GLOBAL NETWORK MANAGMENT
April 2013
Italian Financial Transaction Tax: Q&A
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•
The purpose of this document is to provide an overview of the Italian Financial Transaction Tax
(“IFTT”). On December 4, 2012 an Italian FTT (IFTT) was introduced in the Italian Stability Law No. 228
of December 24, 2012 (Legge di Stabilità 2013). The Stability Law came into force on January 1, 2013
and sets out the main rules for the application of the IFTT which came into effect on March 1, 2013 for
equities and will come into effect on July 1, 2013 for derivatives. The operational details, including any
reporting obligations, are expected in the near future. Industry discussions continue with the Ministry
about operational details and reporting obligations and further official clarifications are expected.
This document is provided based on information currently available. It should be noted that there
continue to be areas of uncertainty. Some of these are covered in this document. This document
provides an update to our earlier Netinfo.
BNY Mellon will continue to issue Netinfo updates as further information becomes available.
Except where specified, this Q&A document and all references to IFTT herein relate to transactions in listed
Italian shares.
Disclaimer(s):
Please note that tax implications may differ widely in other areas and are therefore outside the scope of this
document. BNY Mellon and its affiliates do not provide legal or tax advice.
If you have any questions regarding the information in this document please contact your Relationship Executive or
Account Manager. This document is for information only and its contents are subject to change. This document is
intended neither to influence your investment decisions nor to amend or supplement any agreement governing your
relations with BNY Mellon. You should complete your own due diligence as to what actions should be taken as a
result of the market conditions and procedures described herein. BNY Mellon has gathered the information from
sources it considers reliable, however, it cannot be responsible for inaccuracies, incomplete information or updating
information furnished hereby.
List of used acronyms
AFME
CCP
CONSOB
ECB
EEA
ESMA
FOP
HFT
IFTT
MiFID
MTF
MEF
OTC
Page 1
Association for Financial Markets in Europe
Central Counterparty
Commissione Nazionale per le Società e la Borsa (Italian regulator)
European Central Bank
European Economic Area
European Securities and Markets Authority
Free of Payment
High Frequency Trading
Italian Financial Transaction Tax
Markets in Financial Instruments Directive
Multilateral Trading Facility
Ministero dell’Economia e delle Finanze
Over the Counter
1. SCOPE
1.1
Which transactions are in scope for the IFTT regime?
The IFTT targets three categories of transactions:
1. Shares, participating financial instruments and other instruments representing these
instruments (e.g. ADRs) issued by Italian resident companies. There is an exemption for listed
instruments in Italian resident companies whose average market capitalisation was below
€500 million in the month of November for the year preceding the transfer of ownership.
A provisional list of the Italian issuing companies having an average capitalization lower than
EUR 500 million with reference to November 2012 and therefore not falling within the scope of
the IFTT for year 2013, is accessible on the MEF’s official website at
1
http://www.tesoro.it/primo-piano/article_0099.html
Borsa Italiana have also made a list of the in-scope listed securities available on their website:
http://www.borsaitaliana.it/azioni/notiziedettaglio/iftt.en.htm
2. Derivatives, whether cash or physically settled, securitized or not, whose underlying are inscope Italian shares or where the derivative is by reference to the value of in-scope Italian
shares, including options, warrants, covered warrants, certificates. Physical transfer of the
relevant in-scope underlying securities are also taxed separately.
3. High Frequency Trading, as generated by a computer algorithm that automatically determines
the decisions related to the relevant orders or metrics, where the ratio of orders amended or
cancelled, in a time frame shorter than half a second exceeds 60% of total orders entered.
1.2
When will the IFTT apply?
The tax is applicable from March 1, 2013 for Equities and will apply from July 1, 2013 for
Derivatives.
1.3
Who is liable for the IFTT?
The IFTT cost on equities will be borne by the purchaser, whilst the IFTT cost on derivatives will be
borne by both parties of the relevant transactions.
