2013 Italian Financial Transaction Tax - Freshfields

Italy2013 Italian Financial Transaction TaxVittorio Salvadori di Wiesenhoff*and Roberto Egori**The authors review the newly introducedItalian financial transaction tax, which, inprinciple, affects all transactions in Italian equityinstruments traded and settled as from 1 March2013 and Italian equity derivatives traded asfrom 1 July 2013.1. Introduction1.1. European financial transaction tax proposal underenhanced cooperation procedureIn September 2011, the European Commission issued aproposal for a Council Directive on a common system offinancial transaction tax (the FTT Proposal), the essence ofwhich was that a low-rate, broad-base tax would be appliedto all financial transactions with any economic link to theEuropean Union.Although in May 2012 the European Parliament adoptedan opinion supporting the FTT Proposal, subsequently,there was consensus at the Ecofin Council meetings inJune and July 2012 that unanimity would not be reachedwithin a reasonable period.Nonetheless, a significant number of EU Member Stateswere willing to have a common system of FTT. Therefore,during September and October 2012, 11 Member States(the Member States), including Italy, formally requestedto proceed through enhanced cooperation. 1 They wroteto the Commission, requesting a Decision to be submittedto the Council to enable them to move ahead as a smallergroup, on the basis of the objectives and scope of the FTTProposal.On 23 October 2012, the Commission issued a proposalfor a Council Decision authorizing enhanced cooperationfor purposes of a financial transaction tax betweenthe mentioned restricted number of Member States, andsubmitted this proposal to the Council. The Counciladopted the decision authorizing the Member States of theenhanced cooperation group to proceed with the introductionof a financial transaction tax through enhancedcooperation on 22 January 2013.Following the Council decision, on 14 February 2013 theEU Commission published its proposal for a Directive* Partner, Freshfields Bruckhaus Deringer LLP, Milan. The author canbe contacted at vittorio.salvadori@freshfields.com.** Senior associate, Freshfields Bruckhaus Deringer LLP, Milan. Theauthor can be contacted at roberto.egori@freshfields.com.This article has been issued on 22 March 2013 and is based on Italiantax law in force as at that date.1. The enhanced cooperation procedure applies when a group of at leastnine Member States decides that they will move ahead with an initiativeproposed by the European Commission when it proves impossible toreach unanimous agreement thereon.implementing enhanced cooperation in the area of financialtransaction tax (the FTT Directive). The proposedFTT Directive will now be discussed by all 27 MemberStates (although only those of the enhanced cooperationgroup will be eligible to vote on it, and they must agreeunanimously).1.2. Italian financial transaction taxPending the discussions regarding the possible enactmentof a European Directive in the area of FTT under the socalled“enhanced cooperation” procedure (see section 1.1.),Italy has decided to push ahead with its own domestic FTT(Italian FTT). The Italian FTT was introduced by article 1,paragraphs 491 to 500 of Law 228 of 24 December 2012(Legge di Stabilità 2013, the Stability Bill), which was publishedin the Italian Official Gazette on 29 December 2012.Paragraph 500 of article 1 of the Stability Bill requires theMinistry of Economy and Finance to set out the operationalrules, including any reporting obligations, for theapplication of the FTT in a decree (the Treasury Decree)to be issued within 30 days from the entry into force ofthe Stability Bill.On 31 January 2013, the Ministry of Economy and Financepublished on its website a draft of the Treasury Decree (theDraft Decree) with a view to gathering suggestions fromany interested parties, in the context of a public consultationprocess which ended on 4 February.The final version of the Treasury Decree, which differs inseveral regards from the Draft Decree, was signed on 21February and made available, together with an ExplanatoryMemorandum, on the website of the Ministry ofEconomy and Finance the following day. The TreasuryDecree was then published in the Official Gazette No. 50of 28 February 2013.On 19 March 2013, the Ministry of Economy and Financepublished on its website a new decree (dated 18 March)amending articles 17 and 19(4) of the Treasury Decree (the18 March Decree).The Director of the Revenue Agency (Direttore dell’Agenziadelle Entrate) is required by the Treasury Decree to issueseveral regulations in relation to the Italian FTT, concerning,among other things, reporting and payment obligations.To date, most of these regulations have not beenissued. 2 Also, the general guidelines of the Revenue Agency2. In particular, the Director of the Revenue Agency shall still issuespecific regulations on: reporting, payment of the FTT and connectedinstrumental formalities (article 19(5)), modalities for the tax identificationof foreign persons required to pay and report the tax (article 19(8))and modalities for claiming refunds of the tax unduly paid (article 22).Furthermore, based on the changes in article 19(4) of the Treasury Decreemade by the 18 March Decree, the Director of the Revenues Agency shall48DERIVATIVES & FINANCIAL INSTRUMENTS MARCH/APRIL 2013© IBFD

Vittorio Salvadori di Wiesenhoff and Roberto Egori(2) participating financial instruments governed byarticle 2346, paragraph 6 of the Italian Civil Code, 6issued by companies having their registered office inItaly; 7 and(3) securities representing the shares and instruments in(1) and (2), irrespective of the residency of the relevantissuer (e.g. ADRs, GDRs, EDRs). 8 Article 15(1)(i) of the Treasury Decree excludes from the scope ofapplication of Italian FTT those transactions entailing“the transfer of the ownership of securities representingequity investment or participating financialinstruments issued by companies referred to in article17 of this Decree”. Accordingly, transactions in depositaryreceipts representing shares issued by Italian residentcompanies with an average market capitalizationin November of the previous year lower than EUR 500million, as per the list published annually by the Ministerof Economy and Finance, are outside the scopeof Italian FTT.Italian FTT applies irrespective of:– whether the chargeable equities are listed on a regulatedmarket or a multilateral trading facility;– the place where the transactions are executed; and– the state of residence of the counterparties.Italian FTT does not apply to transactions in financialinstruments other than those falling within the listof chargeable equities considered above (and other thanthose which qualify as chargeable derivatives, as detailedbelow).More specifically, transactions in the following instrumentsare not subject to Italian FTT:– quotas of Italian limited liability companies (società aresponsabilità limitata);– interests in Italian partnerships;– shares or units in Italian or foreign collective investmentundertakings; 96. Article 1(2)(c) of the Treasury Decree defines “participating financialinstruments” as follows: “the financial instruments referred to in Article2346, sixth paragraph of the Civil Code and issued by companies listedunder letter c), which assign certain administrative and property rightsagainst contributions by shareholders or third parties, resulting in anyform of participation of the instrument holder to the performance of thecompany or of some of its branches of business, including the financialinstruments for participating to a single transaction referred to in Article2447-ter, paragraph 1, letter e) of the same Civil Code”.7. See supra n. 4.8. Under article 1(2)(f ) of the Treasury Decree the definition of “securitiesrepresenting equity investments” is as follows: “depositary receipts inrespect of shares and other certificates representing shares or participatinginstruments, as referred to in letter d) above, issued by companiesresident in the Italian territory”. The Explanatory Memorandum clarifiesthat these “securities representing equity investments” “consist of securitiesrepresenting shares or other participating financial instruments issued byItalian resident companies (i.e. American Depositary Receipts and GlobalDepositary Receipts)”.9. Article 2(2) of the Treasury Decree specifically states that transfers ofthe ownership of shares or units in collective investment undertakings,including SICAVs, are excluded from the scope of Italian FTT. TheExplanatory Memorandum clarifies that the same applies in respect ofunits in exchange-traded funds (ETFs).– bonds and debt securities; 10 and– equity linked notes. 113.2.2. Transfer of ownershipItalian FTT applies when a given transaction results in atransfer of ownership of chargeable equities.Article 3(1) of the Treasury Decree clarifies that in caseof transactions in chargeable equities admitted to centralizedsecurities depositories (including, as specified in theExplanatory Memorandum, those recognized by foreignsupervisory authorities), transfers of ownership are generallydeemed to take place on the date of their settlement,which is defined as “the date of registration of the transfersfollowing the settlement of the relevant transaction”.The same provision, however, also allows for the option tomake reference to the contractual settlement date. 12Pursuant to article 3(2), for transactions in chargeableequities not admitted to centralized securities depositories,the transfer of ownership occurs on the date on whichthe title is transferred (arguably, under applicable laws andcontractual arrangements).Under article 3(3) of the Treasury Decree, “transfers [ofownership] resulting from the conversion of bonds intoshares as well as transfers arising from the exchange or therefund of bonds with shares or other participating financialinstruments” are also relevant for FTT purposes. Inthese circumstances, the transfer of ownership is deemedto occur on the date in which “the conversion, exchangeor refund have effect”.Another important confirmation is included in article3(4) of the Treasury Decree which rules that the transactionsexecuted by intermediaries (e.g. executing brokers)in their name but on behalf of their clients do not triggerany double taxation (being deemed to be a single transferof ownership occurring in the hands of the ultimate client).The Explanatory Memorandum points out that this principleapplies a fortiori when the intermediaries act as disclosedagents.Transactions executed by intermediaries acting in a “risklessprincipal” capacity may not fall within the scope ofapplication of article 3(4), being rather governed by therule in article 15(2)(a) of the Treasury Decree (see below).10. Article 15(1)(b) of the Treasury Decree specifically excludes from ItalianFTT transactions in bonds and debt securities. This specific exclusionis justified in the Explanatory Memorandum to “resolve possibleconstruction doubts (in particular with reference to convertible debtsecurities and bonds with embedded derivatives)”, as these instrumentscould potentially be construed as chargeable derivatives for Italian FTTpurposes.11. Equity-linked notes reference (but do not “represent”) the underlyingequities. As such, these instruments should in any event not fall withinthe definition of chargeable equities, but may qualify as chargeablederivatives in certain circumstances.12. Article 3(1) of the Treasury Decree reads as follows “[…] Alternatively, theperson liable to the payment of tax [generally, one of the intermediarieslisted in article 19 of the Treasury Decree, involved in the execution of thetransaction], subject to the taxpayer’ s [i.e. the purchaser’ s] consent, mayassume the date of liquidation stipulated in the contract as the date of thetransaction”. The Explanatory Memorandum clarifies that the taxpayer’ sconsent can also be obtained in the form of “silence means consent”.50DERIVATIVES & FINANCIAL INSTRUMENTS MARCH/APRIL 2013© IBFD

