New Spanish FTT Bill approved on 28 February 2020


New Spanish FTT Bill approved on 28 February 2020

9 March 2020

Operational Tax News

On February 28, 2020 the Bill on the Spanish Financial Transaction Tax (the “Bill”) has been published in the official Gazette of the Spanish Parliament. The Bill was approved at the council of ministers meeting of February 18, 2020.

A similar bill on a Spanish Financial Transaction Tax had been approved during the previous legislature but its passage through parliament was not completed due to the end of that legislature.

We provide a summary below of the main aspects of the Bill, although the text could be subject to changes during parliament procedure.

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1. Background

As indicated in the preamble to the Bill, since 2013, Spain has participated in the enhanced cooperation procedure to adopt a Directive on the uniform implementation of a Financial Transaction Tax (“FTT”) with a group of European Union countries that includes Germany, France, Austria, Belgium, Slovakia, Slovenia, Greece, Italy and Portugal.

This procedure has not resulted in a final agreement on the approval of such a Directive, therefore Spanish Government considers appropriate to propose the introduction of a domestic FTT in Spain, following the line taken by other countries such as France and Italy.


2. Taxable event

The tax is an indirect tax, the taxable event of which is the acquisition for valuable consideration of shares representing the share capital of Spanish companies, regardless of the place of residence of the persons or entities involved in the transaction, provided that the following conditions are met:

i. the company's shares must be admitted to trading on the Spanish market, or on a regulated market of another EU Member State, or on an equivalent third-country market; and 

ii. the company's market capitalisation must exceed EUR 1,000 million at 1 December of the year prior to the acquisition. 

The list of Spanish companies with a market capitalisation exceeding EUR 1,000 million at 1 December of each year will be published on the Spanish tax authorities’ website before 31 December each year. For the first year of application, the list will be determined one month before the entry into force of the tax and will also be published on the Spanish tax authorities’ website.

The tax will be payable regardless of whether or not the acquisitions in question take place on a regulated market or on any other market, multilateral trading facility or organised trading facilities, or by means of a systematic internaliser or direct agreements between the parties outside a trading venue. 

The following acquisitions will also be liable for the tax:

i. Acquisitions for valuable consideration of depositary receipts representing the shares indicated above, wherever the entity issuing the securities may be established, since such securities determine the manner in which the shares of Spanish companies may be traded on the markets of certain countries and grant those that acquire them a position similar to that of a shareholder.

Certain exemptions have been taken into account to prevent the issuance of depositary notes from giving rise to double taxation.

Specifically, acquisitions made exclusively for the issuance of depositary receipts will not be subject to the tax. Acquisitions of depositary receipts made in exchange for delivery by the acquirer of the shares they represent, and transactions performed to cancel depositary receipts through delivery to the holders of the shares they represent will also not be subject to the tax.

ii. Acquisitions of the shares mentioned above (or the aforementioned depositary receipts) arising from the execution or settlement of fixed income securities convertible into or exchangeable for such shares.

iii. Acquisitions resulting from the exercise or settlement of derivative financial instruments, such as options or futures, and any other financial instruments, or the financial contracts provided for in securities market legislation, where they give rise to the acquisition of the underlying shares for the counterparty.


3. Exemptions

The following transactions will be exempt:

i. The following acquisitions relating to the primary market:

➤ those arising from the issuance of shares and depositary receipts; 

➤ acquisitions arising from public offerings of sale (IPOs); 

➤ instrumental acquisitions made prior to those included in the previous two points by the bookrunners and underwriters engaged by the issuers or offerers to perform the final distribution of these shares among the ultimate investors, as well as acquisitions in compliance with their obligations as bookrunners and, in particular, as underwriters, as the case may be, of these transactions; and 

➤ acquisitions carried out by financial intermediaries in the framework of a price stabilisation in the context of a stock market flotation.

ii. Transactions generally required to comply with the functions of the entities that manage posttrading infrastructures

Specifically, acquisitions arising from purchases, loans or other transactions by a central counterparty or central securities depository with respect to financial instruments subject to this tax in the exercise of their respective functions relating to the settlement, liquidation or registration of securities are exempt.

This paragraph includes all novations performed by a central counterparty as well as the transactions performed in the context of a repurchase due to a settlement failure. 

iii. Acquisitions by financial intermediaries on behalf of the issuer of shares in the exercise of their functions as liquidity suppliers, under a liquidity contract that meets the requirements of Circular 1/2017, of 26 April, of the Spanish National Securities Market Commission (“CNMV”), solely for the purpose of aiding the liquidity of transactions and the regular trading of shares, in the context of market practices accepted by the CNMV by virtue of Regulation (EU) 596/2014. 

iv. Acquisitions performed in the context of market-making activities

For these purposes, "market-making activities" will mean the activities of an investment services firm, credit institution or equivalent third country entity, which are members of a trading venue or of a market in a third country whose legal and supervisory framework has been declared equivalent by the European Commission, where any of the aforementioned entities acts as an intermediary on its own behalf in relation to a financial instrument, traded on or outside a trading venue, in any of the following ways:

➤ By posting firm, simultaneous two way quotes of comparable size and at competitive prices, with the result of providing liquidity on a regular and ongoing basis to the market.