The IFTT cost on High Frequency Trading will be borne by the person on whose behalf the
relevant orders are executed.
The IFTT will be due from the financial intermediary intervening in the trading activities, i.e. the
intermediary that receives an order from a client, including non-resident financial intermediaries.
Financial intermediaries will be entitled to defer the execution of the trades until their clients
provide the funds necessary to pay the IFTT.
In all other cases the IFTT is paid directly by the relevant parties.
1.4
What is the territorial scope of the IFTT?
IFTT applies regardless of the buyer’s and seller’s residence/domicile or where the transaction is
executed and settles.
1.5
What is our role as a Custodian?
The role of a custodian is unclear at this stage, however custodians are not identified as a liable,
reporting or paying entity. Nevertheless, the expected provisions on how to apply the rules should
help to further clarify whether we as custodian could effectively assist you to comply with your
obligations.
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1.6
Which derivatives are in scope?
Derivatives will be in scope for the tax from July 1, 2013. Both parties are equally liable. The IFTT
will apply to derivatives such as swaps, futures, options, cash notional forward agreements and
credit default swaps, having as a main underlying, or the value of which is mainly linked to, an inscope Italian security (including warrants, covered warrants and certificates), regardless of whether
the derivatives are physically or cash settled.
Derivatives in scope of the tax are those whose underlying is mainly represented by one or more of
the financial instruments referred to in the regulation or the value of which primarily depends on
one or more of the financial instruments referred to in the regulation.
There is not yet a clear definition of “mainly or primarily”.
quantity.
1.7
It could be a combination of value and
Are Italian depository receipts (ADRs and GDRs) in scope?
Yes. Any securities representing the shares of in-scope Italian financial instruments referred to in
the regulation are in scope from March 1, 2013.
1.8
What is the definition of High Frequency Trading (HFT) transactions?
HFT transactions are defined as operations created automatically by a computer-based algorithm,
which will generate the submission, the modification or the cancellation of orders (and their related
features), at an interval no longer than 0.5 seconds. 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 is applied on the value of the cancelled or modified orders exceeding for each trading day
a threshold of 60% of the sum of generated and modified orders for each eligible security.
The tax is payable by the entity generating the orders.
1.9
How does the IFTT apply to High Frequency Trading?
The tax (0.02%) is applied on the value of the cancelled or modified orders exceeding for each
trading day 60% of the submitted orders.
The tax is due from the entity for which the orders are generated.
1.10 What is a regulated market or multilateral trading facility (MTF)?
-
Those recognised under the Markets in Financial Instruments Directive (MiFID)
Those appearing in the European Securities and Markets Authority (ESMA) list.
They must be established in a white listed country.
Countries outside of the European Union (EU) and the European Economic Area (EEA), regulated
markets and MTFs are defined as entities:
- Authorised to operate as such by a national public authority
- Subject to public supervision, including those recognised by Consob (Italian Securities and
Exchange Commission - http://www.consob.it/mainen/index.html), provided that they are
established in a white listed country.
1.11 What is the impact of the white list published by the Italian Revenue Agency (Agenzia delle
Entrate)?
As per Article 19(4) of the MEF Treasury Decree, countries listed in the white list are those which
have an agreement in place with Italy to exchange fiscal information on beneficiaries (current
“White List” located in Appendix 2).
Certain types of exemptions/exclusions are given based on this list.
Financial intermediaries receiving an execution order by an intermediary
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resident in a country different from this list shall consider such intermediaries as the final purchaser
for IFTT purposes. Intermediaries resident in a “black list” country acting as final purchaser shall
not pay directly the IFTT.
1.12 What is the role of Monte Titoli?
Monte Titoli can be appointed as the calculating, paying and reporting agent by the tax collector.
However the intermediary still remains liable for paying the IFTT. Monte Titoli will then pay the tax
th
before the 16 calendar day of the second month following the transaction date.
2. EXEMPTIONS
2.1
What exclusions are included in the IFTT legislation?