2013 Italian Financial Transaction Tax3.2.3. Tax ratePursuant to articles 6(1) and 21(5) of the Treasury Decree,transactions in chargeable equities are taxable at the followingrates (unless an exemption or exclusion applies):– in 2013 (as from 1 March), at the ordinary rate of0.22%, reduced to 0.12% for transfers of ownership“taking place as a result of transactions effected onregulated markets or multilateral trading facilities”; 13and– as from 1 January 2014, at the ordinary rate of 0.2%,reduced to 0.1% for transactions effected on regulatedmarkets or multilateral trading facilities.Article 6(1) of the Treasury Decree clarifies that thereduced rate applies also to transactions in chargeableequities executed:through a financial intermediary, interposed between the partiesto the transaction, purchasing the above instruments on aregulated market or a multilateral trading facility, provided thatprice, total number and date of settlement of buying and sellingtransactions coincide.Even though the Treasury Decree and the ExplanatoryMemorandum are silent on this point, in the authors’ viewit is reasonable to assume that fees should not be computedfor the purposes of the required price coincidenceof buying and selling transactions.Article 6(3) states that:if the tax base is determined as the net balance between purchasesand sales executed on regulated markets or multilateral tradingfacilities, and other purchases and sales, the tax rate shall be equalto the average of the weighted rates by the number of securitiespurchased.Accordingly, a “blended rate” applies in the event of nettingbetween (i) purchases and sales executed on regulatedmarkets or multilateral trading facilities and (ii) other purchasesand sales (i.e. “over the counter”): in these circumstances,in fact, the actual tax rate would be equal to theaverage of the rates, weighted by the number of chargeableequities purchased, respectively, on regulated markets/multilateral trading facilities and “over the counter”.13. Under article 1(2)(f ) of the Treasury Decree, regulated markets andmultilateral trading platforms are “the markets and systems recognizedpursuant to Directive 2004/39/EC of the European Parliament and ofthe Council of 21 April 2004, relevant to the Economic European Area,as included in the list published in the specific section of the EuropeanSecurities and Markets Authority’ website (http://mifiddatabase.esma.europa.eu/) for the purposes provided for in paragraph 2 of Article 13of (EC) Regulation 1287/2006 of the Commission of 10 August 2006,provided that they are established in States and territories included in thelist referred to in the Ministerial Decree issued in accordance with Article168-bis of TUIR [the Italian Income Tax Code]. In the case of the Statesto which the aforesaid provisions do not apply, regulated markets andmultilateral trading facilities are considered those in regular operationand authorized by a National Public Authority with State supervision,including therein those recognized by CONSOB pursuant to Article 67,paragraph 2 of the Consolidated Finance Act [Testo Unico della Finanza,TUF], provided that they are established in States and territories includedin the list referred to in the above Ministerial Decree”. As the MinisterialDecree referred to in article 168-bis of the TUIR has not yet been issued,reference for the time being should be made to the list of countriesallowing an adequate exchange of information, as contained in the Decreeof 4 September 1996 (the 1996 Decree).Last but not least, article 6(5) of the Treasury Decree statesthe higher rate applies to the purchase of chargeable equitiesin the case of physical settlement of chargeable derivatives.3.2.4. Transactions effected on regulated markets andmultilateral trading facilitiesThe reduced rate, as above mentioned, applies prima facieto transfers of ownership of chargeable equities “takingplace as a result of transactions effected on regulatedmarkets or in multilateral trading facilities”.Article 6(4) of the Treasury Decree (first sentence) clarifiesthat:operations attributable to negotiated transactions pursuant toArticle 19 of EC Commission Regulation 1287/2006 of 10 August2006, where they are provided by the market shall also betreated as transactions effected on regulated markets and on multilateraltrading facilities.The Explanatory Memorandum points out that underarticle 6(4), the reduced rate applies:where purchases do not take place on a regulated market or a multilateraltrading facility, but, upon the intermediary’ s request, thetransactions are registered by the market or multilateral tradingfacility operator (so-called “on exchange transaction”), by relyingupon the option provided for by Directive 2004/39/EC.Article 19 of the above-mentioned Commission Regulationstates that for purposes of article 18(1)(b) of the sameRegulation, 14 “negotiated transaction” will mean a transactioninvolving members or participants of a regulatedmarket or a multilateral trading facility which is negotiatedprivately but executed on the regulated market or multilateraltrading facility and where that member or participant,in doing so, undertakes one of the following tasks:– dealing on own account with another member or participantwho acts for the account of a client;– dealing with another member or participant, whereboth are executing orders on own account;– acting for the account of both the buyer and seller;– acting for the account of the buyer, where anothermember or participant acts for the account of theseller; or– trading for own account against a client order.Market participants may enter into transactions whichare negotiated privately and then brought “on exchange”14. The Markets in Financial Instruments Directive (MiFID – Directive2004/39/EC) allows competent authorities to waive, in certaincircumstances, the obligation for operators of regulated markets andmultilateral trading facilities, the requirements regarding pre-tradetransparency for shares. Under article 18(1)(b) of CommissionRegulation 1287/2006, one such waiver may be granted by the competentauthorities for systems operated by a multilateral trading facility or aregulated market, which formalize negotiated transactions (as defined inarticle 19), each of which meets one of the following criteria:(1) it is made at or within the current volume weighted spreadreflected on the order book or the quotes of the market makersof the regulated market or multilateral trading facility operatingthat system or, where the share is not traded continuously, withina percentage of a suitable reference price, being a percentage and areference price set in advance by the system operator; or(2) it is subject to conditions other than the current market price of theshare.© IBFD DERIVATIVES & FINANCIAL INSTRUMENTS MARCH/APRIL 201351

Vittorio Salvadori di Wiesenhoff and Roberto Egorivia the negotiated transaction process provided by anexchange of which they are a member. 15In the authors’ opinion, the first sentence of article 6(4),as quoted above, should be interpreted such that transactionswhich are negotiated privately by market participants,being, however, reported as “negotiated transactions”to an exchange and meeting the conditions (whetheras to capacity, price or otherwise applicable to that typeof transaction) as imposed by that exchange in respectof such “negotiated transaction”, in accordance with thewaiver granted by the competent authority, should beseen as being “effected on a regulated market or multilateraltrading facility”.However, the second sentence of article 6(4), gives rise tosome concerns as to which “negotiated transactions” willbe treated as transactions effected on regulated marketsand multilateral trading facilities for purposes of ItalianFTT, so as to be eligible for the reduced rate. This secondsentence of article 6(4) reads as follows:On the contrary, transactions carried out bilaterally by intermediaries,including those executed on internalization systems andso-called crossing networks, irrespective of the procedures to complywith post-trade transparency obligations, shall be treated astransactions effected outside regulated markets and multilateraltrading facilities.Indeed, most (if not all) negotiated transactions are “carriedout bilaterally by intermediaries”. Accordingly, the purposeof this second sentence of article 6(4) cannot be to excludenegotiated bilateral transactions involving intermediaries.In addition, trades executed on some internal crossing networksand other internalization systems could qualify forthe negotiated trade waiver (the term “negotiated” does notnecessarily exclude transactions that are negotiated electronicallythrough a matching engine).A possible interpretation of the second sentence of article6(4) is that the mere reporting of a transaction to anexchange to meet post-trade transparency requirements,but which does not bring that transaction under the rulesof the exchange via the negotiated transaction facility, willnot be sufficient to qualify that trade as being “effected ona regulated market or multilateral trading facility” for purposesof the reduced tax rate.3.2.5. Tax base; netting for intra-day tradesItalian FTT is due on the “value of the relevant transaction”,which is defined in article 4(1) “as the net balance of transactionsregulated on a daily basis, calculated for each liableperson with reference to the number of securities tradedon the same day and relating to the same financial instrument”.The net balance will be calculated by the intermediariesthat, by operation of article 19, are responsible for thepayment of the tax. Based on article 4(1) of the Treasury15. Currently both Borsa Italiana and the London Stock Exchange offernegotiated transaction facilities under a waiver granted by the competentauthority in accordance with articles 29(2) and 44(2) of Directive2004/39/EC.Decree and the clarifications given in the ExplanatoryMemorandum, the netting calculations entail the followingsteps:– determine separately purchases and sales made onregulated markets or multilateral trading facilitiesand those made outside such markets;– sum up algebraically the relevant results; and– if and to the extent that the algebraic sum is a positivefigure, the tax is due and the tax base is determinedas the product of the number of securitiesrepresenting the final net balance multiplied by theweighted average price of the purchases.Under article 4(3) “purchases and sales excluded or exemptfrom the tax, referred to in articles 15 and 16, are not includedin the calculation of the net balance”. 16The Explanatory Memorandum also clarifies that in thenetting calculations, “the purchases and sales of DepositaryReceipts cannot be summed up with the purchasesand sales of the securities represented by them”.Article 4(2) states that for purposes of calculating the taxbasis, the term “purchase price” means:– in the case of market purchases: the considerationpaid for acquiring the securities;– in case of “physical settlement” of chargeable derivatives:the fixed exercise value or the normal valuedetermined pursuant to paragraph 4 of article 9 of theIncome Tax Code (Testo Unico delle Impose sui Redditi,TUIR), whichever is greater. Article 9 of the TUIRdetails the criteria for determining the fair value fortax purposes. So, on physical settlement, Italian FTTwould be payable on the greater of the strike price orthe fair value of the equities (to be determined underthe rules set forth by article 9, which states that forlisted shares, the fair value will be equal to the averagemarket price in the last month). This rule seems tohave an anti-abuse purpose: e.g. in the case of physicalsettlement of a low exercise call option (LEPO) thetax would be payable on the fair value of the chargeableequities and not on the negligible strike price;– in the case of conversions, exchanges or refunds ofbonds with chargeable equities: the value establishedin the issue prospectus; and– in all other cases: the value stipulated in the contractor, in the absence thereof, the fair value to be determinedunder Italian income tax law (again, referenceis made to article 9(4) of the TUIR).16. The Explanatory Memorandum provides a numerical example to clarifythe netting mechanics: “for example: a person X purchases on the sameday 10 securities A at € 50 (on a regulated market); 20 securities A at € 49(exempt purchase); 15 securities A at € 51 (purchase ‘over the counter’).The same person sells on the same day: 15 securities (on a regulatedmarket); 5 securities (‘over the counter’). The net balance of the relevantpurchases on regulated markets is – 5; the net balance of the relevantpurchases ‘over the counter’ is 10. The net balance between the two is 5.The weighted average price for the purchase of the securities is: (10 × 50+ 15 × 51)/25 = 50.6. The tax base is equal to euro: 5 × 5 × 50.6 = 253”.In this example, the average tax rate to be applied, based on art. 6(3) ofthe Treasury Decree, would be determined as follows: “(15 × 0.2% + 10 ×0.1%)/25 = 0.16%”. Hence, the tax would be “253 × 0.16% = 0.40 euro”.52DERIVATIVES & FINANCIAL INSTRUMENTS MARCH/APRIL 2013© IBFD

