• Italian Financial Transactions Tax - Italy Imposes Tobin Tax on Financial Transactions
  • February 7, 2013 | Authors: Andrea Fiorelli; Francesca Staffieri
  • Law Firm: Norton Rose Canada LLP - Montreal Office
  • Introduction

    Italy has introduced a domestic tax on financial transactions (FTT - so called Tobin Tax). The new tax will be imposed on certain financial transactions executed as from 1 March 2013 and on others executed as from 1 July 2013.

    Relevant Transactions, Excluded Transactions and Exempt Parties

    The FTT applies to certain financial transactions (the Relevant Transactions), wherever executed and regardless of the nationality of the parties.

    The five categories of Relevant Transactions are:

    • transfers of shares and participating financial instruments issued by Italian resident entities (Shares and PFIs), including those transfers on conversions of bonds (except for newly issued shares). Bonds, quotas and fund units are, instead, excluded (further exclusions may be introduced with a subsequent ministerial decree)

    • transfer of other instruments representing such Shares and PFIs (for example, ADRs - American Depositary Receipts)

    • derivatives transactions, whether cash or physically settled, securitised or not, having as a main underlying asset such Shares or PFIs

    • transactions on “derivative financial instruments” in Shares and PFIs or whose value depends mostly on the value of one or more of such financial instruments, and

    • transactions on any other security, allowing to purchase or to sale such Shares or PFIs or transactions that allow for cash regulations based on the Shares (e.g. equity-settled derivatives, including warrants, covered warrants and certificates).

    Furthermore, the FTT applies to high-frequency trading (HFT) transactions executed on Italian financial markets, provided that certain conditions - yet to be defined in a subsequent ministerial decree - are met.

    • The following transactions are excluded from the FTT (the Excluded Transactions):

    • new issues and cancellation of Shares (including on conversion of bonds) and PFIs

    • transfers by way of gift or inheritance

    • transactions such as stock lending or stock borrowing or the lending or borrowing of other financial instruments, a repurchase or reverse repurchase transaction, or a buy-sell back or sell-buy back transaction

    • transfers of Shares and PFIs issued by so called “small caps” (companies whose average market capitalisation in the month of November of the year preceding the year of sale does not exceed €500,000,000), and

    • transactions on qualifying “ethical” financial products.

    Specific exemptions also exist for transactions where the counterparty is the European Union, the European Central Bank, the central banks of EU Member States or those institutions established by international agreements entered into by Italy.

    In addition, the FTT is not applicable to transactions carried out by certain qualifying entities (Exempt Parties), namely:

    • transactions falling within the scope of the “market making activities” as defined under the relevant EU legislation;

    • transactions executed by financial intermediaries acting in a market making capacity on behalf of an issuer with the aim of providing liquidity, within the limitation as set out in the relevant EU legislation

    • transactions executed by social security entities, certain pension funds and similar entities1, and

    • transactions executed by companies where one of them can exercise the control (as defined by the Italian Civil Code)2, or whether executed in the context of a corporate reorganisation - specifics and conditions of this exemption still to be defined in the Decree.

    Tax rates and taxable base

    The FTT is levied at different rates depending on the type of transaction and relevant market.

    Transactions on Shares and PFIs are subject to:

    • a 0.12 per cent FTT (for 2013) if executed on a regulated market or a multilateral trading facility established in a EU member State or in a European Economic Area (EEA) State allowing an adequate exchange of information with Italy. This rate falls to 0.1 per cent after 2013; or

    • 0.22 per cent FTT (for 2013) in any other cases, falling to 0.2 per cent after 2013.

    The FTT is applied on the net daily balance of transactions on the same security by the same person.

    Transactions on derivatives and other financial instruments relating to Shares and PFIs are subject to a fixed tax ranging from € 0.01875 to € 200.00, depending on the type of instrument and the value of the agreements. If derivative contracts are executed on a regulated market or multilateral trade facilities, the tax is reduced to 20% of the original notional amount.

    HFT transactions are subject to a 0.02 per cent tax on the counter-value of orders automatically generated (including revocations or changes to original orders) by a computerized mathematical algorithm within a time frame - still to be specified by the Decree. The tax is applied in addition to the FTT due on transfers of Shares and PFIs as well as on transactions on the relevant derivative instruments.

    In case of physically settled derivatives (as opposed to the cash settled ones), the relevant transaction may trigger the payment of FTT not only in connection to the derivative itself but also in connection with the transfer of the underlying shares or equity-like instruments.

    Taxable person and compliance obligations

    The FTT on the Transactions on Shares is due from the transferee only, whilst the FTT applicable on Transactions on Derivatives is due from each party to the transaction.

    As regards HFT transactions, the FTT is borne by the person on whose behalf the cancellation or amendment orders are executed.

    Those persons acting as intermediaries in the Relevant Transactions (if any)3 would be responsible for applying and paying the FTT, as they are considered withholding tax agents4. Also non-resident intermediaries will be withholding agents for the purposes of the FTT, although they may appoint an Italian-resident tax representative for handling the payment and other compliance matters.

    If no financial intermediary is involved, the party (or parties) to the relevant transaction must pay directly the FTT.

    Specific provisions regarding FTT reporting and payment obligations and other compliance duties will be included in the Decree, to be issued in due course.

    Timing of application  

    The FTT on transactions on Shares and on HFT on such Shares and PFIs (as well as representative instruments) will apply on transactions executed as from 1 March 2013, whilst the FTT on transactions on derivatives and on HFT on such derivatives and other financial instruments will apply as from 1 July 2013.