Global FS tax newsflash: Italian FTT – Latest developments

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The Italian Financial Transaction Tax (“FTT”) has been in force since 1 March 2013 for the securities tax and the high frequency trading (“HFT”) tax on securities, with the derivatives tax and the HFT tax on derivatives coming into force on 1 July 2013. As with the other FTT regimes implemented recently (in particular the French FTT), many practical issues and questions of interpretation have been raised by market participants and industry professionals since the Italian FTT came into force. In recent weeks clarity has been reached on several points, whilst a number of questions remain open and under discussion. We have set out below an update on some of the key recent developments.

For the purposes of identifying the party responsible for payment of the Italian FTT, a counterparty located in a “black list” country is treated as the final investor or purchaser. This means that an intermediary transacting with such a party in a chain of intermediaries is responsible for payment of the Italian FTT.

This provision led to a number of practical issues, including the following:

  • Determining the correct treatment of transactions between counterparties where both of them are located in a black list country. No market consensus appears to have been reached on this point yet.
  • The potential for netting of transactions by a black list broker facing off to numerous clients, which could potentially lead to netting on a broker basis rather than by client account. This might lead to a lower tax liability for a black list broker which was clearly not the intention of this provision.

More fundamentally, a number of market participants have been concerned that the original “white list” of countries issued in March 2013 included only the EU countries, together with Norway and Iceland.

However, in a recent amendment to the Italian FTT decree, signed on 18 March 2013, the wording of Article 19.4 was amended. The effect of this change is that a state could be on the white list if either exchange of information or administrative assistance is in place between Italy and the other state (the provision had previously required both conditions to be met).

On 29 March 2013, the Italian Tax Authorities updated the white list. Australia, India and the US are now included on the white list for the purposes of the Italian FTT.