2013 Italian Financial Transaction TaxArticle 4(4) of the Treasury Decree allows persons carryingout a number of transactions through several intermediariesto make the election for the so-called “cross-brokernetting”. This consists in the calculation of a “single netbalance [...] amounting to the algebraic sum of the balancesrelating to each intermediary”. For these purposes,the taxpayer must make a specific request indicating asingle intermediary responsible for the payment of the tax.The effectiveness of the option for the single net balancecalculation is conditional upon the acceptance of the intermediariesinvolved (which may well refuse) and upon theirtransmission of the information necessary for the calculation.The “appointed intermediary”, which is liable vis-à-vis theItalian tax authorities for any miscalculations of the FTTdue (even where this may occur as a consequence of erroneousinformation supplied by the other intermediaries),may request that the Centralized Management Company(the CMC) calculates the single net balance. In this case,the CMC reports the relevant net balance to the intermediaryliable for the payment of the tax.Article 4(5) provides clarification as regards the foreignexchange rates that must be taken into account when computingthe taxable basis of a transaction in chargeable equitiesin currencies other than euro. If the transaction has aeuro settlement, reference is to the exchange rate actuallyapplied to the transaction. In the other cases, reference isto the exchange rate shown in the specific section of theEuropean Central Bank’ s website 17 relating to the day ofthe purchase.3.2.6. Persons liable to Italian financial transaction taxon chargeable equitiesUnder article 5 of the Treasury Decree, the Italian FTT onequity trades is due by the persons to which the chargeableequities are transferred (i.e. the purchasers), irrespective oftheir place of residence or the place where the contract isconcluded. As further considered below, article 19 of theTreasury Decree identifies the persons which are responsiblefor the payment of the tax.3.2.7. Entry into forcePursuant to article 21(1) of the Treasury Decree, the ItalianFTT applies to transfers of ownership of chargeable equities(also upon conversion of bonds or physical settlementof chargeable derivatives) where settlement occurs on orafter 1 March 2013 and the trade date if after 28 February2013. By way of derogation to the ordinary paymentdeadlines, the FTT due on transactions executed in March,April and May shall be remitted to the tax authoritieswithin 16 July 2013.17. See www.ecb.int/stats/exchange/eurofxref/html/index.en.html.3.3. Italian financial transaction tax due on equityderivative trades3.3.1. Equity derivative trades subject to Italian financialtransaction taxIn article 7(1) of the Treasury Decree, Italian FTT on equityderivative trades will be due in respect of transactions inthe following derivative instruments (chargeable derivatives):– financial derivatives referred to in article 1(3) of theTUF (unsecuritized derivatives: futures, options,swaps, forwards, contracts for difference), both tradedon regulated markets or multilateral trading facilitiesand subscribed or traded outside these markets,where their underlying is prevailingly represented byone or more of the chargeable equities or where theirvalue depends prevailingly on one or more of thosesame chargeable equities; and– transferable securities (valori mobiliari) referred toin article 1(1-bis)(c) and (d) of the TUF (securitizedderivatives), 18 giving the right to acquire or sell prevailinglyone or more of the chargeable equities orgiving rise to a cash settlement determined prevailinglyby reference to one or more of the chargeableequities. The Stability Law specifically includes warrants,covered warrants and certificates within theconcept of “transferable securities”.Pursuant to article 7(2) of the Treasury Decree, the financialinstruments and transferable securities referred to inparagraph 1 qualify as chargeable derivatives:provided that the underlying or reference value consists for morethan 50 per cent of the market value of [chargeable equities] […]measured on the date of issuance for the financial instruments andtransferable securities […] which are traded on regulated marketsand multilateral trading facilities and on the date of conclusionof the transaction in the other cases. 19On the basis of the above, “prevailingly” means that theunderlying assets or the reference value shall consist formore than 50% of chargeable equities. This “50% test”shall be conducted (i) on the date of issuance in the caseof derivatives that are traded on regulated markets andmultilateral trading facilities and (ii) on the date of conclusionof the transaction in the other cases. In this respect, itis worth noting that, as better explained in section 3.3.2.,the “conclusion of the transaction” is defined in article 8 ofthe Treasury Decree as “the time of subscription, negotiationor modification of the contract”. Arguably, for derivativeswhich are not traded on regulated markets and multilateraltrading facilities the “50% test” should thereforebe conducted at the time of “subscription, negotiation ormodification of the contract”.18. Article 1(1-bis)(c) and (d) of the TUF reads as follows: “‘ securities’ shallmean categories of securities for trading on the capital market, suchas: […] c) any other security normally negotiated which permits thepurchase or sale of securities indicated in the preceding paragraphs; d)any other security usually involving cash settlement determined withreference to securities indicated in the preceding paragraphs, to currency,interest rates, returns, commodities, indices or measures”.19. Authors translation (since the unofficial translation published on theMinistry of Economy and Finance website is inaccurate on this point).© IBFD DERIVATIVES & FINANCIAL INSTRUMENTS MARCH/APRIL 201353

Vittorio Salvadori di Wiesenhoff and Roberto EgoriArticle 7(2) further states that “where the underlyingor reference value are represented by measurements onshares or indices, the test under the preceding sentenceshall be carried out on the shares or indices which the measurementsrefer to”. In addition, non-equity components ofthe underlying are not taken into consideration. 20 Indeed,the part relating to the underlying or reference value representedby securities other than shares in companiesand other securities equivalent to shares in companies,partnerships or other entities, and depositary receipts inrespect of shares shall not be relevant for purposes of thiscalculation.3.3.2. Taxable event; conclusion of the transactionUnder article 8 of the Treasury Decree, transactions inchargeable derivatives are taxable “at the time of conclusionof the transaction to be understood, respectively, asthe time of subscription, negotiation or modification of thecontract and as the time of transfer of ownership of suchtransferable securities”. 21,22 Modification of the contractmeans, for the above purposes, a variation of its notionalvalue, parties or maturity. 23 However, under the samearticle 8, where the notional value is modified upward, onan automatic and not discretionary basis, under a contractualprovision, the tax will be applied only to the variationof the notional value. Arguably, where the notional valueis modified upward on a discretionary basis or downward(regardless of whether this happens automatically or discretionarily),the tax should be applied taking into accountthe fully updated notional.3.3.3. Notional valueAs further considered in section 3.3.4., the FTT on chargeablederivatives is due at a flat amount, which varies dependingon the nature of the instrument and its notional value.Article 9 of the Treasury Decree lays down the criteria forthe determination of the notional value of the different categoriesof chargeable derivatives. 24 The Explanatory Mem-20. Indeed, the last sentence of article 7(2) states that: “The part relating to theunderlying or reference value represented by securities other than sharesin companies and other securities equivalent to shares in companies,partnerships or other entities, and depositary receipts in respect of sharesshall not be relevant for purposes of this calculation”. The reference topartnerships and entities other than companies can be criticized, as suchinstruments are excluded from the notion of chargeable equities forItalian FTT purposes.21. See supra n. 19.22. Article 8 clarifies that “in order to establish the time from which thetransfer of the ownership of transferable securities [securitizedderivatives] has taken place, reference is made to the provisions of Article3” dealing with the transfer of chargeable equities.23. The Explanatory Memorandum clarifies that “even if there is no specificprovision […] in case of modification of one of the parties, the tax ispayable by the party taking over the contract, as well as by the relevantcounterparty (and not by the party that has been replaced)”.24. Article 9 reads as follows: “For the sole purposes of this Decree and ofthe tax application, ‘notional value of the transaction’ shall mean: 1) forstock index futures traded on regulated markets or on multilateral tradingfacilities, the number of standard contracts multiplied by the number ofindex points under which the contract is traded by the value assigned tothe index point; 2) for single stock futures traded on regulated marketsor multilateral trading facilities, the number of standard contractsmultiplied by the price of the futures by the standard contract size; 3)for stock index options traded on regulated markets or on multilateralorandum clarifies that for the sole purpose of determiningthe taxable basis of transactions in chargeable derivatives,it has been decided:to consider the premium as the notional value for financial instruments,both derivatives and not, which have an optional component:essentially, it is the price an investor is ready to pay (orreceive) to subscribe the option. Therefore, regardless of the complexityrelating to construction of the reference value of the option(or of the security that includes one or more options), this valueis always known to investors and intermediaries and can be easilyassessed by the Tax Administration.Article 9(2) sets out a rule for leveraged derivative instruments,stating that if the notional value of the chargeablederivatives, other than those under numbers 3, 4, 5, 9, 10and 11 of article 9(1) (i.e. other than options, warrants,covered warrants and certificates), 25 “is amplified due tothe structure of the transaction”, one must make referenceto “the actual notional value”, which is “equal to the referencenotional value of the contract multiplied by the leverageeffect”. 26Under article 9(3), if the notional value of chargeablederivatives, other than those under numbers 3, 4, 5, 9, 10and 11 of article 9(1) (i.e. other than options, warrants,covered warrants and certificates): 27is represented also by instruments other than shares, participatingfinancial instruments and securities representing equity investment,for purposes of this paragraph, only the notional value ofthese shares, instruments and securities shall be taken into consideration.Based on the definitions of “shares”, “participating financialinstruments” and “securities representing equity investments”contained in article 1 of the Treasury Decree, itmay be argued that, under article 9(3), one shall computeexclusively the part of the notional value relating to chargeableequities. Even though this conclusion does not stemtrading facilities, the number of standard contracts multiplied by thecontract price (premium) expressed in index points multiplied by thevalue assigned to the index point; 4) for stock options traded on regulatedmarkets or on multilateral trading facilities, the number of standardcontracts multiplied by the contract price (premium) multiplied by thestandard contract size; 5) for other options, the price (premium) paid orreceived for entering into the contract; 6) for forward contracts, where theunderlying is – even indirectly – an index, the product of the forward unitvalue of the index and the number of units of the index under the contract;where the underlying are – even indirectly – shares, the number ofshares multiplied by the forward price; 7) for swap contracts, the amountaccording to which the swap flows are determined – even indirectly –recognized upon conclusion of the transaction; 8) for financial contractsfor difference, the value of the index or shares on which the contract’ sprofits or losses – even indirectly – depend; 9) for warrants, the numberof warrants purchased, subscribed or sold multiplied by the purchase orselling price; 10) for covered warrants, the number of covered warrantspurchased or sold multiplied by the purchase or selling price; 11) forcertificates, the number of certificates purchased or sold multipliedby the purchase or selling price; 12) for securities giving rise to a cashsettlement determined by reference to shares and related yields, indicesor measurements, the amount according to which cash flows or maturityprofile or economic result of the transaction are determined, calculatedat the time of purchase and sale of securities; 13) for combinations ofthe above contracts or securities, the sum of the notional amounts ofcontracts and securities within the contract or security in question”.25. Id.26. The Explanatory Memorandum provides the following example: “swapsfor which the settlement of differential amounts takes place with referenceto a notional value of 100 and the same differential is then multiplied by10; in this case, the actual notional value of reference is 1,000”.27. See supra n. 24.54DERIVATIVES & FINANCIAL INSTRUMENTS MARCH/APRIL 2013© IBFD

