decree referred to in article 168-bis of the TUIR has not yet been issued, reference for the time being should be made to the list of countries allowing an adequate exchange of information, as contained in the Decree of 4 September 1996 (the 1996 Decree). 19 Pursuant to Art. 6(1) (first part) of the Treasury Decree, the reduced rate applies to transfers of ownership of Chargeable Equities taking place as a result of transactions effected on regulated markets or in multilateral trading facilities. The second part of the same Art. 6(1), however, states that the reduced rate also applies when transactions in Chargeable Equities are executed through a financial intermediary, interposed between the parties to the transaction, purchasing the above instruments on a regulated market or a multilateral trading facility, provided that price, total number and date of settlement of buying and selling transactions coincide. Furthermore, Art. 6(4) (first part) of the Treasury Decree states that operations attributable to negotiated transactions pursuant to Article 19 of EC Commission Regulation 1287/2006 of 10 August 2006, where they are provided by the market shall also be treated as transactions effected on regulated markets and on multilateral trading facilities, being therefore eligible for the reduced rate. However, the second part of Art. 6(4) gives rise to some concerns as to which negotiated transactions will be treated as transactions effected on regulated markets and MTFs for purposes of Italian FTT, so as to be eligible for the reduced rate. This second part reads as follows: on the contrary, transactions carried out bilaterally by intermediaries, including those executed on internalization systems and so-called crossing networks, irrespective of the procedures to comply with post-trade transparency obligations, shall be treated as transactions effected outside regulated markets and multilateral trading facilities. 12 Freshfields Bruckhaus Deringer llp EU financial transaction tax

13 the taxable event is the transfer of ownership, which, in the case of Chargeable Equities that are admitted to central securities depositories, is deemed to occur on the settlement date, ie the date of registration of the transfer upon settlement of the relevant transaction; the Treasury Decree however allows to make reference to the contractual settlement date; the FTT is due on the daily net long position (so-called exemption for intraday trades ). Cross-broker netting is also allowed, subject to certain conditions to be complied with; and the FTT will be due by the person to which ownership of the Chargeable Equities is transferred; however, Art. 19 of the Treasury Decree identifies the persons that are required to collect and remit the tax. 2. Transactions in derivative instruments The Italian FTT will be due in respect of certain transactions in derivative instruments (the Chargeable Derivatives), namely: (a) transactions in financial derivatives (futures, options, forwards, swaps, financial contracts for difference), both traded on regulated markets or in MTFs and subscribed or traded outside these markets, where their underlying assets are mainly one or more Chargeable Equities or where their value mainly depends on the value of one or more Chargeable Equities (the Un-Securitized Derivatives); and (b) transactions in transferable securities (operazioni su valori mobiliari) mentioned in Art. 1, 1-bis, letters c) and d), of TUF 20, giving the right to acquire or sell mainly one or more Chargeable Equities, or giving rise to a cash settlement determined mainly by reference to one or more Chargeable Equities (the Securitised Derivatives). 20 The Italian Finance Code The Stability Law specifically includes warrants, covered warrants and certificates within the concept of transferable securities. In particular: the derivative instruments and transferable securities mentioned above qualify as Chargeable Derivatives provided that the underlying or reference value consists for more than 50 per cent of the market value of Chargeable Equities, measured on the date of issuance for the derivative instruments and transferable securities which are traded on regulated markets and MTFs and on the date of conclusion of the transaction 21 in the other cases; FTT will be due, unless an exemption or exclusion applies, at a flat amount, which varies (from EUR to EUR 200) depending on the nature of the relevant Chargeable Derivative and on its notional value, on the basis of the schedule included in Table 3 attached to the Stability Bill; Art. 9 of the Treasury Decree lays down the criteria for the determination of the notional value of the different categories of Chargeable Derivatives; the FTT will be due irrespective of the place where the transactions are executed and irrespective of the state of residence of the counterparties; if the Chargeable Derivatives also provide for physical settlement, the transfer of the ownership of the underlying Chargeable Equities upon settlement will be subject to the FTT on the basis of the rules set out in 1. above 22 ; 21 The conclusion of the transaction is defined in Art. 8 of the Treasury Decree as the time of subscription, negotiation or modification of the contract. 22 The higher rate for off-exchange transactions will apply (ie 0.22 per cent in 2013 and 0.20 per cent as from 2014). Freshfields Bruckhaus Deringer llp EU financial transaction tax 13

