A proposal for a new financial transaction tax: what is to come

The main features of the FTT are the following:

Scope

The FTT is a tax of an indirect nature that taxes:

• Acquisitions of shares of Spanish entities which (i) are listed in (a) the Spanish market, (b) an EU organised market as per Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 or (c) any equivalent market in a third country as per article 25.4 of said Directive, and which (ii) capitalization value of the company is, at 1 December of the year prior to the acquisition, higher than € 1,000 million (the Shares).
• Acquisitions of securities consisting of certificates of deposit representing (CDRs) Shares (CDRs of Shares and, together with the Shares, the Securities), except for acquisitions of Shares with the exclusive purpose of issuing CDRs; and
• Acquisitions of Shares or CDRs derived from the execution or settlement of convertible or exchangeable bonds, derivative financial instruments and any other financial instruments, as well as from certain financial contracts.

Exemptions

• Among others, the following transactions will be exempt from the FTT:
• Acquisitions of Shares upon their issuance and also those derived from the issuance of CDRs representing such Shares (including previous acquisitions by underwriters or placement agents).
• Acquisitions derived from a public offering, in their initial placement among investors (including previous acquisitions by underwriters or placement agents).
• Acquisitions made by brokers for price stabilisation purposes, under a stabilisation agreement pursuant to Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse.
• Acquisitions derived from purchases, loans and other transactions performed by central clearing entities or central equities depositaries as part of their settling, clearing and recording functions.
• Acquisitions made by brokers on behalf of the issuer as part of their role as liquidity providers pursuant to a liquidity agreement which fulfils the requirements of the Circular 1/2017 of the CNMV, the Spanish Stock Market National Commission, with the only purpose to provide liquidity to the transactions and consistency in the listing of its Shares.
• Acquisitions made by brokers in their market making activities, which meet the definition foreseen by Article 2.1 of Regulation No 236/2012 of European Parliament.
• Acquisitions between entities which form part of the same group (as defined by Article 42 of the Spanish Commercial Code).
• Acquisitions which can benefit from the special rollover regime for mergers, spin-offs, etc., provided by the Spanish Corporate Income Tax Law, as well as acquisitions originated by mergers or spin-offs of collective investment entities or of compartments or sub-funds of collective investment entities carried out under their respective regulations.

Taxpayer

The taxpayer will be:

• The broker or the financial entity which carries out the acquisition on its own behalf.
• If the acquisition is not carried out by a broker or a financial entity acting on its own behalf:
  • In the case of acquisitions made in a trading centre, the member of the market that executes them.  If in the purchase order transferred to the member of the market intervene one or more brokers on behalf of the acquirer, the taxpayer will be the broker which receives the purchase order directly from the acquirer;
  • If the acquisition is carried out outside a trading centre, in the scope of the activity of a systematic internaliser, the taxpayer will be the systematic internaliser;
  • If the acquisition is made outside a trading centre and outside the activity of a systematic internaliser, the taxpayer will be the broker which receives the order from the acquirer, or which delivers the relevant Securities by virtue of the execution or settlement of a financial instrument or contract.
  • In the event that the acquisition is executed outside a trading centre and without the intervention of any of the persons or entities referred to in the preceding paragraphs, the taxpayer will be the entity that provides the deposit service of the Securities on behalf of the acquirer.

Accrual

The FTT shall accrue, in the case of acquisitions executed in a trading centre, at the moment in which settlement takes place. If the acquisition is not settled, the FTT shall not accrue (unless proven otherwise, executed purchases shall be deemed settled). In the case of acquisitions made outside of a trading centre, at the time of the registration of the Securities in favour of the acquirer.

Taxable base

In general terms, the taxable base, will be the consideration paid for the operations subject to the FTT, without including neither the transaction costs derived from the prices of the infrastructures market, nor brokerage fees, nor any other cost associated with the transaction. Notwithstanding the above, there are additional special rules for the determination of the taxable base, for instance, when the Shares derive from convertible or exchangeable bonds or other securities; when they derive from executing or settlement options or other derivatives, which grant the right to acquire or transfer Shares; etc.

Tax rate

The FTT rate is 0.2%.

Tax period and filing

The tax period will be each calendar month, and the filing period and proceeding will be determined by the Ministry of Finance. Likewise, taxpayers will have submit an annual FTT tax return, including exempt transactions performed, whose filing period and proceeding will also be determined by the Ministry of Finance.

Entry into force

The FTT Draft Bill, if finally passed, will enter into force three months after the date in which it is published in the Official Gazette of the State. For the period between the entry into force of the FTT and the following 31 December, the FTT will only apply in relation to Securities of Spanish entities whose capitalisation value one month before the entry into force of the FTT exceeded €1,000m.