Equities and equivalent
Inheritance or donations
Derivatives and Equivalent
Transactions for market making activity
performance, (if orders are generated by desks
dedicated to this)
Transactions aiming to comply
with best execution
requirements from directive
2004/39EC(MiFiD)
Bonds converted into new shares or receipt of new shares by the exercise of rights or
derivatives
Intragroup transaction and corporate restructuring
Transactions where intermediary buys from a party & sells to another based on a predefined
contract with same price, quantity & settlement date for both transactions (but the final investor
will still pay the tax).
Purchases for purposes of clearing and collateral by authorized entities under EU regulation
648/2012 (or by the national authority for non EU white listed countries) – CCP activities
Securities financing transactions & temporary transfers of ownership in financial collateral
transaction (L&B, repos, buy-back, sell back)
Transfer of ownership (OTC or not) of
equities*:
- listed on regulated market/MTF
- issued by companies with average
capitalization lower than EUR 500 million in
the month of November of the previous year.
-
2.2
HFT Transactions
-
-
-
What exemptions are included in the IFTT legislation?
Equities and equivalent
Derivatives and
Equivalent
HFT Transactions
Both parties of transactions involving: -- the EU or the European institutions
- the European Central Bank and the European Investment Bank
- the central banks of EU member States
- the central banks or sovereign funds of other States
- international organisations recognised by Italy
-
Both parties of operations related to ethical and socially responsible products
-
Exempt parties -- Parties involved in market-making activity (Consob issued exemption procedure)
- Parties involved in providing liquidity on behalf of the issuer
- Pension funds subject to supervision according to EU directive 2003/41/EC
- Mandatory social security institutions, established in an EU country or in a EEA
white-listed country
-
NB: certification will be required from the tax payer by the tax collector to benefit from the above exemption/exclusion (Euroclear
Webex Introduction to Italian Financial Transaction Tax)
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2.3
How can market makers be exempt from IFTT?
Article 16 (3) of MEF Treasury Decree states that market makers recognised under EU Regulation
no. 236/2012 can be exempted by the relevant authority.
For countries not covered by Regulation 236/2012, market makers will have to provide Consob
(Italian Securities and Exchange Commission) with a specific request. This request would allow
them to be recognised as an exempt market maker.
Consob
has issued
an exemption
procedure available on
http://www.consob.it/mainen/documenti/english/resolutions/res18494.htm
2.4
their
website
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What is the Exemption Application Form?
The IFTT Decree Article 19(3) explicitly sets out that intermediaries in the chain are not required to
pay the IFTT if the owner has certified it is excluded per Article 15 or exempted per Article 16 of
the law.
We are aware that there is a document (form) prepared by an industry group known as AFME
(Association for Financial Markets in Europe). This form is intended to standardise processes
across the market to facilitate identification of taxable transactions under the IFTT.
It is of particular relevance to the broker community. This form is now in wide circulation as brokers
reach out to their clients in an effort to ensure they apply the tax appropriately.
Whether BNYM requires its clients to complete this document, or something similar, is to be
determined. However to ensure that an applicable exemption or exclusion is applied to in scope
Italian security transactions executed by brokers, clients should ensure they take immediate action
with regards to any requests, from their brokers, for documents or information in respect of the
IFTT.
However, to ensure that where applicable, an exemption or exclusion is applied to in-scope Italian
security transactions, executed by their brokers, clients should ensure they take immediate action
with regards to any requests, from their brokers for documents or information in respect of the
IFTT.
3. CALCULATION
3.1
At what rate will the IFTT be chargeable?
Equities
 0.1% (0.12% in 2013) on transactions taking place on regulated markets and on multilateral
2
trading systems ;
 0.2% (0.22% in 2013) of the value of the transaction otherwise.
The tax will be applied to the net “end-of-day balance” of the settled transactions for each security
in connection with each single liable subject is positive. Provision has been made for cross-broker
netting should all intermediaries agree.