14 for transactions concluded in regulated markets or in MTFs, the fixed FTT is reduced to one fifth (1/5) of its ordinary amount; transactions in Chargeable Derivatives will be subject to the FTT at the time of conclusion of the transaction, which is defined in Art. 8 as the time of subscription, negotiation or modification of the contract 23 (for Un-Securitized Derivatives) and as the time of transfer of ownership (for Securitized Derivatives); and the FTT will be due by both counterparties of the transactions (each of them paying in full the flat FTT due); as for transactions in Chargeable Equities, Art. 19 of the Treasury Decree identifies the persons that are responsible for collecting and remitting the tax. Exclusions According to the Stability Law and the Treasury Decree certain transactions in Chargeable Equities and Chargeable Derivatives are excluded from the scope of application of the tax: transfers of ownership of Chargeable Equities or the change in ownership of Chargeable Derivatives taking place due to inheritance or gift; transactions in bonds and debt securities; transactions of issuance and cancellation of Chargeable Equities and of Securitized Derivatives, including the repurchase of securities by the issuer; the purchase of ownership of newly issued shares, also through the conversion of bonds or the exercise of an option by the shareholder or upon settlement of a derivative; 23 Modification of the contract means, for the above purposes, a variation of its notional value, parties or maturity. However, under the same Art. 8, where the notional value is modified upward, on an automatic and not discretionary basis, under a contractual provision, the tax will be applied only to the variation of the notional value. temporary transfers of Chargeable Equities listed by Art of Council Regulation 10 August 2006 n. 1287/2006 (namely, stock loans, repurchase or reverse purchase transactions, buy- and sell-back or sell- and buy-back transactions). The same exclusion applies to the transfer of ownership of Chargeable Equities within the framework of collateral arrangements (eg irregular pledge); in addition, collateral consisting of chargeable equities or other temporary transfers that do not involve the transfer of ownership (eg irregular pledge) are also excluded from the tax. However, the FTT may apply if the transfer of title of becomes final; transfers of shares negotiated in regulated markets or in MTFs, issued by companies with an average capitalisation lower than 500m in November of the year before that of the transfer. The MEF shall publish, by the 20 of December of each year, the list of issuers with a low capitalisation; the transfer of ownership of Chargeable Equities and transactions in Chargeable Derivatives executed by group companies between which there exists a direct or indirect control relationship under Art. 2359(1)(1, 2) and Art. 2359(2) of the Italian Civil Code or which are controlled by the same company (sister companies); the transfer of ownership of Chargeable Equities or the change of ownership of Chargeable Derivatives arising in the context of the restructuring operations under Art. 4 of the Council Directive 2008/7/EC of 12 February 2008, as well as mergers and divisions of collective investment undertakings; the transfer of ownership of depositary receipts representing Italian shares or participating financial instruments issued by companies with an average market capitalization of less than EUR 500m in November of the previous year (as listed by the MEF); 14 Freshfields Bruckhaus Deringer llp EU financial transaction tax

15 purchases of Chargeable Equities and transactions in Chargeable Derivatives entered into by a financial intermediary interposed between two parties, acting as a counterparty to both sides, purchasing on the one hand, and selling on the other, securities or other financial instruments 24, where for both the buying and selling transactions the price, total number and date of settlement coincide, except cases where the person to whom the financial intermediary transfers the title or the financial instrument does not fulfil its obligations; and the purchases of Chargeable Equities and the transactions in Chargeable Derivatives entered into by systems interposing in the purchases or in the transactions for the purposes of clearing and