A Round-Up of FTT developments across Europe
French FTT has increased to 0.3% with effect from 1 January 2017 and from 1 January 2018 will apply to all transactions, including intra-day.
As part of the Finance Act for 2017 as adopted by the French National Assembly, the rate of French financial transaction tax (“FFTT”) and the transactions in scope of FFTT have increased. The rate of FFTT has increased from 0.2% to 0.3% with effect from 1 January 2017. The French tax authorities have expressed the view that trades settling in 2017 are subject to the increased rate of FFTT even if the trade date occurred in 2016, although we understand that discussions are on-going with respect to this point.
Further, FFTT currently applies to the net end of day acquisitions of in scope French securities. From 1 January 2018, all transactions including intra-day transactions will be subject to FFTT (subject to any available exemptions and reliefs). The date of entry into force has been deferred until 2018 in order to provide market participants with time to update their systems and procedures to capture and report all relevant transactions on a gross basis.
This change puts FFTT on a more equal footing with UK stamp duty reserve tax which applies on a gross trade basis (as would the proposed EU FTT). This change is likely to increase the amount of FFTT due by intra-day traders as well as to increase the reporting requirement for ‘investment service providers’ such as banks and brokers. It should be noted that presidential elections are due to take place in May 2017, which could result in further changes to FFTT between now and 2018.
An updated list has been released of French companies with a market capitalisation greater than EUR 1 billion whose shares are in scope to FFTT in 2017.
It is now anticipated that discussions on EU FTT will continue in 2017 with a new target date of mid-2017 for agreement.
The group of 10 EU member states seeking to introduce an EU financial transaction tax (“FTT”) pursuant to the enhanced co-operation procedure (“ECP”) has pushed back its self-imposed deadline of 31 December 2016 to mid-2017. It seems that there has been little progress over the final quarter of 2016 and the next meeting is due to take place in the margins of the ECOFIN council meeting of economic and finance ministers on 27 January 2017.
It is understood that the two main outstanding issues requiring agreement are the impact of the FTT on the real economy and whether an exemption should be granted to pension funds. Other aspects such as whether an exemption should apply for market makers are also understood to be proving difficult to agree upon.
Germany’s finance minister, Wolfgang Schäuble, has stated that the progress made on FTT is “not a real success story” and that ECP is insufficiently flexible for a matter as complicated as FTT. Schäuble is understood to prefer the implementation of an FTT at G20 level rather than within the EU so as to prevent the risk of a competitive disadvantage arising to Germany and other EU member states.
Malta assumed the rotating presidency of the Council of the EU from 1 January 2017 – 30 June 2017. Malta is not one of the 10 EU member states seeking to introduce the FTT and, like the UK, abstained from the vote on FTT. Nevertheless, Malta will facilitate negotiations in Council should progress be made by the 10 participating member states. Estonia has taken on what would have been the UK’s presidency in the second half of 2017. Estonia was previously one of the member states participating in the ECP but withdrew from the process in March 2016.
French and German elections taking place in 2017 could further complicate the process of arriving at an agreed position by mid-2017.
The UK Office of Tax Simplification has been asked to review whether UK stamp duty on documents can be simplified, although this is not expected to impact stamp duty reserve tax on electronic share trading.
In the UK, the Office of Tax Simplification has been requested by the Chancellor of the Exchequer and the Financial Secretary, following the Chancellor’s Autumn Statement in December 2016, to review whether UK stamp duty can be simplified from both a technical and administrative standpoint. This will include the possibility of transforming or abolishing the need for physical stamping of documents.
It should be noted that the vast majority of stamp tax raised from UK share transactions is collected in the form of stamp duty reserve tax (SDRT) from dematerialised (paperless) share transactions where shares are traded in electronic form. Stamp duty involves the physical stamping of paper documents, nearly 100,000 of which are stamped each year. This is considered “disproportionately unwieldy for the 21st century”. The review is therefore concerned with streamlining the process and reducing the administrative burden for the taxpayer and HM Revenue & Customs rather than with amending or removing the charge to stamp tax. (Stamp duty land tax is not within the scope of the review).
SDRT is not within the scope of the review and so the amount of UK stamp tax due on, for example, a takeover is unlikely to change. The interrelationship between stamp duty and SDRT (which are parallel, similar but not identical taxes) and the application of exemptions and reliefs, such as for transactions between group companies, are however likely to be impacted as a consequence of the outcome of the review.
The OTS aims to provide a report in the summer of 2017.