Proposal for Market Claims prosessing
Euroclear Finland
6.2.2015
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Market Claims: Challenges in Finland
• Market Claims are not recognised or interpreted as such in legislation
► The Finnish Tax Authority (FTA) and the Ministry of Finance recognise dividend
corrections and cash compensation
► The trade date determines the right to dividend or cash compensation
• Market Claims must be effected
► As dividend corrections with net payment in case the delivering party held
sufficient dividend entitlement on record date
– only the recipient of the dividend correction must be reported as the
receiver of dividend income to the FTA
► As cash compensation with gross payment in case the delivering party did
not hold dividend entitlement on record date
– Neither the delivering nor the receiving party can be reported as the
recipient of dividend income to the FTA -> separate reporting to the FTA
IMPACT TO MARKET CLAIMS IMPLEMENTATION IN FINLAND:
MARKET CLAIMS MUST BE CLEARLY IDENTIFIED AS EITHER DIVIDEND OR CASH
COMPENSATION PRIOR TO, AT THE TIME AND AFTER SETTLEMENT OF MARKET CLAIM
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Market Claim: Proposal for Finland
• Market Claim is created with gross payment but net payment is taken into
consideration
• Euroclear Finland will create two settlement instructions to reflect the net
income payment requirement
1.
Market Claim settlement instruction
(100% corresponding to the income payment)
2.
Settlement instruction for Tax with maximum tax rate
(eg 30% corresponding to the gross income payment)
• As a combination, the gross claim and the maximum tax instruction will allow
for fair treatment:
► The settlement instructions will take care of net payment
► The paying Depository Participant does not need to fund for the tax part
► The recipient will receive a net payment of income
► A cash compensation can be made directly if required by cancelling the
tax instruction
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Market Claims according to standards
• Euroclear Finland will detect all matched pending settlement instructions at EoD
of Record Date and automatically create Market Claims. Market Claims will be
also detected for 20 days from Record Date.
• Euroclear Finland will create 2 settlement instructions:
1.
Market Claim settlement instruction for gross amount
- Payment Free of Delivery from the delivering party to the receiving party of
the underlying settlement instruction
- CLAI (trns ISO code)
- WITH-linked to the tax part
- Same status as the underlying settlement instruction had, not linked to the
settlement of the underlying in any way
2.
Tax settlement instruction for maximum taxation 30%
– Payment Free of Delivery from the receiving party to the delivering party of
the underlying settlement instruction
– TRAD (trns ISO code)
– WITH-linked to the Market Claim
– Optional Party Hold for both paying and receiving side
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For internal use
Service provided to Participants
• Euroclear Finland will provide an optional service to Depository
Participants and then create the tax settlement instruction with ’’Party
Hold’’
► On participant level
► Only for the tax settlement instruction
• The optional service will provide a user friendly facility for the
Depository Participant to
► Prevent settlement of the tax settlement instruction prior to
receiving the original dividend payment
► Gather required tax information from the recipient for further tax
processing
• In addition, Euroclear Finland offers further tax services outside T2S
► E.g. corrections to deducted tax amounts based on Market Claims
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For internal use
Internal Market Claim
MARKET CLAIM
Depository
Participant A
W
I
T
H
T2S
W
I
T
H
Depository
Participant B
TAX PART
Euroclear Finland generates both sides automatically for both participants
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For internal use
Cross Border Market Claim
1. ALLEGEMENT
MARKET CLAIM
Euroclear
Finland
Depository
Participant A
W
I
T
H
2. MATCHING SI
T2S
TAX PART
Cross
Border CSD
Participant B
1. ALLEGEMENT
Euroclear Finland generates Internal Depository Participant’s instructions
automatically
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Background information: Main requirements
for dividend payments in Finland 1/2
• Net payment of dividend income
► Dividend income must be taxed at source and therefore withholding of
all taxes is required prior to payment to the recipient
► Issuers pay only the net amount to the market and hold the tax amount in
their own books. Issuers pay taxes to the Finnish Tax Authority.
• Tax responsibility on the issuer
► An issuer paying income is always legally responsible for paying withheld
taxes to the Finnish Tax Authority as well as for the correctness of taxation
information applied on recipients
• Reporting responsibility on both the issuer and the payer of net income
► An issuer paying income is always responsible for reporting withheld tax to
the Finnish Tax Authority
► The payer of net income (participant) is responsible for reporting net
income payments paid to its clients, tax withheld as well as tax basis
information to the Finnish Tax Authority
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Background information: Main requirements
for dividend payments in Finland 2/2
• A recipient of dividend income must be reported to the Finnish Tax Authority
► Dividend is paid based on the entitled position, ie considering the traded
position against the record date position
► In case a recipient received a dividend payment based on the record
date position but had sold the entitlement, a correction has to be made to
not show the original recipient in reporting to the FTA
• Trade date determines the right to ownership and to dividend entitlement
► Record date position must be corrected according to traded position after
the record date
► Corrections are considered as dividend corrections (net payment) and are
under the issuer’s tax responsibility
• Short selling results to cash compensation, not dividend payment
► Cash compensation must be made in gross payment to the recipient
► Not considered as dividend income and reported separately to the FTA
► Under the recipient’s tax responsibility
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