collateral of said purchases or transactions. Exemptions The Stability Law and the Treasury Decree contemplate several exemptions from the FTT. The FTT will not apply to: transactions in Chargeable Equities and Chargeable Derivatives with certain institutional counterparties, such as the European Union, the European Central Bank, central banks of EU member states, central banks and organisations managing the official reserves of other states, and entities and international organizations established on the basis of international agreements ratified by Italy; and 24 This exclusion arguably refers to intermediaries acting as riskless principals. transactions relating to products and services classed as ethical or socially responsible under Art. 117-ter of the Italian Financial Code and its implementing rules 25. In relation to the transactions listed above, the FTT will not be payable by either party. In addition, an FTT exemption also applies to: transactions in Chargeable Equities and Chargeable Derivatives effected in the context of market-making activities, as defined in the Short Selling Regulation 26 and in the final ESMA Guidelines dated 1 February 2013, provided that the person acting in the course of this activity has been granted the exemption under Art. 17(1) of the Short Selling Regulation by the competent authority specified in Art. 17(5) or Art. 17(8) of the same regulation. For those countries to which the Short Selling Regulation does not apply, in the absence therefore of the market-making exemption referred to in the preceding sentence, the person acting in the course of market-making activities is entitled to the FTT exemption, provided that such person has submitted a specific request to 25 More in detail, the Treasury Decree exempts from FTT (a) transfers of ownership and transactions in units of collective investment undertakings referred to in Art. 1, paragraph 1, letter m) of TUF, classed as ethical or socially responsible pursuant to Article 117-ter of TUF and (b) the subscription of contracts for the provision of portfolio management services referred to in Article 1, paragraph 5, letter d) of TUF, classed as ethical or socially responsible pursuant to Article 117-ter of TUF. The wording of these exemptions is illogical since: (1) transfers of ownership and transactions in units of collective investment undertakings, whether or not they are ethical or socially responsible, are in any event not subject to the tax and (2) no tax is due on the subscription of contracts for the provision of portfolio management services. Therefore, the purposes of the above exemptions is totally unclear, since there in no point in exempting transactions which are per se not subject to the tax. A possible alternative interpretation of these rules is that the exemptions would apply when ethical/socially responsible collective investment undertakings or portfolio managers are counterparties to a transaction in Chargeable Equities or Chargeable Derivatives. 26 Regulation (EC) n. 236/2012 of the European Parliament and of the Council of 14 March Freshfields Bruckhaus Deringer llp EU financial transaction tax 15

16 CONSOB according to the procedures issued by the latter 27 (the applicant shall in any case prove compliance with the same requirements and conditions as laid down in the Short Selling Regulation and ESMA Guidelines); and transactions effected in the course of liquidity assistance activities within the framework of accepted market practices, approved by the financial market authority under Directive 28 January 2003 n. 2003/6/EC of the EP and of the Council and Commission Directive 29 April 2004 n. 2004/72/EC. The person making the relevant transactions must have concluded a contract directly with the company issuing the security. The exemptions for market-making and liquidity assistance are exclusively granted to the persons carrying out those activities and only to the transactions effected in carrying on these activities. The FTT may be applied to the counterparties, though. Last but not least, the FTT does not apply to: pension funds subject to supervision under Directive 2003/41/EU, established in (i) EU Member States or (ii) EEA Member States that allow an adequate exchange of information with Italy; 28 compulsory social security institutions, established in (i) EU Member States or (ii) EEA Member States that allow an adequate exchange of information with Italy; 29 persons and entities participated in solely by the pension funds in (1) above (so-called pension fund pooling vehicles ); and other supplementary pension schemes referred to in Italian Legislative Decree 252 of 5 December CONSOB adopted the procedure with Resolution n of 13 March At present, Norway and Iceland. 