2013 Italian Financial Transaction Taxdirectly from the reference in article 9(3) to the termsdefined in article 1 (shares, participating financial instrumentsand securities representing equity investments), itmay also be argued, for consistency reasons, that, underthe rule in article 9(3), the notional value relating to sharesissued by low capitalized Italian companies (which wouldnot qualify as chargeable equities) should be disregarded.Article 9(4) clarifies the foreign exchange rates that mustbe taken into account when computing the taxable basisof a transaction in chargeable derivatives in a currencyother than euro (same rules as for transactions in chargeableequities; see section 3.2.5.). If the transaction has aeuro settlement, reference is to the exchange rate actuallyapplied. In other cases, reference is to the exchangerate shown in the specific section of the European CentralBank’ s website 28 relating to the date of conclusion of thetransaction.Lastly, article 9(5) of the Treasury Decree states that as analternative to the criteria considered in the previous paragraphsof the same article 9, for purposes of determiningthe amount of the tax, “the notional value is assumed to beequal to two million euro”.3.3.4. Amount of the tax; transactions effected onregulated markets and multilateral tradingfacilitiesItalian FTT on equity derivative trades will be due, unlessan exemption or exclusion applies, at a flat amount, whichvaries (from EUR 0.01875 to EUR 200) depending on thenature of the relevant chargeable derivative and on itsnotional value, on the basis of the schedule included inTable 3 attached to the Stability Bill. 29Under article 11(1) of the Treasury Decree, this flat tax isreduced to one fifth of its ordinary amount for transactionsthat are executed on regulated markets or in multilateraltrading facilities. 30 As for transactions in chargeable equities,article 11(1) states that:– the reduced rate also applies in the case of a purchaseof chargeable derivatives “through a financial intermediaryinterposed between the parties to the transaction,buying the above instruments on a regulatedmarket or a multilateral trading facility, provided thatprice, total quantity and date of settlement of buyingand selling transactions are the same”; 31– “operations attributable to negotiated transactionspursuant to article 19 of (EC) Commission Regulation1287/2006 of 10 August 2006, where they are providedby the market shall also be treated as transactionseffected on regulated markets or in multilateraltrading facilities”; and– “on the contrary, transactions carried out bilaterallyby intermediaries, including those effected in internalizationsystems and so-called crossing networks,28. See www.ecb.int/stats/exchange/eurofxref/html/index.en.html.29. For this schedule, see Appendix 1.30. Supra n. 13.31. In this respect see section 3.2.3.shall be treated as transactions executed outside regulatedmarkets and multilateral trading facilities”. 323.3.5. Physically settled derivativesIf the chargeable derivatives provide also for a physical settlement,the transfer of title to the underlying chargeableequities upon settlement will be subject to Italian FTT onthe basis of the rules discussed in section 3.2. As stated inarticle 6(5) of the Treasury Decree, the higher rate for “offexchange”transactions will apply (i.e. 0.22% in 2013 and0.20% as from 2014).3.3.6. Persons liable to the tax on chargeable derivativesItalian FTT is due at the flat amount set out in article 11and in the schedule in Table 3 attached to the Stability Law,by each of the counterparties. Again, this tax will be dueirrespective of the place where the transactions are executedor the state of residence of the counterparties.As for transactions in chargeable equities, article 19 of theTreasury Decree identifies the persons that are responsiblefor the payment of the tax.3.3.7. Entry into forcePursuant to article 21(3) of the Treasury Decree, the ItalianFTT on chargeable derivatives applies to contracts subscribed,negotiated or modified as from 1 July 2013 and tothe transfer of ownership of securitized derivatives occurringon or after 1 July 2013.The Explanatory Memorandum clarifies that “the taxapplies also to instruments already subscribed and to thetransferable securities [securitized derivatives] alreadyissued on 1 July 2013, in respect of negotiations or modificationstaking place after this date”.As already mentioned, the transfer of ownership of chargeableequities upon physical settlement of derivatives istaxable as from 1 March 2013.3.4. Transactions excluded from scope of applicationof Italian financial transaction taxArticle 15 of the Treasury Decree lists the transactions thatare outside the scope of the Italian FTT on equity tradesand equity derivative trades.Under article 19(3), the intermediaries that are involvedin the transactions (and as such are responsible for thepayment of the FTT to the tax authorities) need not paythe tax if they receive a certification stating that the transactionsfalls within one of the exclusions laid down inarticle 15.In particular, the following transactions are outside of thescope of Italian FTT:– transfers of the ownership of chargeable equities orthe change in ownership of chargeable derivativestaking place due to inheritance or gift; 3332. In this respect see section 3.2.4.33. Art. 15(1)(a).© IBFD DERIVATIVES & FINANCIAL INSTRUMENTS MARCH/APRIL 201355

