Measures included in the 2017 Finance Act have made significant changes to the French Financial Transaction Tax (FTT). In particular, the rate of the French FTT has been raised from 0.2% to 0.3% with effect from 01 January 2017. In addition, French FTT will be extended to “intraday trading” (ie transactions that are settled in a single day) with effect from 01 January 2018. The French Constitutional Council, in its decision of 29 December 2016, has confirmed the constitutionality of this measure. However, the “intraday trading” tax will face many legal and technical obstacles before its effective implementation and its introduction is far from certain for a number of reasons.
Under current rules, the person liable for the FTT, called an “investment service provider”, is the person who executes trade orders from the share owner or who negotiates trades for its own account. When the transaction is performed without the involvement of an investment service provider, the entity acting as custody account-keeper is liable of the tax instead.
A “Central depository” is in charge of declaring and collecting the tax. In France, it is Euroclear France.
The owner of the shares is required to give all the information required to calculate the tax to the investment service provider. The investment service provider is required, in turn, to send that same information to the Central depository.
Article 62 of the 2017 Finance Act envisages a decree to set out the details of the nature of the information to be sent by the investment service provider to the Central depository. In order to tax all intraday transactions reliably, we believe that drafting this decree to ensure that it is sufficiently comprehensive will take time and should not be taken for granted. Experts reviewing the measure estimate that the exchange of information necessary will be much more extensive than that currently required.
Needless to say, the implementation of the measure will also be technically complicated as it will involve the modification of IT systems used by financial intermediaries as well as many contracts with their clients.
Conflicts with the EU FTT?
Negotiations are currently ongoing at the European level between the ten remaining Member States (including France, Germany, Italy and Spain) who wish to implement a European Financial Transaction Tax (EU FTT) on a very wide basis including intraday trading. Although the European Council adopted a decision allowing Member States to establish a common EU FTT using the enhanced co-operation procedure (ECP) on 13 January, 2013, progress to implement the measure since then has been slow and dogged by disagreements.
However, during the debates on the 2017 Finance Act, Michel Sapin, the French Minister of Finance, highlighted that discussions between the participating Member States are going forward and that an agreement was reached in October 2017 on the core principles of an EU FFT. See our article, “FTT: agreement in principle reached?”. A further draft Directive is expected from the EU Commission in the near future.
If the EU FTT is implemented, the issue is that both the French FTT and the EU FTT will tax intraday trading and there will therefore be a risk of a double taxation.
It is also important to bear in mind that there is a high chance that the measure will be called into question during 2017 considering the very high probability of a change in government and in policy following the presidential elections in May 2017.
In particular, it is forecast that the measure will negatively affect French companies in a significant manner. This is because, under the relevant provisions of the French Tax Code, a transaction must involve a security issued by a company whose registered office is located in France to be caught by the French FTT. To our knowledge, France would be the first mainland European market to implement an intraday transaction tax. Whilst it already exists in the UK (in the form of “stamp duty”) at an even higher rate of 0.5%, the taxes are not exactly comparable.
Accordingly, whilst the 2017 French Finance Act has made provision for the extension of the French FTT to intraday trading, it remains far from certain that it will come into effect in 2018 as currently envisaged as it still faces a number of technical, legal and political hurdles.
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