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19 November 2012

A Closer Look at Italy's Proposed Financial Transaction Tax

Separate from the upcoming European Commission proposal for a financial transaction tax (FTT), Italy is pushing ahead with its own FTT. Fidessa's Paolo Adragna takes a look at the details.

Separate from the upcoming European Commission proposal for a financial transaction tax (FTT) under ‘enhanced co-operation’, Italy is pushing ahead with its own flavour of FTT, similar to the French tax which came into effect in August this year.

It took me longer than I expected to find something sensible about the Italian proposals. Reports in the Italian media were a little sketchy and reference to Government papers led me through something of a legal maze. Providing the closest English meaning of the Italian text, this is what I discovered:

(1) Proposals for the FTT are included in the ‘Stability Bill 2013′ (Legge di Stabilità 2013). Essentially, this is the budget for 2013. However, it is a draft bill (Disegno di Legge) currently under scrutiny by the ‘Treasury Select Committee’ (Commissione Bilancio e Tesoro) of the ‘Chamber of Deputies’ (Camera dei Deputati). According to the parliamentary schedule, no date has been set for a reading.

(2) The bill needs to be approved, without amendment, by both the ‘Chamber of Deputies’ and the ‘Senate’ (Senato della Repubblica) in order for it to become law. Concluding proceedings so that the bill is in force by the 1st January 2013 looks like quite a challenge. However, there are two items in the draft that make me suspicious. First, an explicit reference to transactions concluded from 1st January 2013, and second, some kind of taxation arrangements with the Catholic Church which are supposed to be in force by the beginning of the new fiscal year (guess when? 1st January 2013!).

I am inclined to think that, at some point in December, the Italian government may push for the reading to be scheduled at short notice and then seek a confidence vote which automatically makes all amendments void in the Italian system. The bill could indeed become law as early as the 1st January, or even be applied retrospectively.

However, when the bill becomes law, the actual rules for the application of a FTT are to be established by the ‘Treasury’ (Ministero dell’Economia e delle Finanze) within 60 days of the publication of the bill by a special decree (Decreto). Unfortunately this paragraph is not very explicit, but I understand it as a Decreto Legislativo, an act of government that automatically becomes law 15 days after publication.

So that’s the possible timescale, now to the detail (hope you are still with me):

• The draft bill specifies that the Italian FTT is 0.05% (it’s basically a stamp duty)
• The tax is going to be applied to both the purchase and the sale of instruments issued by residents, regardless of the quotation (it does not affect share issuing)
• The duty is payable even if the transaction occurs outside the Italian territory, as long as one of the counterparties is resident in Italy
• FTT is going to be charged on shares and assimilati (i.e. any instrument treated as shares by Italian law)
• It will also apply to all transactions on derivatives contracts, except when the underlying instrument is a bond of a EU country / EEA member, as long as one of the counterparties resides in Italy
• The tax will be collected by any licenced intermediary: banks and brokers, plus notaries (i.e. persons licensed to certify the validity of a contract in Continental Law, as opposed to solicitors in Common Law) and is payable directly to the Agenzia delle Entrate (the ‘Inland Revenue’) or any licenced operator
• No tax is applicable when the counterparty is the European Union (EU), the European Central Bank, central banks of EU member states, central banks managing the reserves of other states or international organisations whose foundational treaty has been ratified by Italy

And, as I said before, any of the above could yet be amended during the committee/parliamentary reading. Ci siamo capiti, no?

This commentary originally appeared on Nov. 15 on Regulation Matters, a blog series from Fidessa's Regulation Team.

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