The Spanish Official Gazette published last October 16th legislation enacting a new indirect Tax on Financial Transactions levied, at 0.2%, on the acquisition of shares of major Spanish listed companies irrespective of the residence of the parties intervening and of the place where the shares are negotiated. Such transfers were previously not taxable in Spain. Though the tax falls on the buyer, relevant obligations as taxpayers are established for intervening financial institutions, market intermediaries and other operators. The new law will be effective next January 16th 2021.
Tax on Financial Transactions (FTT)
Law 5/2020 of October 15th (Ley 5/2020, de 15 de octubre, del Impuesto sobre las Transacciones Financieras), introduces in Spain a new indirect levy which taxes the acquisition of shares of major Spanish listed corporations, irrespective of the country of residence or of establishment of the persons or entities, including financial intermediaries, intervening in the transaction, and of the place where such acquisition takes place.
FTT does not fall on the transfer of all kinds of shares issued by a Spanish company, selectively limiting its application to onerous transfers of shares where the Spanish company is listed in a regulated market and its market capitalization exceeds euro 1 billion.
Further to the lack of international consensus after years of discussions about a harmonized financial transactions tax at EU level, the Spanish legislator has deemed it appropriate, with the aim of contributing to the consolidation of Spanish public finances and of reinforcing the fairness of the Spanish tax system, to unilaterally establish this new tax following, in favour of further coordination within Europe, the path initiated by such countries as France or Italy.
The law generally exempts certain acquisitions including those associated with primary markets, the correct functioning of markets, tax neutral business restructurings, the observance of certain resolutions, intra-group transfers and transfers of a temporary nature. It nevertheless imposes new obligations, in their role as taxpayers, to certain investment services companies, credit entities, market members and other market operators, including depositaries, who intervene in taxable transactions.
The main features of Spain´s FTT are the following:
(i) FTT is an indirect tax levied on onerous (i.e. in exchange for consideration) acquisitions of shares representing the share capital of Spanish listed companies whose market capitalization exceeded euro 1 billion on December 1st of the year prior to the acquisition. An official list of Spanish companies whose market capitalization exceeds euro 1 billion on December 1st of each year will be published by the Spanish Tax Administration before December 31st, every year.
(ii) The tax applies to acquisitions of shares issued by Spanish-listed corporations provided that the company is listed: (a) in the Spanish market, (b) in an EU market which is considered a regulated market by Directive 2014/65/UE, or (c) in a third-country market which is considered equivalent, in accordance with article 25.4 of said Directive.
(iii) Subjection to FTT takes place irrespective of whether the acquisition is executed: (a) in a negotiating center, as defined by article 4.1.24. of the above-mentioned Directive, (b) in any other market or contracting system, (c) by a systematic internalizer as defined by article 331 of Spain´s Securities´ Market Law, or (d) through direct agreement between the parties.
(iv) FTT is also levied on onerous acquisitions of Depositary Receipts representing the above-mentioned negotiable shares. The following acquisitions, however, will not be subject to tax: (a) those whose exclusive purpose is the issuance of such Depositary Receipts, (b) those executed in exchange for the shares the Depositary Receipts represent, or (c) those executed for the purpose of cancelling the Depositary Receipts for delivery to holders of shares represented.
(v) FTT also applies to acquisitions of the above-mentioned Shares or Depositary Receipts, derived from the execution or from the liquidation of convertible or exchangeable bonds, debt securities, derivatives or any other financial instrument, as well as of financial contracts as defined by regulations developing Spain´s Securities´ Market Law.
(vi) A number of exemptions are foreseen in the Law, including among others: (a) acquisitions derived from primary issuance of shares or of depositary receipts, (b) acquisitions derived from IPOs, (c) instrumental acquisitions made, prior to (a) and (b) above, by placers and underwriters with the purpose of distributing such shares between final investors or in their role as placers and underwriters, (d) acquisitions made by financial intermediaries in their role of price stabillizers in the context of share listings, (e) certain acquisitions made by central counterparties or depositaries in the exercise of their functions, (f) acquisitions by financial intermediaries for the account of the issuer in their role as liquidity providers, (g) acquisitions in the context of market creation, (h) intra-group acquisitions, (i) acquisitions made in the context of certain tax neutral restructuring transactions, (j) certain securities´ financing and collateral transactions per EU Regulations 806/2014, (k) certain acquisitions resulting from resolutions issued by the EU Single Resolution Board, (l) certain acquisitions of treasury stock or of shares of a parent company.
(vii) FTT is levied at a rate of 0.2% on the amount of the consideration excluding transaction costs, intermediation commissions or other associated expenses. In case consideration is not expressed, the tax basis will be the market value, on the last day of negotiation prior to the acquisition, in the most relevant market in terms of liquidity.
(viii) Special rules apply to the determination of the taxable base in different cases: (a) value established in the deed of issuance in the case of convertible or exchangeable bonds, (b) contractual exercise price in the case of the execution or liquidation of options or of other derivative financial instruments, (c) price pacted in the case of derivative instruments constituting a term transaction, and (d) market value on the last day of negotiation prior to the acquisition in the most relevant market in terms of liquidity in certain other cases.
(ix) FTT falls on the acquiror party wherever he is established. However, the obligation to pay the tax, which must be settled on a monthly basis lies, as a general rule, with the investment services company or the credit institution making the acquisition on its own account.
(x) In case the acquisition is not executed through an investment services company or credit institution acting on its own account, the obligation to pay the tax will fall, as substitutes: (a) on the executing market member in case of acquisitions realized in a negotiation center (if more than one financial intermediary intervenes, the financial intermediary directly receiving the order from the acquiror will be deemed the taxpayer), (b) the systematic internaliser where the acquisition is not executed within a negotiation center and within his scope as systematic internaliser, (c) the financial intermediary receiving the order from the acquiror if none of the above applies, and (d) the depositary where none of the above situations or parties concur (in which case the acquiror must supply the depositary with all the relevant information to enable the settlement of the tax and will be joint and severally responsible for the tax liability associated with the payment in case of erroneous or incorrect information).
Although FTT limits its scope of application to onerous acquisitions of shares in major Spanish-listed corporations, as defined, it represents a significant change in the field of Spanish indirect taxation since, previously, such share transfers were generally exempt. Thus, potential acquirors of subjected securities should now take the tax into consideration and determine its impact as part of their decision-making process and cash planning. In addition, notwithstanding that the tax economically falls on the buyer as the acquiror party, the law establishes relevant obligations, as taxpayers, for certain intervening financial services entities and operators. Entities potentially impacted by the new rule, specifically those financial intermediaries and financial entities affected, should also closely analyze its implications and its impact in their internal compliance procedures. All parties should, in any case, in light of the lack of experience with the application of FTT, also closely monitor any relevant future developments in particular the issue of developing Regulations and further administrative criteria.
FTT will enter into force next January 16, 2021.
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