28 June 2021
OP-ED by Asunción Fernández López, Director of Securities Custody and Settlement at Cecabank.
The Financial Transaction Tax (FTT) is a few days short of its six-month anniversary, having come into force on Monday 18 January. It is clear that this has been one of the most controversial taxes within the national financial landscape in recent years with very different expectations depending on the angle of analysis. While it is true that the introduction of this new tax has taken place in the middle of the pandemic and, therefore, its real impact has not yet been ascertained, the growth forecasts for the Spanish economy, which the Bank of Spain puts at around 6.2% for 2021 and 5.8% for 2022, could have an impact on the revenue-raising effect promoted by this regulation.
The first thing that needs to be clarified, from a regulatory perspective, is what is the FTT or the Spanish Tobin tax, as it is known to a large proportion of resident investors, as well as to almost all non-resident investors who invest in IBEX-35 securities.
The FTT is an indirect tax levied on the acquisition of shares issued in Spain of listed companies with a market capitalisation of more than 1 billion euros, in other words, reserved for the large IBEX-35 securities. This tax applies regardless of the place where the acquisition is made and irrespective of the residence of the persons involved in the transaction.
Both aspects are relevant as it means in practical terms that the FTT applies to any buyer of shares who meets this requirement, irrespective of nationality, residence or place of trading or contracting. On the other hand, the regulation also covers the purchase of certificates of deposit representing these shares, which includes for example the so-called ADR (American Depositary Receipts) as well as GDR (Global Depositary Receipts) issued on these shares, thus internationalising the application of our Tobin tax. In other words, the purchase of an ADR issued on Spanish shares meeting the requirements of the FTT Law would also be subject to the tax.
This tax is levied at the time of settlement of the purchase, in other words, when the purchase is registered in the name of the purchaser, and is charged at a tax rate of 0.2% on the amount of the purchase, not including royalties, brokerage fees or commissions applied by the institution to its customer, or any other expenses.
The FTT therefore is levied on the taxpayer, who is none other than the acquirer of the shares, but the reporting and payment obligations rest with the taxable person, in other words the financial intermediary who receives the order directly from the buyer, or the market operator who executes the order.
It should be noted that the Tobin tax is not a home-grown invention; it is a tax that has already been applied in neighbouring countries such as France, Belgium and Italy, although, despite many attempts, it has not yet been extended to all EU member states.
As mentioned above, the application of the Financial Transaction Tax began last January with the passing of Law 5/2020, approved on 15 October, which, after its publication in the Official State Gazette one day later, established a period of three months for its entry into force.
Therefore, the legislator initially established a period of three months so that credit institutions and investment services companies could adapt to the new requirements of this regulation, which are considerable, since in addition to the obligation to calculate and charge the tax to the taxpayer at the time of the transaction, it also establishes a monthly reporting obligation with the Tax Administration involving a very extensive level of detail.
This immediate implementation of the tax for investment firms has finally been alleviated by the delay until 26 May of the publication of the Financial Transaction Tax Regulation which develops the procedure for self-assessments and sets out the filing and payment procedure for investment firms designated as taxable persons. This delay in its publication has provided organisations with an extra period to strengthen their internal procedures and systems necessary for the settlement of the tax.
In short, the tax has been applied by financial institutions since 18 January, although the filing of the tax forms and the settlement of the tax has not been carried out until this June with the filing of the first five monthly periods of the current year.
The purpose of this tax is clearly to raise revenue, as stated in the preamble to Law 5/2020, which specifically mentions the objective of contributing to the consolidation of public finances and reforming the principle of equity of the tax collection system. The Government expects to collect around €850 million in 2021 through the FTT, according to the National General Budget, and although as at today there is still no aggregate statistical data, as the first filing of returns by financial institutions has just been completed, each and every one of the institutions that participate in the value chain already has firm data for the first five months of the year.
In addition to knowing whether the amount collected is in line with the government's expectations, it will be important to analyse in the coming months how the application of this new tax on share purchases has affected the volume of business on the Spanish stock exchange. Many analysts agree that as long as the application of this tax is not homogeneous, capital will tend to migrate to markets where it is not present, as seems to be reflected, in the absence of a detailed analysis, by the sharp fall in the amount of equities traded in our market during the first five months of the year.
