Italian FTT: guidance and clarifications by the IRA - 18/09/2013
Italian Financial Transaction Tax: guidance and clarifications on derivative transactions by the Italian Revenue Agency
As mentioned in our Operational Tax News dated 9 January 2013, a Financial Transactions Tax on certain transactions in Italian shares (and other in scope participating financial instruments) as well as high frequency trading on such shares and securities is in force in Italy since 1 March 2013.
Italian Financial Transaction Tax white list
The Italian Financial Transaction Tax (hereinafter “IFTT”) is in principle due by the person acquiring the ownership of the shares. However, as stated in the attached news alerts dated 6 March 2013 and 21 March 2013, financial intermediaries involved in the execution of relevant transaction which are not located in white list jurisdictions (defined as states and territories with which Italy has agreements in force for the purpose of exchange of information or assistance in the collection of the tax credits) would be considered as a “final buyer” for IFTT purposes and subject to taxation accordingly. Please note the IFTT white list is specific for FTT purposes and different from the one used by Italian tax authorities for other purposes.
Issuance of derivatives FAQ
As from 1 September 2013, the IFTT is also applicable to transactions in derivatives having as their underlying primarily Italian shares/in scope participating financial instruments, other transferable securities listed in Decree 21 February 2013 (hereinafter the “IFTT Decree”) as well as high frequency trading transactions on such derivatives/securities.
Following the FAQ document concerning the application of the IFTT on shares and assimilated financial instruments published on 8 August 2013, last 26 August the Italian Ministry of Economy and Finance issued a second FAQ document (providing some clarifications and guidelines for the application of the IFTT in respect of transactions involving derivatives and transferable securities (“Derivatives FAQ”).
A brief overview of the main topics covered by the Derivatives FAQ is summarised below:
In scope derivatives: Derivatives whose underlying is represented by indices, measures, returns on shares or indices fall within the scope of the IFTT, provided that these measures are related to the value of the shares (which is their market price) so that the change in the said price results in a change of the underlying measure or of the subordinated return.
As a consequence, transactions concerning derivatives not having the characteristics mentioned above (e.g. dividend swaps; credit default swaps; future on index dividend) are out of scope of the IFTT.
Derivatives on equity funds’ share/quotas: transactions concerning derivatives (or transferable securities listed in the IFTT Decree) having as underlying an ETF and/or a mutual fund which invests primarily in shares and/or assimilated financial instruments should be subject to the IFTT.
Derivatives traded on regulated markets: for transactions concerning derivatives traded on regulated markets, the financial intermediary responsible for the payment of the IFTT should be the clearing broker (rather than the executing broker).
Impact for Luxembourg investment funds
Given the potential extraterritoriality effects of the tax, Luxembourg funds may be impacted when dealing with derivatives on Italian securities. Their liability to the IFTT must be tested with regards to these transactions in order to ensure their compliance with the IFTT Decree and guidance.
If you have any queries regarding the above, please do not hesitate to contact us.