Publication of the Bill on the Financial Transaction Tax
Spain Tax Alert
The Official Parliamentary Gazette has published on February 28, 2020 the Bill on the Financial Transaction Tax ('Impuesto sobre Transacciones Financieras', ITF) without significant amendments with respect to the bill sent to the Parliament in January 2019, the processing of which was halted due to the dissolution of Parliament and the call for elections.
The only adaptation included in the new bill relates to the single transitional provision, adjusting the dates of its first-time application to the new timeframe.
ITF continues to be designed as an indirect tax charged at 0.2% on acquisitions for a consideration of shares in listed Spanish listed companies with a market capitalization of over 1,000 million euros on December 1 of the preceding year. The list of companies whose shares fall within the scope of ITF would be published on the State Tax Agency’s webpage.
Pursuant to the so-called “issuance principle”, ITF would be levied on any acquisition of shares issued by Spanish listed companies that meet the requirements, regardless of where the acquisition is made and of the residence or place of establishment of the individuals or entities that participate in the transaction. Moreover, the acquisitions would be subject to ITF, whether they are executed in a trading venue or any other market or contracting system, by a systematic internalizer, or through direct agreements between contracting parties. The tax would also be levied on acquisitions of certificates of deposit (such as ADRs, in US nomenclature) and acquisitions deriving from the execution or liquidation of convertible or exchangeable debentures or derivative financial instruments, among others, with certain particularities.
Important exemptions are included. The following may be highlighted: (i) acquisitions on the primary market (issues of shares and public offerings), (ii) those carried out between entities forming part of the same corporate group, (iii) acquisitions qualifying for the special regime for mergers, spin-offs, asset transfers or exchanges of securities and acquisitions resulting from mergers or spin-offs of collective investment undertakings or of their compartments or sub-funds, and (iv) other acquisitions which the Bill deems necessary for the correct functioning of the markets (placement agencies and underwriters in issues, price stabilizers, providers of liquidity, market makers, etc.), among others.
In general, the tax base would be the amount of the consideration (without including costs, commissions or expenses), with some particularities (such as acquisitions derived from the conversion of debentures or the liquidation of derivatives). In the case of acquisitions and transfers of the same security carried out on the same day, ordered or executed by the same taxpayer with respect to the same acquirer and which, moreover, are liquidated on the same date (called “intraday” operations), the tax base would be calculated applying the average consideration of the acquisitions (i.e., average purchase price) to the increase in the net position of the shares.
The party liable for ITF would be the acquirer of the shares. However, the taxpayer or, as the case may be, the substitute taxpayer that must pay over the tax to the State Tax Agency (regardless of where it is established) would be the following, depending on the different cases envisaged in the law: the member of the market that executes the acquisition on behalf of another, the investment services firm or credit institution that makes the acquisition on its own behalf, the financial intermediary, the systematic internalizer or, lastly, the deposit-holder. Although the tax would be chargeable, in general terms, upon execution of the transaction, a monthly assessment period is established. Moreover, taxpayers must file an annual return reporting exempt transactions. The rest of details on the assessment and payment of the tax are left for subsequent implementation by regulations. In this respect, an optional mechanism is regulated for filing the ITF return and paying the tax through a central securities depository located in Spain (this mechanism could be extended to other central securities depositories in the European Union or even in third States that are recognized to provide services in the European Union through collaboration agreements signed with a central securities depository established in Spain).
Regarding the first-time application of the tax, the entry into force is set for three months after the publication of the law in the Official State Gazette once its passage through Parliament has ended. In this case, the date on which the market capitalization is measured would be that of the preceding month, that is, two months after the publication of the law. In this first period, the list of affected companies would be published in the third month after the publication of the law in the Official State Gazette, before its entry into force.
With respect to the provisions on infringements and penalties, there is a general reference to the General Taxation Law.
Given that this is a bill that is commencing passage through Parliament, the wording could undergo changes, so it will be necessary to monitor it until the law is approved and published in the Official State Gazette, and once the regulations implementing it are approved.