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March 4, 2020
Spain sends bill on Financial Transaction Tax to Parliament
On 28 February 2020, the text of the bill (the Bill) on the Financial Transactions Tax (FTT), recently approved by the Spanish Council of Ministers, was published and sent to the Parliament (Congress and Senate) to go through the corresponding parliamentary procedure.
The parliamentary procedure provides a 15-day period for other political parties to propose amendments to such Bill that will be subject to discussion.
The Bill confirms the expectations and no relevant changes have been made in relation to the original bill released in January 2019, which was not ultimately subject to parliamentary discussion due to the political instability that led to two national elections during 2019.
Within the framework of increased political stability, Spain has followed the path of other countries like Italy and France and has introduced a domestic FTT while, in parallel, it has supported a European Union (EU FTT through the enhanced cooperation method).
Generally, the length of a parliamentary procedure is approximately five months.
Background and purpose
Since 2013, Spain is one of the EU Member States – together with Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovakia and Slovenia (following Estonia’s formal withdrawal in 2016) – involved in the enhanced cooperation procedure regarding the adoption of a Directive for the implementation of an FTT. On 14 February 2013, the European Commission made a proposal for a Council Directive on enhanced cooperation in the area of a financial transaction tax.1
The issue is currently at a standstill in the Council, though the status of this matter has been regularly discussed at the Economic and Financial Affairs Council (ECOFIN). The June 2018 report reiterates that further work at the Council is still required, before a final agreement can be reached.
Under this context, the Spanish Government has decided to resume its initiative of a domestic FTT after its failure to approve the bill drafted in 2019 (See EY Global Tax Alert, Spain sends bill on Financial Transaction Tax to Parliament, dated 4 February 2019). but without abandoning the enhanced cooperation procedure for the establishment of a harmonized tax. Thus, it is expected that the Spanish tax would have to be adapted, where appropriate, to the FTT when it is finally approved under the Directive.
Main characteristics of the Spanish FTT
According to the Bill, the main characteristics of the Spanish FTT are:
The FTT is an indirect tax.
The taxable event is the acquisition of shares of Spanish companies with market capitalization over €1,000 million, admitted to trading on the Spanish market, or on a regulated market of another EU Member State, or on an equivalent third-country market.2
The Spanish tax authorities will publish before 31 December of each year the list of Spanish companies with market capitalization exceeding €1,000 million as of 1 December of that year.
Furthermore, acquisitions for valuable consideration of depositary receipts representing the shares referred to in the first paragraph (e.g., ADRs, ADS) fall within the scope of the FTT, regardless of the place of establishment of the issuer of such securities.
However, the Bill now sets forth that the following are out of the scope of the FTT: (i) the acquisition of shares exclusively aimed at the issuance of depositary receipts; (ii) the acquisition of depositary receipts in exchange for the supply of the Spanish shares that will be represented by the depositary receipts; and (iii) transactions to cancel depositary receipts via supply of the Spanish shares represented by them.
Finally, acquisitions of securities referred to in the previous paragraphs which result from the execution or settlement of obligations or of convertible/exchangeable bonds or obligations, or from derivative financial instruments, as well as from any other instrument or financial agreement will also be subject to the FTT.
In principle, the scope is therefore very similar to that defined by the French FTT, where differences may arise, for instance, in relation with the inclusion of certain instruments regarding voting rights (i.e., not included in the Spanish FTT).
The Bill provides a number of exemptions, which include, among others, acquisitions:
It should be highlighted that some of the exemptions are common with the French FTT, especially highlighting those applicable to the intra-group restructuring transactions, and financing transactions. However, even in coinciding exemptions, differences are expected to arise.
The acquirer of the Spanish shares must provide the taxable person (see relevant section below) evidence of the eligibility for the exemption in all cases. The Bill sets forth the obligation, both for the acquirer of the Spanish shares and the taxpayer, to keep certain documentation readily available in case the Spanish tax authorities request it.
The accrual of the proposed Spanish FTT depends on the place where the acquisition takes place:
It will be assumed, until proof to the contrary, that executed purchase orders have been settled.
The tax base is determined by the consideration in return for the transaction, without transaction fees derived from the prices of the market infrastructures, nor the intermediation commissions, nor any other expense linked to the transaction.
Where the consideration amount is not expressed, the tax base is the closing value that the security had in the most relevant market in terms of liquidity of the relevant security on the day preceding the transaction.
However, certain special rules are established in those cases in which the acquisition of the securities derives from the execution or settlement of convertible/ exchangeable bonds or obligations, of derivative financial instruments, or of any instrument or financial agreement, where the conditions that are set forth in said instruments or agreements in relation to the delivery of the securities should be considered. Finally, a specific calculation method is established for intraday transactions with respect to the same acquirer of Spanish shares (the original rule has been simplified).
Taxpayer – Taxable person – Joint liability rules
The Spanish FTT will be assessed, irrespective of its residence, by the investment services company or credit institution acquiring the Spanish shares on its own behalf, as FTT taxpayers.
If the Spanish shares are not acquired by an investment services company or credit institution on its own behalf, the tax will be assessed by the following persons, depending on where the transaction is carried out, also as FTT taxable persons but in this case as substitutes of the taxpayers:
If several financial intermediaries are involved in executing a security purchase order, the tax shall be assessed and paid by the firm that received the purchase order directly from the end buyer.
• If the acquisition takes place outside a trading venue:
In these cases, the taxable person is entitled to claim back/charge from/to the taxpayer (i.e., the actual acquirer of the Spanish shares) the amount of Spanish FTT due.
The new wording of the Bill also includes the obligation of the taxpayer to inform the custodian of all the details of the transaction as well as of the amount of Spanish FTT due. If the taxpayer does not provide this information (or the information provided is not accurate), it will be jointly and severally liable for the Spanish FTT due derived from the inaccurate information provided (or lack thereof).
The tax rate is set at 0.2%.
Collection procedure and other formal obligations
No specific tax form has been proposed yet – this will be regulated later on.
The Spanish FTT will be assessed monthly and tax due may not be deferred or paid by installments.
Taxpayers will also have to submit an annual statement of the tax, which will have to include the exempt transactions carried out. If the taxpayer has opted to pay the tax through a central securities depository (CSD), the CSD will be in charge of filing this annual statement, subject to certain conditions.
In addition, the taxpayer is required to obtain a Spanish tax ID.
No specific penalty regime has been included. Rather, a reference is made to the general penalty regime of the Spanish General Tax Law.
Entry into force
If finally approved, the entry into force is foreseen as three months following the publication of the Law in the Spanish Official Gazette.
The Bill must now follow the appropriate parliamentary procedure for its approval, thus, it may eventually be subject to modifications during the process or might even be discarded (i.e., not approved).
The three-month entry into force deadline may be clearly insufficient to allow the financial intermediaries to modify and adapt their IT systems to the FTT. An amendment to the entry into force period could be introduced during the parliamentary discussion.
In order to assess the effects that this new tax could have on the different financial intermediaries, the impact on both their business and operational model should be analyzed, identifying the areas or business lines, processes, systems and applications that might be affected and how they should be adapted to the new FTT.
2. In accordance with the provisions of the Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014, on markets in financial instruments.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Abogados, Madrid
Ernst & Young LLP (United States), Spanish Tax Desk, New York