Vittorio Salvadori di Wiesenhoff and Roberto Egori– transactions in bonds and debt securities; 34 as clarifiedin the Explanatory Memorandum, the purpose of thisspecific exclusion is to avoid any possible doubts (inparticular with reference to convertible debt securitiesand bonds with embedded derivatives); 35– transactions of issuance and cancellation of chargeableequities and of securitized derivatives, includingthe repurchase of securities by the issuer; 36– the purchase of the ownership of newly issued sharesalso through the conversion of bonds or the exerciseof an option by the shareholder or upon physical settlementof chargeable derivatives; 37– transactions involving temporary transfers of chargeableequities 38 as listed in article 2.10 of Council Regulation1287/2006 of 10 August 2006, 39 namely stockloans, repurchase or reverse purchase transactions,buy- and sell-back or sell- and buy-back transactions.Under article 15(1)(e) of the Treasury Decree,the same exclusion applies to the transfer of ownershipof chargeable equities within the frameworkof collateral arrangements (e.g. irregular pledge); inaddition, collateral consisting of chargeable equitiesor other temporary transfers that do not involve thetransfer of ownership (e.g. irregular pledge) are alsoexcluded from the tax; 4034. Art. 15(1)(b).35. In the lack of any guidance on the definition of “bonds” and “debtsecurities” for the FTT purposes, one possible approach is to makereference to the provisions of the Italian Civil Code. In particular, articles2410 to 2420-ter of the Civil Code govern the issue of bonds (obbligazioni),by Italian companies known as società per azioni, which also apply,based on article 2454 of the civil code. Furthermore, article 2483 of theCivil Code allows Italian società a responsabilità limitata to issue “debtsecurities” (titoli di debito). On this basis, the exclusion under article 15(1)(b) of the Treasury Decree should refer to securities that are issued underthose provisions of the Italian Civil Code. This should indeed be thecase of securities that are listed on the mercato telematico obbligazionariomanaged by Borsa Italiana. An alternative (but less convincing) approachcould be to make reference to article 44(2)(c)(2) of the TUIR, whichdefines the “securities similar to bonds” as those securities “which containan unconditioned obligation to repay at maturity an amount not lowerthan the amount stated in the security, with or without the payment ofperiodical proceeds, and which do not attribute to the holder any rightof direct or indirect involvement in the management either of the issuingcompany or of the affairs in relation to which the securities have beenissued …” (authors’ translation).36. Art. 15(1)(c).37. Art. 15(1)(d).38. Art. 15(1)(e).39. Article 2.10 of Council Regulation 1287/2006 of 10 August 2006 readsas follows: “‘ securities financing transaction’ means an instance of stocklending or stock borrowing or the lending or borrowing of other financialinstruments, a repurchase or reverse repurchase transaction, or a buy-sellback or sell-buy back transaction”.40. Indeed, article 15(1)(e) of the Treasury Decree excludes from the scopeof application of the Italian FTT the following transactions: “the transferof the ownership of [chargeable equities] […] in connection withsecurities financing transactions as a result of a lending or borrowingor a repurchase or reverse repurchase transaction, or a ‘buy-sell back’ or‘ sell-buy back’ transaction. Likewise excluded from the scope of the taxis the transfer of ownership of the above instruments in the frameworkof financial collateral transactions arising from an arrangement underwhich a collateral-provider transfers full ownership of financial collateralto a collateral-taker for the purpose of securing or otherwise covering theperformance of relevant financial obligations, including the repaymentat the end of the collateral. In such case the tax applies if the transfer ofownership becomes final, or in the case of enforcement of the collateral(whether it takes place by sale or appropriation of securities), set-off ofthe collateral against the relevant financial obligations or application ofthe collateral in discharge of the relevant financial obligations or for otherreasons involving – in any case – a permanent transfer of the ownership”.– the transfer of the ownership of shares negotiated onregulated markets or multilateral trading facilities, 41issued by companies having an average market capitalizationof less than EUR 500 million in Novemberof the previous year. 42 Under article 17 of theTreasury Decree, these companies shall be identifiedand listed by the Ministry of Economy and Financeby 20 December each year. 43 Under article 15(1)(f ) ofthe Treasury Decree, moreover, the exclusion at handapplies also to transfers taking place outside regulatedmarkets and multilateral trading facilities, and alsoupon physical settlement of chargeable derivatives;– the transfer of ownership of chargeable equities andtransactions in chargeable derivatives executed bygroup companies between which there exists a director indirect control relationship under article 2359(1)(1, 2) and article 2359(2) of the Italian Civil Code orwhich are (directly or indirectly) controlled by thesame company (sister companies); 44– the transfer of ownership of chargeable equities orthe change of ownership of chargeable derivatives,arising from restructuring operations under article 4of Council Directive 2008/7/EC of 12 February 2008,as well as mergers and divisions of collective investmentundertakings; 45 and– the transfer of ownership of depositary receipts representingItalian shares or participating financialinstruments issued by companies having an averagemarket capitalization less than EUR 500 million inNovember of the previous year (as listed by the Ministryof Economy and Finance according to article 17of the Treasury Decree). 46The Explanatory Memorandum clarifies the following: “Letter e)provides in detail for the exclusion of temporary transfers of ownership.In this reference it is pointed out that – as regards securities financingtransactions – the wording of the provision follows article 2, point 10of (EC) Commission Regulation 1287/2006 of 10 August 2006. Letter e)clarifies as well that temporary transfers of ownership which are excludedfrom the scope of the tax include also the transfers in the framework offinancial collateral transactions arising from an arrangement under whicha collateral-provider transfers full ownership of [chargeable equities] […],for the purpose of securing or otherwise covering the performance ofrelevant financial obligations, including the repayment at the end of thecollateral. In this regard, in the absence of any explicit provision of law,the collaterals made up of shares or participating financial instruments(or other temporary transfers) which do not entail the transfer of fullownership shall also be deemed to be excluded from the scope of thetax. The following transactions shall be also excluded from the scope ofthe tax: acquisitions by persons purchasing with standby commitmentsto immediately resell within the same offer, where the transaction isexecuted within thirty days; acquisitions performed within a stabilisationof shares and participating financial instruments provided for byCommission Regulation (EU) 2273/2003 of 22 December 2003”.41. Supra n. 13.42. Art. 15(1)(f ).43. For the first year of application, the list of such companies, with shareslisted in Italian regulated markets or multilateral trading facilities, isattached to the Treasury Decree. However, the Ministry of Economyand Finance shall still issue the list of Italian issuers having an averagecapitalization of less than EUR 500 million in November and shares listedoutside of Italy. It is also worth noting that the list(s) published by theMinistry of Economy and Finance only include the names of the issuerswith a low capitalization (but not the ISIN codes of the shares issued bythem).44. Art. 15(1)(g).45. Art. 15(1)(h).46. Art. 15(1)(i).56DERIVATIVES & FINANCIAL INSTRUMENTS MARCH/APRIL 2013© IBFD

2013 Italian Financial Transaction TaxArticle 15(2)(a) and (b) of the Treasury Decree also rulesthat Italian FTT does not apply to (respectively):– purchases of chargeable equities and transactionsin chargeable derivatives entered into by a financialintermediary interposed between two parties, actingas a counterparty to both sides, purchasing on onehand, and selling on the other, securities or otherfinancial instruments, where for both the buying andselling transactions the price, total number and dateof settlement coincide, except cases where the personto whom the financial intermediary transfers the titleor the financial instrument does not fulfil its obligations;and– purchases of chargeable equities and transactions inchargeable derivatives entered into by systems interposingin the purchases or in the transactions for purposesof clearing and collateral of said purchases ortransactions. 473.5. ExemptionsArticle 16 of the Treasury Decree sets out exemptionsfrom the application of Italian FTT. As for the exclusionsin article 15, the intermediaries which are involved in thetransactions (and as such are responsible for remittance ofthe FTT to the tax authorities) need not pay the tax if theyreceive a certification stating that the transactions fallswithin one of the exemptions laid down in this article 16.Transactions falling under article 16(1) are entirelyexempted. On the opposite, transactions governed byarticle 16(3) and (5) can be exempted only with respect toone of the parties, whilst the counterparty may be liableto the tax.3.5.1. Transactions with “institutional” counterpartiesArticle 16(1)(a) states that Italian FTT will not apply totransactions in which the counterparty consists of:– the European Union or the European Institutions, andthe European Atomic Energy Community;– bodies covered by the Protocol on the Privileges andImmunities of the European Union or the EuropeanCentral Bank and the European Investment Bank;– the central banks of EU Member States and thecentral banks and organizations managing also theofficial reserves of other States; or– bodies or international organizations established inaccordance with international agreements enforcedin Italy, as possibly listed in a specific regulation ofthe Italian tax authorities. As clarified in the ExplanatoryMemorandum, in the absence of such regulationby the tax authorities, reference may be made to the47. Article 15(2)(b) of the Treasury Decree clarifies that “reference is made tothe authorized or recognized entities under Regulation (EU) 648/2012 ofthe European Parliament and of the Council of 4 July 2012 that interposethemselves in a transaction in financial instruments for purposes ofclearing and collateral; for those countries where the above Regulationis not in force, reference is made to equivalent foreign systems which areauthorized and supervised by a national public authority, provided thatthey are established in States and territories included in the list referredto in the Ministerial Decree issued in accordance with Article 168-bis ofTUIR”. Again, in the absence of the list under 168-bis of TUIR, referencemust be made to the list included in the 1996 Decree.(non-exhaustive) list of entities contained in CircularLetter 11/E of 28 March 2012 of the Revenue Agency.Under article 16(2) of the Treasury Decree, when the counterpartyto a transaction in chargeable equities or chargeablederivatives is one of the “institutional” entities listedabove, Italian FTT is not payable by either party (i.e. thetransaction is entirely exempt).3.5.2. Market makingArticle 16(3)(a) of the Treasury Decree sets out the ItalianFTT exemption for market makers. The tax will not applyto transactions in chargeable equities and chargeablederivatives executed in the context of “market makingactivities”, as defined in article 2(1)(k) of Regulation236/2012 of 14 March 2012 of the European Parliamentand of the Council on short selling and certain aspects ofcredit default swaps (the Short-Selling Regulation) 48 and indocument ESMA/2013/158 “Guidelines on the exemptionof market-making activities and primary market operationsunder Regulation (EU) 236/2012 of the EuropeanParliament and of the Council on short selling and certainaspects of Credit Default Swap” of 1 February 2013 (theFinal ESMA Guidelines). 49It is expected that the Ministry of Economy and Financeand the Italian tax authorities will:– consider the ESMA Final Guidelines as applicableto the determination of the scope of the FTT market-makingexemption from 1 March 2013, notwithstandingthat those Guidelines may not be applicablefor purposes of the Short-Selling Regulation for sometime after that date; 50– narrowly interpret the Final ESMA Guidelines, so thatthe purchase of Italian listed equities cannot benefitfrom the market-making exemption where such listedequities are a hedge of an OTC derivative (under theargument that the latter is a financial instrument48. Article 2(1)(k) of the Short-Selling Regulation reads as follows:“‘market-making activities’ means the activities of an investment firm,a credit institution, a third-country entity, or a firm as referred to inpoint (l) of Article 2(1) of Directive 2004/39/EC, which is a member of atrading venue or of a market in a third country, the legal and supervisoryframework of which has been declared equivalent by the Commissionpursuant to Article 17(2) where it deals as principal in a financialinstrument, whether traded on or outside a trading venue, in any of thefollowing capacities:(i) by posting firm, simultaneous two-way quotes of comparable sizeand at competitive prices, with the result of providing liquidity on(ii)a regular and ongoing basis to the market;as part of its usual business, by fulfilling orders initiated by clientsor in response to clients’ requests to trade;(iii) by hedging positions arising from the fulfilment of tasks underpoints (i) and (ii)”.49. The European Securities and Markets Authority (ESMA) published inmid-September 2012 a consultation paper in relation to the exemptionfor market-making activities and primary market operations underthe Short-Selling Regulation and launched a public consultation onthe document. On 1 February 2013, ESMA published the Final ESMAGuidelines, which include a feedback statement on the most importantissues raised during the consultation process and reflect some of thecomments gathered in that context.50. Indeed, the ESMA Final Guidelines will be translated into all the officialEU languages and will be applicable two months after the translations arepublished.© IBFD DERIVATIVES & FINANCIAL INSTRUMENTS MARCH/APRIL 201357