29 Id. High-frequency trading transactions A special Italian FTT regime applies to high-frequency trading transactions (HFT) executed in the Italian financial market (ie in the regulated markets and MTFs authorised by CONSOB) over equities and equity derivatives (the HFT Tax). The notion of chargeable instruments for the purposes of the HFT Tax is broader than Chargeable Equities and Chargeable Derivatives. Indeed, HFT transactions executed in the Italian financial market over equities issued by non-italian issuers or derivatives over foreign equities seem to fall within the scope of the HFT Tax. HFT transactions are defined as transactions that: are generated by an automated algorithm which automatically takes decisions concerning the sending, modification and cancellation of orders and of the relevant parameters (with the exclusion of certain algorithms, as further specified below); and 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 Treasury Decree specifically excludes from the scope of the HFT Tax those transactions generated by: algorithms used for the performance of the market-making activities referred to in Art. 1, paragraph 494, last sentence, letter (a) of the Stability Law (which sets out the FTT market-making exemption), provided that orders placed by such algorithms come from specific desks devoted to market-making activities as set out in Art. 16(3) of the Treasury Decree; and algorithms used solely for the fulfilment of clients orders to comply with best execution requirements under article 21 of MIFID and algorithms used solely for the purpose of complying with equivalent best execution requirements for the client provided by foreign regulations. 16 Freshfields Bruckhaus Deringer llp EU financial transaction tax

17 The HFT Tax will be due where, in a single trading day, the ratio between cancelled and amended orders and the sum of entered and modified orders exceeds 60 per cent, with reference to a single financial instrument. For this purpose, only the orders cancelled and modified within the interval of half a second shall be computed. The FTT will be applied, for each trading day, at the rate of 0.02 per cent on the value of the cancelled and modified orders which exceed the 60 per cent threshold. The HFT Tax is due by the persons that, by means of the algorithms, enter purchase and sale orders and the related modifications and cancellations referred to above. Again, Art. 19 of the Treasury Decree identifies the persons that are in charge of collecting and remitting the tax. Payment of the FTT The FTT shall be collected and remitted to the tax authorities by the banks, fiduciary companies, authorised investment companies and other persons which are parties to the execution of the relevant transactions (ie public notaries), including foreign intermediaries (the Intermediaries). They all have the right to recharge the FTT to the relevant taxpayer. In all other cases, the FTT will be payable by the taxpayer. When different Intermediaries are involved, the FTT shall be collected and remitted to the tax authorities by the one that receives the execution order from the purchaser or the final counterparty. According to Art. 19(4) of the Treasury Decree, where the purchaser or the final counterparty is an Intermediary, not located in the States or territories referred to in the next sentence, this person pays the tax due directly. Persons located in States or territories with which Italy has no agreements in force for the purposes of exchange of information or assistance in the collection of tax credits, identified in specific regulations issued by the Director of the Revenue Agency, 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. The Director of the Revenue Agency has identified, with Regulation of 1 March and Regulation of 29 March the countries that have with Italy either an agreement on the exchange of information or an agreement for assistance in the collection of tax credits. These white-listed countries are all the EU Member States, Norway, Iceland, Australia, India and the United States of America. All countries not mentioned in those Regulations (or in any further regulations which the tax authorities may issue) are deemed to be black-listed countries for the purposes of the rule in Art. 19(4). The main effect of the rule set out by Art. 19(4) is that an intermediary that is established in a white-listed country (such as a UK broker) and transacts with an intermediary established in a black-listed country (such as a Swiss broker) would have to charge the tax in the same way as it would were it transacting with non-intermediaries. However, the concern is that the rule might lead to multiple layers of tax if not correctly interpreted and applied by the Italian tax authorities. The Intermediaries required to collect and pay the tax may rely on the Central Depository, pursuant to a specific procedure. Freshfields Bruckhaus Deringer llp EU financial transaction tax 17

