On 23 October, the Spanish Government published a first draft of the law to implement the Spanish Financial Transactions Tax (FTT). The draft will be submitted to the Parliament for approval against the background of a complex political situation which does not guarantee the timing of its implementation or even its approval.
The current draft follows the model adopted by neighbouring countries such as Italy and France, taxing the acquisition of listed equities regardless of the place where the acquisition of the shares takes place and regardless of the residence of the persons or entities involved in the transaction. Though the person responsible for paying the tax will be the financial intermediary involved, it is expected that, if finally implemented, this tax may nevertheless impact trading costs for investors in respect of Spanish equities.
Since 2013, Spain has been part of the core group of EU member States promoting the enhanced cooperation procedure for the adoption of an FTT, together with Germany, France, Austria, Belgium, Slovakia, Slovenia, Greece, Italy and Portugal.
Despite some progress being made in the context of this multilateral initiative, to date it has not been possible to reach an agreement. In this context, the Socialist Party now in government has decided to propose the implementation of a similar tax locally without waiting for the outcome of the enhanced cooperation procedure. Nonetheless, if the Spanish FTT is enacted, it is expected that it would be amended if a multilateral FTT Directive is finally approved thereafter.
Transactions subject to Spanish FTT
According to the current draft, the Spanish FTT would apply to the acquisition of shares when the following requirements are met:
- The Spanish shares are listed on:
- a Spanish or EU regulated market, as defined in Directive 2014/65/EU (MiFID II), or
- an equivalent market of a non-EU jurisdiction as provided in article 25.4 of that Directive.
- The capitalisation value of the listed company is over €1bn (a list of those companies falling within this category would be published before 31 December each year). Currently all Ibex35 issuers save for one would be caught by the rule.
The purchase of the shares will trigger the Spanish FTT regardless of whether such acquisition is executed within a trading venue, by a systematic internaliser, or even outside a trading venue, via a direct private agreement between the parties.
Additionally, the proposed Spanish FTT will apply to the acquisition of depositary receipts (e.g. ADRs or ADS) representing listed shares which meet the abovementioned requirements, as well as those acquisitions of shares derived from the execution or settlement of:
- convertible or exchangeable bonds
- derivative financial instruments
- other financial instruments, or
- certain financial contracts.
There are several exemptions, including:
- primary market transactions
- those derived from the issuance of shares and public offerings for sale (IPOs and IPs), as well as acquisitions prior to public offerings made by placement agents and underwriters
- those undertaken by clearing houses or central securities depositories
- those carried out by financial intermediaries in the context of price stabilisation in an IPO/IP, as liquidity suppliers or market making activities, as well as hedging arrangements relevant to the above
- business restructurings subject to the Spanish tax neutrality regime
- transactions carried out between group companies, and
- repos, stock loans and other securities financing arrangements, as well as collateral arrangements involving transfer of legal title (paras 11 and 13 of EU Regulations num. 2015/2365).
Taxpayer, taxable base and rate
The person responsible for payment of the Spanish FTT depends on how the acquisition of the shares takes place:
- If the acquisition takes place within a trading venue, the taxpayer will be the market member executing the purchase order.
- When several market members are involved in the execution of a purchase order as intermediaries, the intermediary who is liable to the tax is the intermediary issuing in its own name the first purchase order for execution from the final client.
- If the acquisition takes place outside a trading venue, by a systematic internaliser, the taxpayer will be the systematic internaliser.
- Where none of the above scenarios apply, the taxpayer will be the financial intermediary receiving the order from, or delivering the securities to, the purchaser, by virtue of the execution or settlement of a financial contract. If none of the aforementioned entities take part in the transaction, the taxpayer would be the custodian of the securities acting on behalf of the purchaser.
The rate has been set in the draft at 0.2% of the consideration paid for the acquisition of the shares, excluding transactions fees and any commissions applicable to the transaction.
The draft legislation for the implementation of the Spanish FTT suggests that if this tax is finally implemented in Spain, it will most likely follow a similar shape to equivalent taxes implemented by other EU member States that have decided to unilaterally implement a local FTT.
The proposal for a local Spanish FTT is the combined result of the lack of real progress of the enhanced cooperation procedure for the adoption of an FTT coupled with a political turn to the left recently experienced by the new Government in Spain.
The draft is still open to comments and modifications and will need the approval of the Spanish Parliament to its final form. No specific timing for its approval has been expressly announced by the Government, though in the draft bill the tax is scheduled to be effective three months following its publication in the Spanish State’s Official Gazette.
Even so, it remains uncertain whether the proposed new tax will actually be enacted, considering the current minority position of the Socialist Government and the complexities of reaching a majority vote in the Spanish Parliament.
Should the legislation to implement the Spanish FTT be approved, it will also need further implementing regulations to be put in place, which will need to clarify a number of outstanding aspects of the tax, such as the scope of transactions and instruments covered, the determination of the taxpayer in certain scenarios, details of how the tax will be collected by the financial intermediaries (particularly those with no presence in Spain) and the scope of some exemptions.
Some of these exemptions are particularly relevant to collective investment schemes and pension funds, such as securities financing and collateral transactions. To evaluate the potential impact of these exemptions, managers will need to wait and see whether the final text narrows or extends their scope.
Detailed guidance by the Spanish tax authorities will also be required in relation to several aspects of the new regulations.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.