2
Being a regulated market or multilateral trading system established in an EU member state allowing an adequate exchange of information with Italy. It is likely when an
intermediary acts as riskless principal in a transaction for the benefit of its clients, the client is the liable party. This raises an additional question as to which rate should be
applied to a cash equity transaction: the on-exchange or the OTC rate?
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Example:
Same investor, same security, same execution and settlement date:
Purchase of 10 shares on the regulated market at EUR 50 + 20 shares at EUR 49 (exempt
transaction) + 15 shares at EUR 51 over the counter (OTC)
Sale of 15 shares on the regulated market at EUR 51 and 5 shares OTC
Balance of the negotiation on the regulated markets within the scope of the tax = - 5
Balance OTC = 10
Net balance of the two markets = 5
Average weighted purchase price = (10x50+15x51)/25 =EUR 50.60
Tax base amount = EUR 5x50.60 = EUR 253
Average weighted tax rate = (15x0.2% + 10x0.1%)/25 = 0.16%
3
Tax amount = EUR 253 x 0.16% = EUR 0.40.
High Frequency Trading
 0.02% on any portion of the orders that are modified or cancelled on a daily basis which in any
event shall not be lower than 60% of the orders inserted.
Derivatives
This is a fixed amount which shall be determined by taking into account the type of instrument and
the value of the contract, as per the below table.
Notional Value of the contract
(in thousands of Euro)
Financial
instrument
- Futures, certificates, covered
warrants and options on yield,
index or measures relating to
shares
- Futures, certificates,
warrants, covered warrants
and options on shares
- Swaps on shares and related
yield, index or measures
- Forward contracts on shares
and related yield, index or
measures
- Financial contracts for
differences on shares and
related yield, index or
measures
- Any other securities which
provides for cash settlement
determined in connection with
shares and related yield, index
or measures
- Combinations of the contracts
and securities above
3.2
0-2.5
2.5-5
5-10
10-50
50-100
100-500
5001000
Higher
than
1000
0.01875
0.0375
0.075
0.375
0.75
3.75
7.5
15
0.125
0.25
0.5
2.5
5
25
50
100
0.25
0.5
1
5
10
50
100
200
Does the tax apply to free-of-payment (“FOP”) transactions?
Yes, FOP’s are subject to the IFTT if there is a transfer of ownership. The purchase price will be:
- the amount paid for spot transactions
- the exercise price defined in the contract for transfers resulting from derivative executions
- the amount shown in the prospectus for redemption, exchanges or conversions
- the consideration agreed in the contract in cases not mentioned above
- the normal value determined according to the rules provided in the Consolidated Act (DPR
917/1986, art. 9 par. 4) (only if the purchase price is unavailable)
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3.3
Can you pay the IFTT in a non-euro currency?
The tax is payable in euros only.
4. REPORTING AND PAYMENT
4.1
What needs to be reported?
Currently, taxable, exempted and excluded transactions need to be reported. However, IFTT
amounts do not have to be declared for amounts lower than EUR 50.
4.2
On what date is the tax paid?
The tax is due on the 16th of the month following the transfer of ownership.
4.3
When is the first payment due?
For cash equity transactions the law allows a transition period in order for parties to prepare for
payment of the tax. Subject to further details from the Italian authorities, the interpretation of the
law, and based on the published regulation, the first payment of the IFTT for cash equities
transactions would be due no earlier than July 16, 2013.
It is not clear if a similar transition period will also be allowed for derivatives.
4.4
Do penalties apply?
Yes. As per Article 20 of the MEF Treasury Decree, penalties apply if there is non-payment,
delayed payment or incorrect payments.
In the case of non-payment or underpayment a penalty of 30% of the omitted amount will be
charged.
For omitted reporting the penalty can be from 120% - 240% of the tax amount.
For wrong reporting (lower amount) the penalty can be from 100% - 200%.
4.5
Is the tax applied on trade date or settlement date?