18 The non-italian resident Intermediaries which have a permanent establishment in Italy shall comply with the FTT payment and reporting obligations through the permanent establishment. The non-italian resident Intermediaries with no permanent establishment can appoint an Italian tax representative for the fulfilment of the FTT obligations. Reporting obligations are not detailed yet. Indeed, the Treasury Decree only states that reporting will be annual and may also include excluded or exempted transactions, and all the relevant details shall be set out in a specific regulation of the Director of the Revenue Agency, yet to be issued. Entry into force The Italian FTT will be due: as of 1 March 2013, in respect of transactions in Chargeable Equities and HFT over equity instruments; and as of 1 July 2013, for transactions in Chargeable Derivatives and HFT over equity derivatives. 5.6 Spain The Spanish Government has introduced, with effect as from 1 January 2013, the Spanish bank deposits tax, which has the following main characteristics: the taxable event is the maintenance of third-party funds by Spanish credit institutions and Spanish branches of foreign credit institutions (ie, the taxpayers), which bear an obligation to refund, except for funds held in branches located outside Spain. the taxable amount is calculated by arithmetically averaging the final balance of each calendar quarter of the taxable period (ie, the calendar year), corresponding to item 4 Customer deposits on the liability side of the reserved balance of credit institutions, as included in the individual financial statements. the tax rate is currently 0 per cent. However, the Spanish Government announced on 21 March its intention to increase the tax rate to between a range of 0.1 and 0.2 per cent. the taxpayers must file a self-assessment tax return in July of the year following the tax period, and they must make an advance payment in July of each year of 50 per cent of the amount resulting from applying the rate in force in that tax period to the taxable amount of the preceding tax period. In addition, in September 2012, there were rumours of the possible submission by the Spanish government to the Spanish Parliament of a Draft Law on FTT (the Spanish Draft FTT Law). However, no legislative process has been initiated to enact the Spanish Draft FTT Law 30, which outlines the main features of the Spanish FTT in the following terms: Taxable event The following transactions will trigger the Spanish FTT: transactions on shares The Spanish FTT will be due on the acquisition of shares traded on Spanish, EU or other qualifying market (in accordance with the Spanish Securities Market Act) in Spanish companies that exceed a certain market capitalisation threshold (not yet defined in the Draft FTT Law). For this purpose, the Spanish FTT will also consider as shares any equivalent negotiable securities (this paragraph likely refers to ADRs) and traded instruments 30 On 12 December 2012, the Spanish Minister of Tax and Public Administrations stated, during a session in the Spanish Parliament, that the Spanish Government has not discarded the possibility of implementing a Spanish FTT and that, for such purposes, they were analysing the impact and drawbacks of the FTT already implemented in France. However,a press release issued on 15 February 2013 has declared that the Spanish government is going to leave the Spanish FTT aside in view of the Commission promoting the EU FTT. 18 Freshfields Bruckhaus Deringer llp EU financial transaction tax

19 that allow the holder to acquire such shares (eg options, forwards, etc), irrespective of whether or not the issuer is established in Spain. high frequency trading transactions ( HFT) The modification or cancellation of HFT over shares in Spanish entities or shares traded on a Spanish secondary market, carried out for their own account by Spanish resident entities or by non- Spanish resident entities acting through a permanent establishment in Spain will also trigger the Spanish FTT. Such transactions will be taxable if their amount during a trading day reaches a certain percentage threshold (to be defined), which will take into consideration the total amount traded in respect of the relevant share on such trading day. The Draft FTT Law defines HFT in broad terms, as transactions consisting of habitually entering into through an automated trading system and based on an algorithm successive orders of different types over a given share over a very brief period of time (to be determined). acquisition of credit default swaps ( CDS) The Spanish FTT will be due on the acquisition of CDS corresponding to EU sovereign debt carried out by a Spanishresident entity or by a non-spanishresident entity acting through a permanent establishment in Spain, when the beneficiary of the CDS is not hedging a long position on such sovereign debt (ie speculative sovereign CDS ). In addition, a CDS agreement will