Vittorio Salvadori di Wiesenhoff and Roberto Egoriwhich is not admitted to trading or traded on marketor multilateral trading facility).The FTT exemption applies provided that the personacting in the course of the market making activity has beengranted the exemption under article 17(1) of the Short-Selling Regulation 51 by the authority specified in article17(5) 52 and article 17(8) 53 of the same Regulation.Article 16(3)(a) of the Treasury Decree also states that:for those countries to which the above Regulation 236/2012 doesnot apply, in the absence therefore of the authorization referredto in the preceding sentence, the person acting in the course ofmarket-making activities is entitled to the exemption, providedthat such person has submitted a specific request to CONSOBaccording to the procedures to be issued by this public authority;the applicant shall in any case prove to comply with the same requirementsand conditions provided for in the above Regulationand Guidelines.CONSOB adopted the procedure referred to above withResolution No. 18494 of 13 March 2013. 54 The applicationfor the FTT exemption shall be submitted to CONSOBusing the form attached to the above-mentioned Resolution.It is worth noting that, as specifically clarified inResolution No. 18494, persons performing market-makingactivities, as defined in the Short-Selling Regulation,on a market or a multilateral trading facility of the EuropeanUnion, are not allowed to submit the application toCONSOB. These persons, according to article 16(3)(a),first part, of the Treasury Decree are entitled to the FTTexemption if and to the extent that they have been grantedthe market-making exemption by the competent authorityas defined in article 17(5) and (8) of the Short-Selling Regulation.Under article 16(4) of the Treasury Decree, the FTTexemption for market making “is exclusively granted tothose persons carrying on market-making activities […]and only to the transactions effected in carrying on suchactivities”. In the absence of any official guidance on thisspecification, one may argue that article 16(4) is somehow51. Provisions of article 17(1) of the Short-Selling Regulation exempt entitiesundertaking transactions due to market-making activities from net shortposition transparency requirements and the restrictions on uncoveredshort sales. The exemption applies only to transactions carried out inperformance of market-making activities, as defined in article 2(1)(k) ofthe same Regulation. Accordingly, the market-making exemption underthe Short-Selling Regulation does not apply to the entire scope of activityof the notifying entity. In particular, as clearly stated in recital 26 of theShort-Selling Regulation, such an exemption does not cover proprietarytrading of the notifying entity.52. Article 17(5) of the Short-Selling Regulation reads as follows: “theexemption referred to in paragraph 1 shall apply only where the natural orlegal person concerned has notified the competent authority of its homeMember State in writing that it intends to make use of the exemption.The notification shall be made not less than 30 calendar days before thenatural or legal person first intends to use the exemption”.53. Under article 17(7) of the Short-Selling Regulation “the competentauthority referred to in paragraphs 5 […] may prohibit the use of theexemption if it considers that the natural or legal person does not satisfythe conditions of the exemption. Any prohibition shall be imposed withinthe 30 calendar day period referred to in paragraph 5 […] or subsequentlyif the competent authority becomes aware that there have been changesin the circumstances of the natural or legal person so that it no longersatisfies the conditions of the exemption”.54. See http://www.consob.it/mainen/documenti/english/resolutions/res18494.htm.equivalent to paragraph 13. of the ESMA Final Guidelines,where it is stated that:the exemption applies only to the transactions carried out in performanceof market making activities as defined above […]; itdoes not apply to the entire scope of activity of the notifying entity.As recital 26 [of the Short-Selling Regulation] clearly states,such an exemption does not cover the proprietary trading of thosepersons.Accordingly, it can be maintained that the purpose ofarticle 16(4) is to make it clear that the FTT exemptionfor market makers (i) applies only to transactions that aregenuinely executed in the capacity of market making and(ii) does not apply to the entire scope of activity of themarket maker (and, in particular, does not cover proprietarytrading of that person).Article 16(5) of the Treasury Decree also states that the taxmay be applied to the counterparty, within the limits andunder the conditions set forth in paragraph 494, first sentenceof the Stability Law. This means that:– in the case of equity trades, the exemption applieswhen the market maker acts as the purchaser of theinstruments, while a person purchasing chargeableequities from a market maker would not per se beexempted; and– in the case of derivative trades, the exemption doesnot per se extend to the derivative counterparty ofthe market maker.3.5.3. Transactions under liquidity contractsArticle 16(3)(b) of the Treasury Decree exempts fromItalian FTT those transactions effected in the courseof liquidity assistance activities within the frameworkof accepted market practices, approved by the financialmarket authority under Directive 2003/6/EC of 28January 2003 of the European Parliament and of Counciland Commission Directive 2004/72/EC of 29 April 2004.The exemption is limited exclusively to the operation andtransactions carried out within the activities describedabove and under the condition that the person executingtransactions in chargeable equities and chargeable derivativeshave concluded a contract directly with the companyissuing the security. Also in this case, the exemption fromthe application of Italian FTT does not extend to the counterpartyof the liquidity provider.3.5.4. Pension funds and compulsory pension institutionsUnder article 16(5) of the Treasury Decree, Italian FTTwill not apply to:(1) pension funds subject to supervision under Directive2003/41/EU, established in (i) EU Member Statesor (ii) EEA Member States that allow an adequateexchange of information with Italy; 55(2) compulsory social security institutions, establishedin (i) EU Member States or (ii) EEA Member Statesand allow an adequate exchange of information withItaly; 5655. At present, Norway and Iceland.56. Id.58DERIVATIVES & FINANCIAL INSTRUMENTS MARCH/APRIL 2013© IBFD

2013 Italian Financial Transaction Tax(3) persons and entities participated solely by the pensionfunds in (1) above (so-called “pension fund poolingvehicles”); and(4) other supplementary pension schemes referred to inItalian Legislative Decree 252 of 5 December 2005.The FTT exemption under article 16(5) applies only whenthe entities listed in (1) through (4) above are purchasers ofchargeable equities and, in the case of derivative transactions,does not extend per se to the derivative counterparty.3.5.5. Transactions relating to ethical or sociallyresponsible products and servicesArticle 16(1) exempts from Italian FTT:(b) transfers of ownership and transactions in units of collectiveinvestment undertakings referred to in Article 1, paragraph1, letter m) of TUF, classed as “ethical” or “socially responsible”pursuant to Article 117-ter of TUF for which a prospectushas been drafted according to the models in Annex 1B of theregulation adopted by CONSOB with Resolution 11971 of14 May 1999 and later amendments, including the additionalinformation provided for by Article 89, paragraph 1 of theRegulation adopted by CONSOB with Resolution 16190 of29 October 2007 and later amendments;(c) the subscription of contracts for the provision of portfoliomanagement services referred to in Article 1, paragraph 5, letterd) of TUF, classed as “ethical” or “socially responsible” pursuantto Article 117-ter of TUF, where the contract concludedwith the customer includes the additional information providedfor by article 89, paragraph 1 of the regulation adoptedby CONSOB with Resolution 16190 of 29 October 2007 andlater amendments.The wording of the exemptions in letters b) and c) of article16 does not seem to be consistent with the Italian FTTrules. Indeed:– transfers of ownership and transactions in units ofcollective investment undertakings, whether or notthey are ethical or socially responsible, are in anyevent not subject to the tax. As specifically stated inarticle 2(2) of the Treasury Decree, in fact these transactionsdo not fall within the scope of application ofthe FTT on equity trades. Furthermore, units of collectiveinvestment undertakings do not qualify aschargeable derivatives;– similarly, no tax is due on “the subscription of contractsfor the provision of portfolio management services”.On the basis of the above, the purposes of the above exemptionsis totally unclear, since there is no point in exemptingtransactions which are per se not subject to the tax.A possible alternative interpretation of these rules is thatthe exemptions would apply when ethical/socially responsiblecollective investment undertakings or portfoliomanagers are counterparties to a transaction in chargeableequities or chargeable derivatives. This interpretationcould be supported by the wording of article 1(494) of theStability Law, which states that the FTT shall not apply to“transactions and operations relating to products and serviceswhich are qualified as ethical or socially responsiblepursuant to article 117-ter of the Legislative Decree of 24February 1998 No. 58 and to the enactment regulationsrelating thereto”.3.6. High-frequency trading transactions3.6.1. Definition of “high-frequency trading transactions”A special FTT regime applies to high-frequency trading(HFT) transactions executed on the Italian financialmarkets 57 over equities and equity derivatives. The notionof chargeable instruments for purposes of HFT tax isbroader than chargeable equities and chargeable derivatives.Indeed, article 12(1) states that:the transactions effected on the Italian financial market are subjectto a tax on high frequency trading relating to shares, participatingfinancial instruments, securities representing equity investmentand transferable securities as of Article 7 [securitizedderivatives], irrespective of theissuer, and to derivative financialinstruments referred to in Article 7 [un-securitized derivatives],having as underlying one or more of the financial instruments referredto in paragraph 491 [of the Law 228] [equity instruments]or the value of which depends primarily on one or more of thesefinancial instruments, irrespective of the issuer of these financialinstruments referred to in paragraph 491 and regardless of theissuer’ s residence. 58Based on the above, HFT transactions executed on theItalian financial market over equities issued by non-Italianissuers or derivatives over foreign equities seem to be inscope for purposes of the special FTT on HFT transactions(HFT tax) governed by article 12 of the Treasury Decree.HFT transactions are defined as transactions which:– are generated by an automated algorithm whichautomatically determines the decisions concerningthe sending, modification and cancellation of ordersand of the relevant parameters (with the exclusion ofcertain algorithms, as further specified below); and– occur at intervals not exceeding half a second. Thisinterval is calculated as the time between the placingof an order for purchase or sale and the subsequentmodification or cancellation of the same order by thesame algorithm.Article 12(1) specifically excludes from the scope of theHFT tax those transactions generated by:– algorithms used for the performance of the marketmakingactivity referred to in article 1, paragraph 494,last sentence, letter (a) of the Stability Law (which setsout the FTT market-making exemption), providedthat orders placed by such algorithms come from specificdesks devoted to market-making activities as setout in article 16(3) of the Treasury Decree; and– algorithms used solely for the fulfilment of clients’orders to comply with “best execution requirements”under article 21 of the Markets in Financial InstrumentsDirective and algorithms used solely for thepurpose of complying with equivalent best executionrequirements for the client provided by foreign regulations.The Explanatory Memorandum clarifies thatthe definition of “high-frequency trading” excludessmart order routing algorithms, as well as algorithmsfulfilling orders in a way designed to obtain transac-57. Under article 12(2) of the Treasury Decree, the Italian financial marketmeans the regulated markets and multilateral trading facilities authorizedby CONSOB pursuant to articles 63 and 77-bis of TUF.58. Supra n. 19.© IBFD DERIVATIVES & FINANCIAL INSTRUMENTS MARCH/APRIL 201359