The law states that the tax is due upon the transfer of ownership of transactions executed from
March 1, 2013 onwards. As such, trades executed before March 1, 2013 with settlement taking
place on or after March 1, 2013 should not be taxable.
Further clarification is expected.
5. CORPORATE ACTIONS
5.1
Which corporate actions are subject to IFTT?
Corporate actions generating movement of applicable securities with a change of ownership and/or
for which the security proceeds are not newly issued securities.
We will transmit the IFTT information received by the issuers, if and when received.
We expect the circular to be published by the Italian Revenue Agency (Agenzia delle Entrate) to
clarify this.
5.2
How will corporate actions be notified of the IFTT?
We will transmit the IFTT information received by the issuers, if and when received.
5.3
How is the IFTT for corporate actions declared?
To be confirmed in the circular to be published by the Italian Revenue Agency (Agenzia delle
Entrate).
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6. Appendix 1
Art. 16(1)(a)(4) of the Treasury Decree exempts from the IFTT equity and equity derivatives trades
having as counterparts bodies or international organizations established in accordance with international
agreements enforced in Italy. A specific decision of the Director of the Central Revenue Agency (Agenzia
delle Entrate) may give notice of the above agreements.
The Explanatory Memorandum to the Treasury Decree states that pending the enactment of the above
mentioned decision of the Agenzia delle Entrate, reference should be made to the (non-exhaustive) list
included in the Circular Letter n. 11/E of March 28, 2012. In this respect, please make reference to the
bodies and supranational organization listed in the attached table:
List of Supranational Bodies
established in accordance with international agreements in force in Italy
African Development Bank
African Development Fund (ADF)
Asian Development Bank
Bank for International Settlements (BIS)
Caribbean Development Bank (CDB)
Council of Europe
European
Atomic
Energy
Community
(EURATOM)
European Bank for Reconstruction and
Development (EBRD)
European Coal and Steel Community (ECSC),
now European Union (EU)
European Commission (EC)
European Company for the Financing of
Railroad Rolling Stock (EUROFIMA)
European Investment Bank (EIB)
European Organisation for Astronomical
Research in the Southern Hemisphere (ESO)
European Space Agency (ESA)
European Space Research Organisation
(ESRO)
European
Telecommunications
Satellite
Organization (EUTELSAT) now Eutelsat SA
European Union (EU)
European University Institute (EUI)
International Finance Corporation (IFC)
Food and Agriculture Organization of the
United Nations (FAO)
Inter-American Development Bank (EI BID)
Inter-American investment corporation (IIC)
International Atomic Energy Agency (IAEA)
International Bank for Reconstruction and
Development (IBRD)
International Centre for Genetic Engineering
and Biotechnology (ICGEB)
International Centre for the Study of the
Preservation and Restoration of Cultural
Property (ICCROM)
International Computing Centre
International Development Association (IDA)
International Funds for Mediterranean
Agronomics Education
International Institute for the
Unification of Private Law (UNIDROIT)
International Institute of Technology and
Management (IIMT)
International Marittime Satellite Organization
(INMARSAT)
International Telecommunications Satellite
Organization (INTELSAT) now ITSO
Multilateral Investment Guarantee Agency
(MIGA)
Multinational Force and Observers (MFO)
Nature Inspired Cooperative Strategies for
Optimization (N.I.C.S.O.)
North Atlantic Treaty Organization (NATO)
Organization for Economic Co-operation and
Development (OECD)
United Nations (UN)
United Nations: United Nations Educational,
Scientific
and
Cultural
Organization
(UNESCO)
United Nations Specialized Institutions
List published in the Circular Letter n. 11/E of March 28, 2012
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7. Appendix 2
7.1
Current White List Counties (as of April 18, 2013):
-
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Australia
Austria
Belgium
Bulgaria
Cyprus
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Iceland
India
Ireland
Latvia
Lithuania
Luxemburg
Malta
Netherlands
Norway
Poland
Portugal
Romania
Slovakia
Slovenia
Spain
Sweden
United States of America
UK