France: Financial Transaction Tax : update

01.06.2012

A new law1 creating a 0.1% financial transaction tax (FTT) was adopted by the French Parliament and will come into effect for all transactions that have been traded and settled as from

1 August 2012 2

Clearstream Banking3 is in contact with the relevant market players to analyse how to support customers in fulfilling this new legal requirement.

This information complements our Announcement A12057, dated 15 March 2012, and provides a summary and high-level description of the French FTT processing4.

Attributes of the French FTT

(Text in bold type is directly quoted from the Blueprint.)

Impacted securities

  • Capital instruments (“titres de capital”) and assimilated securities (mainly equities)
  • Listed on a French or foreign regulated market
  • Issued by companies whose:

    • Headquarters are located in France, and
    • Capitalisation exceeds one billion euro on the 1st of January of the underlying fiscal year.

The French Ministry of Finance will provide, annually, a list of the impacted companies. It is likely that data vendor(s) will include this information in their securities information feeds (to be confirmed).

Accountable parties

An Accountable Party is an institution which is legally obliged to provide the declarations and to pay the FTT. It is:

  • The Investment Service Provider or “Broker” which has executed the transaction on its behalf or on behalf of its client; or
  • When the transaction is not executed by a Broker (e.g. over-the-counter (OTC transaction), it is the securities account holder of the investor.

Tax Declaration and payment must be delivered to Euroclear France (EF) or to the French Tax Authorities depending on the number of intermediaries between the Accountable Party and EF:

  • Up to two intermediaries: EF via the chain of intermediaries;
  • More than two intermediaries:

    • French Tax Authorities directly; or
    • Indirectly to EF via an EF member.

Both Clearstream Banking entities are direct members of EF and will deliver tax declarations and payments directly on behalf of the Accountable Party. This is applicable in cases where Clearstream Banking is the last intermediary in the chain from an Accountable Party to EF and where there are not more than two intermediaries in such chain.

Impacted transactions

The tax applies when an acquisition results in a transfer of ownership or “acquisitions à titre onéreux”.

Transactions are subject to the tax:

  • No matter where the transaction was negotiated (e.g. Regulated Market, Multilateral Trading Facility (MTF), dark pool, OTC; internalisation, crossing network);
  • Whether the transaction has been executed bey the Accountable Party for its own account orf following a client order, and
  • No matter where the transaction settles (French CSD, foreign CSD, ICSD…).

According to the Law, exempted transactions are:

1. Purchases linked to an issue of securities (primary market)
2. Purchases made by a clearing house or a central securities depository
3. Purchases linked to market making activities
4. Purchases linked to a liquidity contract
5. Intra-group transactions
6. Securities lending and repos
7. Acquisitions by employee mutual funds, employee open-ended investment funds or by employees directly
8. Acquisitions (including purchase of company shares) for employee saving schemes
9. Acquisitions of bonds that can be exchanged for or converted into shares.

The tax is to be paid by the buyer / receiver of the securities. It is considered that

  • The tax is applicable based on settlement date (legal transfer of ownership)
  • Intra-day transactions are subject to the tax only on the resulting net buying position at the end of the day.

Tax amount

  • According to the Law, the tax represents 0.1% of the transaction amount
  • The tax is due in Euro.

Life cycle from the transaction settlement to the tax payment

Under standard rules, the FTT is due to the French tax authorities in the first days of the month following the acquisition. However, to allow for a progressive adaption by the market, the law has foreseen an interim schedule that will precede the standard schedule for declaring and paying the FTT.

  • Interim schedule:

    Reporting of taxable transactions and payment of the tax for the months of August, September and October is required by 9 November 2012.
  • Standard schedule:

    From November 2012 onwards, both reporting and payment must be delivered to EF by the 4th business day of the following month.

Declaration processing

A standard file and record layouts have been defined by EF.

Declarations to Euroclear France can only be sent by Euroclear France members and must be sent per Accountable Party. It will not be possible for a Euroclear France member to send a single declaration relating to multiple Accountable Parties or to multiple Euroclear France members codes.

Both taxable and exempted acquisitions must be declared. For exempted transactions, the Accountable Party must provide the exemption reason, a single one among the several reasons foreseen by the law.

Checks and penalties

EF will perform a number of consistency checks on incoming files and payments and provide additional reporting to the French Tax Authorities. EF will reject declarations if they fail consistency checks.

The French Tax Authorities will levy penalties on incorrect or late reporting, approaching Accountable Parties directly in this regard.

What customers need to do

We strongly recommend that customers check the available documentation to assess whether and how their business is impacted by the new FTT. Customers who are active in major French securities might need to start collecting the relevant transaction data as of 1 August 2012.

It is the responsibility of the Clearstream Banking customers to fulfil all requirements that result from the introduction of the FTT.

Customers acting on behalf of their clients should analyse whether and how to support the processing of the FTT for their clients.

In order to comply with all the requirements of the new law, customers are requested, before instructing an actual transaction, to secure the advice and guidance of a professional Tax Adviser who is familiar with the relevant facts.

N.B.: This Announcement does not aim to give any legal or tax advice and should not be construed as such. Moreover, the information provided is purely indicative and subject to change.

What Clearstream Banking will do

The nature orf the service will probably call for changes to contractual arrangements between Clearstream Banking and its customers and, in general, a number of questions remain unanswered. We will continue to follow developments, proposing solutions as soon as possible and keeping customers informed.

Further information

For further information, please consult the areas of the websites as indicated in this Announcement. Customers can also contact their Clearstream Banking Customer Service or Relationship Officer.

1. Loi n°2012-354 du 14 mars 2012 de finances rectificative pour 2012, available at http://www.legifrance.gouv.fr/.
2. At the same time, an FTT on high-frequency trading transactions and on uncovered CDs in sovereign debt will be launched in France (aspects not covered in this Announcement). We assume that Clearstream Banking will not be impacted by these regulations but we will continue to follow developments.
3. Clearstream Banking refers collectively to Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in the Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500 (CBF) and Clearstream Banking, société anonyme, registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Register of Commerce and Companies under number B-9248 (CBL).
4. Based on the Euroclear France (EF) document (still subject to change) “Blueprint for Financial Transaction Tax”, available on their website.