➤ As part of its usual business, by fulfilling orders initiated by clients or in response to clients' requests to trade. 

➤ Covering positions resulting from the execution of the activities referred to in the above two paragraphs.

The exemption has been designed in line with the French version of the tax and is based primarily on the nature of the activities described, and it is not limited to financial intermediaries that have entered into market-making agreements. In any event, it should be taken into account that the exemption must be applied to market-making activity but not to proprietary trading.

The exemption extends to market-making activity relating to subject depository receipts.

v. Acquisitions of shares between entities forming part of the same group within the meaning of Article 42 of the Spanish Commercial Code.

vi. Acquisitions arising from the following business restructuring transactions:

➤ those eligible for application of the special regime for mergers, spin-offs, asset contributions, share exchanges and changes of registered office of European companies or European cooperative entities from one European Union Member State to another, regulated in Title VII, Chapter VII of Spanish Income Tax Law 27/2014, of 27 November; and

➤ those arising from mergers or spin-offs of collective investment undertakings or of compartments or subfunds of collective investment undertakings. 

vii. The securities financing transactions mentioned in Article 3(11) of Regulation (EU) 2015/2365, as well as the title transfer collateral transactions as a result of a title transfer collateral arrangement as defined in Article 3(13) of the Regulation.

viii. Acquisitions arising from the application of resolution measures adopted by the Single Resolution Board or by the competent national resolution authorities in relation to the resolution of credit institutions and certain investment services firms.

As regards the practical application of the exemptions, in order for taxpayers acting on behalf of third parties to be able to apply these exemptions, the acquirer must notify them that the grounds giving rise to application of the exemptions have been met, and also provide certain additional information. Depending on the type of application, the following must be identified: the issue or IPO, the entity acting as the liquidity supplier, the group of companies, the entities involved in the financing or title transfer collateral transaction, etc.

The Legal Entity Identifier ("LEI") of the entities will be required for this purpose.

The taxpayer and the acquirer will be required to keep the supporting documents evidencing the content of the notification and the fact that it was furnished to the tax authorities if necessary.


4. Accrual

The rules governing accrual vary depending on the circumstances in which the securities are acquired.

i. In the case of acquisitions made on a trading venue, the tax accrues when the acquisition is executed.

However, the tax will not accrue if the acquisition is not ultimately settled. Unless proven otherwise, the acquisitions that are performed will be presumed to have been settled.

ii. In the case of acquisitions made outside a trading venue, the tax accrues when the securities in the acquirer’s favour are entered on the register.


5. Tax base

The tax base will generally consist of the amount of the consideration for the taxable transactions, not including the transaction costs arising from market infrastructure prices, intermediation fees or any other cost associated with the transaction.

As a special rule, in the event that the amount of the consideration is not stated, the tax base will be determined in accordance with a specific market value rule and will thus be the corresponding value at the closing of the most relevant market by liquidity of the security in question on the last day of trading prior to the transaction date.

There are also other special rules for calculating the tax base:

i. When the acquisition of the taxable securities arises from bonds or convertible or exchangeable debentures, or from other marketable securities, the tax base will be the value established in the related issue document.

ii. When the acquisition arises from the execution or settlement of options or other derivative financial instruments that confer a right to acquire or transfer the taxable securities, the tax base will be the exercise price established in the contract.

iii. When the acquisition arises from a derivative instrument that constitutes a forward transaction, the tax base will be the agreed price, unless the derivative is traded on a regulated market, in which case the tax base will be the delivery price at which the acquisition must be made at the expiration date.

iv. When the acquisition arises from the settlement of a financial instrument, the tax base will be determined on the basis of the market value rule described above, which will be the corresponding value at the closing of the most relevant market by liquidity of the acquired security in question on the last day of trading prior to the acquisition date.

With respect to the practical application of the special rules for calculating the tax base, in order for taxpayers acting on behalf of third parties to be able to apply these special rules, the acquiring person or entity must confirm to them that the circumstances prompting the application of the rules have arisen and notify them of the factors determining the quantification of the tax base in each case.

Lastly, a special system for calculating the tax base for intraday transactions has been established, whereby the ownership of the securities at the end of the day is altered only by the net number of securities purchased and sold in the same trading session or on the corresponding market.

Determination of net purchases refers to the same taxable security, and it must be performed for each acquirer, understood to be the person or entity that enjoys the legal effects of ownership of the securities. These transactions will need to have been performed by the same taxpayer on the same date, and they need to have been settled on the same day.