Vittorio Salvadori di Wiesenhoff and Roberto Egoritions at execution prices that are equal or better thanthe weighed average market price collected at aninterval, predetermined by the parties, not exceedingthat on the day on which the order was placed.3.6.2. Application of high-frequency trading transactiontaxArticle 13 of the Treasury Decree sets out the rules forthe application of the HFT tax. Under article 13(1), thetax is calculated on a daily basis and is payable where, in asingle trading day, the ratio between the sum of cancelledand modified orders and the sum of entered and modifiedorders exceeds 60% with reference to a single financialinstrument. For this purpose, only the orders cancelled ormodified within half a second will be taken into consideration.The HFT tax will be paid, for each trading day, atthe rate of 0.02% on the value of the cancelled and modifiedorders exceeding the 60% threshold.Even though article 13(1) makes reference to the “number”or orders, article 13(2) clarifies that for HFT transactionsin equities and in securitized equity derivatives, theratio specified in article 13(1) “is calculated based on thenumber of securities included in the single orders thathave been entered, modified or cancelled”. The same paragraph2 further states that the HFT tax will be applied “tothe number of securities exceeding the threshold specifiedin paragraph 1 [60%] multiplied by the weighted averageprice of the purchase and sale orders or related modificationsthereof for the specific financial instrument in thetrading day”.Under article 13(3), in the case of un-securitized derivatives,the ratio “shall be calculated based on the number ofstandard contracts included in the single orders entered,modified or cancelled”. In addition, it is stated that the HFTtax will be applied to the product of the number of standardcontracts exceeding the 60% threshold multipliedby the weighted average equivalent value of purchase andsale orders or related modifications thereof for the specificfinancial instrument in the trading day. Equivalent valuemeans, in the case of options, the premium specified inthe contract multiplied by the number of shares makingup the standard contract; in the other cases, the notionalvalue of the standard contract.The above calculations must be done per algorithm andper financial instrument (ISIN).3.6.3. Persons liable to high-frequency tradingtransaction taxUnder article 14 of the Treasury Decree, HFT tax is payableby persons which, by means of the relevant algorithms,enter purchase and sale orders and the related modificationsand cancellations referred to in article 13.The Explanatory Memorandum clarifies that the taxableperson is the person who, in the case where the ordersentered were to be concluded, would purchase or sell theshares and other financial instruments or would becomethe counterparty of a financial derivative.However, the HFT tax will be collected by the intermediaries(referred to in article 19 of the Treasury Decree)that intervene in the execution of the relevant transactions.Indeed, article 19, when identifying the responsibility ofintermediaries in collecting and paying the tax, makes alsoreference to the HFT tax. This is confirmed by the ExplanatoryMemorandum where it is clarified that:the obligation to pay, as well as other obligations referred to inArticle 19 of the Decree, remain in charge of the persons identifiedby such Article. The latter shall calculate the tax separatelyfor each of the taxable persons. If the taxable person carries outhigh-frequency trading involving several intermediaries, the taxon such transactions shall be paid separately by each intermediary.3.6.4. Entry into forceBased on article 21(2) and (4) of the Treasury Decree:– for HFT relating to equity instruments, the tax appliesto orders sent as of 1 March 2013;– for HFT relating to derivative instruments, the tax willapply to orders sent as from 1 July 2013.3.7. Collection and payment of Italian financialtransaction tax3.7.1. Intermediaries responsible for collecting andremitting the taxArticle 19(1) of the Treasury Decree states that the ItalianFTT due on trades involving chargeable equities andchargeable derivatives, as well as the HFT tax must be paidby certain intermediaries that are involved in the executionof the relevant transactions, 59 as well as the notariesinvolved in the drawing up or authentication of deeds concerningthe above-mentioned transactions. In all othercases, the tax is to be paid by the taxpayer.The intermediaries referred to in article 19(1) quoted arebanks, trust companies (società fiduciarie) and investmentcompanies referred to in article 18 of the TUF. 60Neither the Treasury Decree nor the Explanatory Memorandumclarify what “involvement in the execution of therelevant transactions means” for FTT purposes. For thesepurposes, in the authors’ view, one could make referenceto article 1(5) of the TUF, which defines “investment servicesand activities”, where they concern, amongst others,the following:– dealing for own account; 6159. The Explanatory Memorandum clarifies the following: “in the case oftransactions executed in the framework of collective asset or portfoliomanagement services, where the operator does not rely on an intermediary(a broker, for example,) for executing the negotiation orders, theperson liable for payment of the tax is the operator itself. Furthermore,always with respect to the transactions executed in the framework ofcollective asset or portfolio management services – considering thatfor collective asset management services, the owner of the securities (orthe counterparty, in the case of derivative financial instruments) is thecollective investment undertaking (“OICR” in Italy), whereas in the caseof portfolio management services it is the management contract holder– it should be clarified that for the purpose of payment of the tax, thenet balance of daily transactions, in these cases, shall be calculated withreference to each OICR or management contract holder, respectively”.60. Consolidated Finance Act.61. According to article 1(5-bis) of TUF “dealing for own account” shall meanthe activity consisting in purchases and sales of financial instruments, on60DERIVATIVES & FINANCIAL INSTRUMENTS MARCH/APRIL 2013© IBFD

2013 Italian Financial Transaction Tax– execution of orders for clients;– reception and transmission of orders. 62One could therefore take the view that the intermediarieslisted in article 19(1) of the Treasury Decree are deemedto be involved in the execution of the relevant transactionswhen they are dealing for own account (dealers) or executingorders for clients (brokers) or receiving and transmittingorders (order routers).3.7.2. Deadlines for the payment of the taxThe deadlines for the payment of the tax are as follows:– for transactions in chargeable equities: by the 16thday of the month following the one in which transferof ownership occurs under article 3;– for transactions in chargeable derivatives: by the 16thday of the month following that of conclusion of thecontract, as established under article 8;– for HFT transactions: by the 16th day of the monthfollowing the one in which the dispatch date of thecancelled or modified order falls.However, special deadlines apply for the first three monthsof application of the Italian FTT in respect of transactionsin chargeable equities and in respect of HFT transactionsin equity instruments. Indeed, under article 21(6) of theTreasury Decree the FTT due in respect of taxable transactionsexecuted in March, April and May is payable within16 July 2013.3.7.3. Chain of intermediaries – intermediaries located incertain “black-listed” jurisdictionsWhen more intermediaries are involved in the executionof the transaction, article 19(4) states that the tax mustpaid by the intermediary that receives the execution orderdirectly from the purchaser or the ultimate counterparty.Moreover, article 19(4), as amended by the 18 MarchDecree, provides as follows:(i) where the purchaser or the final counterparty is one of thepersons referred to in paragraph 1 [qualifying intermediariesand notaries], not located in the States or territories referredto in the next sentence, this person pays directly the tax due;(ii) persons located in States or territories with which Italy has noagreements in force for purposes of the exchange of informationor the assistance in the collection of tax credits, identifiedin a specific regulation issued by the Director of the RevenueAgency, that are involved for any reason in the execution ofthe transaction, are considered in all respects as purchasers orfinal counterparties of the order of execution.On 1 March 2013, the Director of the Revenue Agencyissued the required regulation under article 19(4) of theTreasury Decree (the article 19(4) regulation). This regulation,however, is based on the original wording of articlea principal basis (contropartita diretta) and in relation to customer orders,together with market making activities.62. According to article 1(5-sexies) TUF, the service in letter e) above(reception and transmission of orders) includes the receipt and transmissionof orders as well as the activity consisting in placing two or moreinvestors in contact, thereby making it possible to conclude transactionsby them (mediation).19(4) (i.e. before the changes enacted with the 18 MarchDecree), which reads as follows:persons located in States or territories with which Italy has noagreements in force for purposes of the exchange of informationand the assistance in the collection of tax credits, identified in aspecific regulation issued by the Director of the Revenue Agency,that are involved for any reason in the execution of the transaction,are considered in all respects as purchasers or final counterpartiesof the order of execution.On the basis of the above wording, the article 19(4) regulationlists the countries which have agreements in forcewith Italy for the purposes of the exchange of informationand the assistance in the collection of tax credits (thewhite-listed countries). The rule in article 19(4) wouldapply to intermediaries established in countries which arenot listed in the article 19(4) regulation (the non-whitelistedcountries). The article 19(4) regulation only includesEU Member States and two out of three EEA countries(Norway and Iceland). 63 All other countries (including theUnited States, Japan, India, Australia, Canada, Switzerland,etc.) are therefore considered non-white-listed countries. 64Following the changes enacted with the 18 March Decree,it is reasonable to assume that the Director of the RevenueAgency will amend and update the article 19(4) regulation,including other white-listed countries (such as possibly theUnited States). Indeed, the new definition of “white-listedcountries” now makes reference to the existence of agreementsin force with Italy concerning either the exchange ofinformation or the assistance in the collection of tax credit.63. More in detail, the white-listed countries mentioned in the article 19(4)regulation are the following: Austria, Belgium, Bulgaria, Cyprus, CzechRepublic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary,Iceland, Ireland, Latvia, Lithuania, Luxembourg, Malta, Netherlands,Norway, Poland, Portugal, United Kingdom, Romania, Slovakia, Slovenia,Spain and Sweden.64. Based on the motivation section of the article 19(4) regulation, thewhite-listed countries have been identified on the basis of the followingprovisions:– Council Directive 2011/16/EU of 15 February 2011 (on administrativecooperation in the field of taxation and repealing Directive77/799/EE);– Council Directive 2010/24/EU of 16 March 2010 concerningmutual assistance for the recovery of claims relating to taxes, dutiesand other measures, enacted in Italy with Legislative Decree 14August 2012 No. 149, published in Official Gazette No. 202 of 30August 2012;– OECD Multilateral Convention on Mutual Administrative Assistancein Tax Matters (the Convention) between the Member States ofthe Council of Europe and the OECD member countries, signedin Strasbourg on 25 January 1988, ratified in Italy with Law 10February 2005 No. 19, published in Official Gazette No. 48 of 28February 2005, modified with the Protocol signed on 27 May 2010,ratified in Italy with Law 27 October 2011 No. 193, published inOfficial Gazette No. 273 of 23 November 2011.Apparently, the Director of the Revenue Agency has taken the viewthat all non-EU/non-EEA States do not satisfy the requirements forbeing qualified as white-listed countries (exchanging of informationwith Italy and assisting Italy in the collection of tax credits) on the basisof the argument that such countries have not signed and ratified theConvention and the Protocol amending it (see in this respect the statusof the signatures and ratifications of the OECD Convention www.oecd.org/ctp/exchange-of-tax-information/Status_of_convention.pdf ) orhave made declarations and/or reservations in relation to the OECDConvention that significantly limit its scope of application (see the listof declarations and reservations made by the States that have signedthe OECD Convention: http://conventions.coe.int/Treaty/Commun/ListeDeclarations.asp?NT=127&CV=1&NA=&PO=999&CN=999&VL=1&CM=9&CL=ENG).© IBFD DERIVATIVES & FINANCIAL INSTRUMENTS MARCH/APRIL 201361