be subject to the Spanish FTT if the beneficiary transfers the underlying sovereign debt prior to the maturity date of the CDS, when the acquisition of the CDS was not taxed at inception. The Spanish FTT will fall due on the date on which any of the transactions defined above is effected. Exemptions Transactions on shares are exempt from the Spanish FTT in the following scenarios: acquisitions made in relation to the issuance of shares, including through placement, with or without a firm commitment or underwriting; acquisitions made by market makers, clearing houses or central depositories to the extent that they are undertaken in the context of their regulated activities; acquisitions made between companies which are part of the same corporate group within the meaning of article 42 of the Spanish Commercial Code (Código de Comercio) or eligible for the Spanish special tax rules for reorganisations (that follow the EU Merger Directive); temporary transfers of securities listed by article 2.10 of the Regulation 1287/2006 of the European Commission, dated 10 August 2006 (eg stock loans or repurchase agreements); and acquisitions of bonds, debentures and other similar contracts, convertible into or exchangeable for shares. In relation to HFT and acquisitions of CDS, market makers are exempt from the FTT in the course of their market-making activities. Taxable amount The taxable amount on which Spanish FTT will be levied will depend on the type of transaction: for transactions on shares, the taxable amount will generally amount to the price agreed, provided that it is higher than the fair market value of the shares at the time the Spanish FTT falls due. The fair market value will be the price of the relevant share on the most relevant stock market in liquidity terms; Freshfields Bruckhaus Deringer llp EU financial transaction tax 19

20 for HFT, the taxable amount will amount to the positive difference, on the same trading date and in relation to the same entity, of the following amounts: the total amount of cancellations and modifications of HFT transactions, and a certain percentage of the total amount of HFT sending orders or modification orders; and for acquisitions of CDS, the taxable amount will be the notional amount of the relevant CDS agreement. Taxpayers The Spanish Draft FTT Law defines the taxpayer in each scenario, in the following terms: for transactions on shares, the taxpayer will be the entity executing the purchase order in the name of a third party, or for its own account, wherever it is established. In the case that more than one intermediary is engaged in the transaction, the taxpayer will be the entity receiving the buy order from the final purchaser; and for HFT and acquisitions of CDS, the taxpayer will be the Spanish-resident entity, or non-spanish-resident entity acting through a permanent establishment in Spain, that carries out such transactions. Tax rate The Draft FTT Law does not include the tax rates applicable to each of the transactions referred to. 6. Current situation in some MSs outside the enhanced cooperation group 6.1 The Netherlands In the Netherlands an EU FTT was discussed by the committee on Finance of the First Chamber in July 2012, in connection with the introduction of the new Banking Tax Act. Several alternatives for an FTT were outlined, in that discussion, but a clear preference for a banking tax emerged. In the past year various other authorities of the Netherlands, including the Netherlands Central Bank, have commented negatively on the FTT proposal and the consequences for the Netherlands. These commentators consider that, amongst other negative consequences, the FTT will result in reduced growth and higher costs. As a result the previous Netherlands government opposed the FTT Proposal and requested the European Commission to consider its proposed alternatives without success. However, the new (2012) Netherlands government thinks differently. In the coalition agreement of 29 October 2012, the new government stated that the Netherlands will support the new European enhanced cooperation, provided that (i) pension funds are exempt from FTT, (ii) there will not be a disproportionate cumulation with the newly imposed banking tax, and (iii) the revenues will be returned to the MSs. These conditions and how they can be met have been the subject of much debate. The Secretary of Finance has stated in this regard that the introduction of the FTT as the Netherlands would rewrite it, would be a great political and intellectual challenge. This begs the question, however, whether in the light of such extensive conditions in particular the exemption for pension funds the new government is genuinely committed, to adopting the proposed FTT Directive and its indications to the contrary may have to be seen as an empty gesture. 20 Freshfields Bruckhaus Deringer llp EU financial transaction tax