Therefore, this rule should not apply to transactions relating to the purchase and sale of the same security in the same trading session when those transactions have been ordered from different financial intermediaries. This rule likewise cannot apply to purchase and sale transactions performed on the same date when settlement takes place on different dates. It should be noted that on account of the observations made during the hearing and public consultation procedure, there is no longer any need for acquisitions and transfers to have been made on the same trading venue.

It should be noted that on account of the observations made during the hearing and public consultation procedure, there is no longer any need for acquisitions and transfers to have been made on the same trading venue.

In the aforementioned intraday transactions, the tax base of these acquisitions will be calculated by multiplying the positive difference resulting from subtracting the number of securities transferred from the number of securities acquired in the same day by the quotient resulting from dividing the sum of the considerations for the aforementioned acquisitions by the number of securities acquired. Exempt acquisitions and transfers performed in the application of such exemptions will be excluded from this calculation.


6. Parties liable for tax, taxpayers and other liable parties

The following persons will be considered taxable persons (subject to FTT compliance), irrespective of the place where they are established:

i. The investment services firm or credit institution making the acquisition on its own account, as FTT taxpayer.

ii. Where the acquisition is not performed by an investment services firm or credit institution acting on its own account, the following persons will be deemed taxable persons, but in these cases acting as “substitutes of the taxpayer”:

➤ If the acquisition is performed on a trading venue, the member of the market executing it will assess the FTT. 

However, when one or more financial intermediaries acting on behalf of the acquirer are involved in sending the order to the member of the market, the financial intermediary that receives the order directly from the acquirer must make the assessment.

➤ If the acquisition is executed outside a trading venue in the course of the activity of a systematic internaliser, the systematic internaliser itself must make the assessment.

➤ If the acquisition is not made on a trading venue or in the course of the activity of a systematic internaliser, the FTT must be assessed by the financial intermediary who receives the order from the acquirer of the securities, or who delivers them to the latter by virtue of the execution or settlement of a financial instrument or contract.

➤ In these cases, it is expected that the abovementioned taxable persons acting as “substitute of the taxpayer” are entitled to charge the amount of Spanish FTT due to the actual acquirers of the securities subject to tax.

As a deciding rule, in the event that the acquisition is performed outside a trading venue and without the involvement of any of the persons or entities indicated previously, the custodian for the acquirer must assess the FTT. For these purposes, the acquirer must notify the custodian service provider of the circumstances determining the tax payable and the quantification thereof.

Lastly, the Bill establishes various situations of joint and several liability. The following will therefore be jointly and severally liable for the tax:

➤ acquirers when they have provided the taxable person with incorrect or inaccurate information leading to the wrongful application of the exemptions or a lower tax base arising from the incorrect application of the special rules for determining the tax base;

➤ acquirers of the securities where they have not carried out the mandatory notification to the custodian in the case of application of the deciding rule to determine the taxable person, or where they have done so incorrectly or inaccurately.

Liability will extend to the tax debt arising from the lack of communication or from incorrect or inaccurate communication.


7. Tax rate

The tax rate is set at 0.2%.


8. Tax return and payment and documentation requirements

As a general rule, it is established that the tax liability must be calculated and paid through self-assessments filed by the taxpayers in the place and manner, and within the time limits, to be established by the Ministry of Economy and Finance.

However, the Bill envisages that the regulations may allow taxpayers to file the tax return and pay the tax due through a central securities depository in charge of keeping the accounting records of the acquired securities, who will file the return for and on behalf of each taxpayer and make the payment to the Public Treasury. The filing of returns and the payment of tax debt through this procedure will not give rise to any specific tax liability for the central securities depository in this connection.

This procedure will apply not just to central securities depositories located in Spain, but also to certain foreign central securities depositories located in other European Union Member States or in third States authorised to provide services in the European Union by means of partnership agreements entered into with a central securities depository located in Spain.

FTT will be required to be assessed on a monthly basis. The Bill also provides that taxpayers will be required to request a taxpayer identification number from the tax authorities and to notify and substantiate it in such situations as may be established.

Lastly, Iberclear (“Sociedad de Gestión de los Sistemas de Registro, Compensación y Liquidación de Valores”), its participating entities and the taxpayers, as well as the securities depositaries that enter into the aforementioned agreements must make the documentation or files regarding the taxable transactions available to the tax authorities.


9. Infrinqements and penalties

Tax infringements arising from breach of the provisions of the Bill and its implementing regulations will be classified and penalised pursuant to the provisions of General Taxation Law 58/2003, of 17 December.


10. Entry into force

If finally approved, the Spanish FTT will enter into force three months following the publication of the Law in the Spanish Official State Gazette (BOE).

The Bill must now follow the appropriate parliamentary procedure for its approval, thus, it may be subject to changes during the process and before final vote.

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Deloitte Luxembourg

Jacquou Martin
Managing Director
International Fund Tax Solutions
T +352 45145 2174

Deloitte UK

Suzi Evans
T +44 20 7007 0631

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