Vittorio Salvadori di Wiesenhoff and Roberto EgoriThe main effect of the rule set out by article 19(4) is that anintermediary that is established in a white-listed country(a white-listed intermediary, such as a UK broker) andtransacts with an intermediary established in a blacklistedcountry (a black-listed intermediary, such as a Swissbroker or, based on the present wording of the article 19(4)regulation, a US broker) would have to charge the tax inthe same way as it would were it transacting with nonintermediaries.However, the concern is that the rule might lead to multiplelayers of tax if not correctly interpreted. Indeed, itis unclear what article 19(4) is specifically meaning whenstating that black-listed intermediaries “are considered inall respects as purchasers or final counterparties”. Furthermore,limiting the analysis to trades in chargeable equities,the wording of article 19(1) and (4) apparently does notspecifically make it clear that, where a chain of intermediariesis involved in the execution of a given transaction andthe selling intermediary is e.g. a UK broker but the buyingintermediary is e.g. a Swiss broker, the only tax due is theone collected by the UK broker, so that the Swiss brokeris not required to pay and collect tax on its own buys andsubsequent deliveries and the ultimate client is also notrequired to pay the tax on its buys.In the authors’ view, article 19(4) is not aimed at imposingmultiple layers of tax on a client flow through variousintermediaries, wherever they are located. Rather, thepurpose of the rule is simply to identify the person whichis required to charge the tax when a chain of intermediariesis involved in the execution of a given transaction, sothat the tax authorities can (more) easily collect the FTTwhen a black-listed intermediary is involved.On the basis of the above, a black-listed intermediarymay not be required to collect the tax when a white-listedintermediary is also involved in the execution of thetransaction. Nonetheless, all the other provisions in theTreasury Decree which make reference to “intermediaries”(such as article 3(4), which disregards the purchases madeby executing brokers and article 15(2)(a) which excludesfrom the tax the purchases made by intermediaries actingas riskless principals) should still apply to black-listedintermediaries. In other words, the qualification of blacklistedintermediaries as purchasers “in all respects” underarticle 19(4) should only apply for the specific purpose ofidentifying the intermediary that is responsible for payingthe tax (denying that qualification to black-listed intermediarieswhen also white-listed ones are involved in thechain). Therefore, black-listed intermediaries should keeptheir status of intermediaries for the purpose of other provisionsin the Treasury Decree (such as article 3(4) andarticle 15(2)(a)), including the case where no white-listedintermediary is involved in the transaction (i.e. in suchscenario the black-listed intermediary that is closest to theclient should in the authors’ view be required to collect andremit the tax).3.7.4. Reporting – Compliance with the reporting andpayment obligations through the centralizedmanagement companyArticle 19(5), first part, of the Treasury Decree providesas follows:the persons that are responsible for the payment of the tax [generally,the intermediaries referred to in Article 19(1) and 19(4)which are involved in the execution of the transactions] shallcomply with annual reporting obligations, which may compriseexcluded and exempted transactions, according to the terms andthe modalities that will be set out in a regulation of the Directorof the Revenue Agency […]. The same regulation shall providefor arrangements for the payment of the tax and the connectedinstrumental formalities.The Director of the Revenue Agency has not yet issued therequired regulation on reporting and thus, at this stage, it isnot possible to state whether or not all or just some of theexcluded and exempted trades will actually be reportable.The delay in issuing the regulation on FTT reporting is ofcourse generating great concerns amongst intermediaries,which may be required at a later stage to report data andinformation which at present they are not collating.Article 19(5), second part, of the Treasury Decree statesthat:[the intermediaries required to account for the FTT] may apply tothe Centralized Management Company referred to in article 80of TUF 65 for the payment of the tax and the reporting obligation.For such purpose, they shall give a specific power of attorney tothe Centralized Management Company and send the informationused for the tax calculation as is necessary for the payment of thetax and the compliance with the relevant tax return obligations.The delegating persons are held in any case responsible for the correctpayment of the tax and for the compliance with the connectedinstrumental formalities. The Centralized Management Companyreceives from the intermediaries the necessary funds and makesthe payment within the 16th of the second month following thedate of the transaction; the payment relating to the transactions ofthe month of November is made by the 19th of December and thedelegating persons are required to send the information referredto in the fourth sentence and to provide the funding by the thirdworking day before the above date.3.7.5. Foreign intermediariesBased on article 19(7) of the Treasury Decree, foreign intermediarieswith an Italian permanent establishment mustcomply with the obligations concerning the payment ofItalian FTT and reporting through that permanent establishment,which is liable under the same terms and responsibilitiesof non-resident intermediaries.Foreign intermediaries which do not have a permanentestablishment in Italy, can appoint a tax representativeamong the persons indicated in article 23 of PresidentialDecree No. 600 of 29 September 1973. 66 Such representativesshare the same terms and responsibilities asthe appointing foreign intermediaries for the obligationsderiving from the application of the tax.65. Montetitoli, in the case of the Mercato Telematico Azionario.66. Article 23 of Presidential Decree No. 600 of 29 September 1973 liststhe persons that may qualify as withholding tax agents for income taxpurposes (e.g. corporations, partnerships, individuals carrying ourentrepreneurial or professional activities, etc.).62DERIVATIVES & FINANCIAL INSTRUMENTS MARCH/APRIL 2013© IBFD

2013 Italian Financial Transaction TaxForeign intermediaries which do not have a permanentestablishment in Italy and have not appointed an Italianrepresentative shall directly comply with the FTT paymentand reporting obligations. For these purposes, those intermediariesshall be identified on the basis of a specific procedurelaid down in a forthcoming regulation of the Directorof the Revenue Agency.3.8. Entry into forceItalian FTT is due:– as from 1 March 2013, in respect of transactions inchargeable equities and HFT transactions entailingthe transfer of the ownership of shares and otherequity instruments. In particular, under article 21 ofthe Treasury Decree:– for HFT transactions, the tax applies to orderssent as from 1 March 2013; and– for transactions in chargeable equities (notHFT transactions), the Italian FTT applies ontransaction settled from 1 March 2013 if tradedafter the 28 February 2013; and– as from 1 July 2013, for transactions in chargeablederivatives and HFT transactions on equity derivativeinstruments. In particular, under article 21 of theTreasury Decree:– for HFT transactions, the tax will apply to orderssent as from 1 July 2013; and– for transactions in chargeable derivatives (notHFT transactions), Italian FTT will apply tocontracts subscribed, negotiated or modified, orto securities transferred, as from 1 July 2013.Italian FTT due in respect of transactions in chargeableequities and in respect of HFT transactions in equityinstruments executed until the end of the third calendarmonth following the date on which the Treasury Decree ispublished, will not be payable before 16 July 2013.3.9. Penalties and collection of Italian financialtransaction taxUnder article 20(1) of the Treasury Decree, any delayed,insufficient or omitted payment of the tax will be subjectto the 30% penalty provided for in article 13 of LegislativeDecree 471 of 18 December 1997 (Decree 471). However,this penalty may be applied exclusively against “the personsresponsible for such obligation as well as for the paymentof the tax”. In the case of an insufficient or omitted payment,however, the tax authorities may recover the tax also fromthe taxpayer concerned.Article 20(2), consistently with the provisions of the StabilityLaw, states that breaches concerning the tax return,its content and the related formalities as of article 19, paragraph5 are subject to the penalties set forth in Decree 471for value added tax purposes.3.10. Income taxes and regional tax on productiveactivitiesUnder article 18 of the Treasury Decree, the Italian FTTon chargeable equities, chargeable derivatives and HFT isnot deductible for income tax purposes, including substitutetaxes, nor for purposes of the Italian regional tax onproductive activities.The Explanatory Memorandum clarifies that the FTT willnot be taken into account when computing the purchasecost for purposes of capital gains taxes.3.11. RefundsArticle 22 of the Draft Decree includes a general refundclause which allows the claiming of a refund of tax undulypaid, also where unequivocal evidence is presented that thesame transaction has been subjected to multiple taxation.The modalities for filing this refund claim will be set outin a forthcoming regulation to be issued by the Directorof the Revenue Agency.Appendix 1 – Italian FTT on Derivatives (Euro, per Each Counterparty)Notional value of the transaction (in euro/000) 0–2.5 2.5–5 5–10 10–50 50–100 100–500 500–1000 > 1000Futures, certificates, covered warrants, options onshare-related yields, parameters and indexesFutures, warrants, certificates, covered warrants,options on shares– Swap agreements on shares and share-relatedyields, parameters and indexes– Forward agreements on shares and share-relatedyields, parameters and indexes– Differential financial agreements on shares andshare-related yields, parameters and indexes– Any other transaction involving a cash paymentdetermined with reference to shares, share-relatedyields, parameters and indexes– Combinations of agreements and securities abovementioned0.01875 0.0375 0.075 0.375 0.75 3.75 7.5 150.125 0.25 0.5 2.5 5 25 50 1000.25 0.5 1 5 10 50 100 200© IBFD DERIVATIVES & FINANCIAL INSTRUMENTS MARCH/APRIL 201363