On 29th February 2012, the French parliament adopted a law introducing taxes on transactions in equity instruments. The French Financial Transaction Tax (FTT) relating to the ‘onerous’ acquisition of securities on large French companies (market capitalisation above €1bn) came into effect on 1st August 2012 at a rate of 0.2%. From 2nd January 2017 settlement date the rate increased to 0.3%.
The tax is due on any financial transaction that results in a transfer of equity ownership of these companies. As such it will include the exercise of options or any other derivative instrument on these equities. The first tax payments (for August, September and October) were due by 9th November. Purchases of Depositary Receipts (e.g. ADRs) also incur the tax from 1st January 2013.
Any trade in such an instrument will be subject to the tax as long as the instrument is listed on a ‘recognised market’. In other words, a trade executed off the primary market – or indeed outside of France – will be in scope, regardless of where it is traded and settled.
Exemptions apply mostly on a trade-by-trade basis with a more general exemption for liquidity providers operating on behalf of the issuer.
Reporting obligations apply to all potentially eligible transactions, even those that are exempt.
Contrary to stamp duty reserve tax in the UK, the French FTT is calculated on the net purchase per settlement date which has caused confusion in the market.
The key points are as follows:
- The tax applies to transactions regardless of whether or not they have been executed in France, the main criteria being whether the security traded was issued by an entity with headquarters in France and with a market cap above €1 billion
- The tax rate is 0.3% of the gross consideration and applies to the net purchase of the affected securities
- The securities subject to this tax are those which give the purchaser ownership rights in the equity of the company (not CFDs)
- The tax is due by the ‘Accountable Party’ which is the investment service provider or the broker executing the transaction on its behalf or on behalf of its client. If none of these are involved in the transaction, then the securities account holder of the investor is liable, e.g. custodian or settlement agent.
- The French Central Securities Depository, Euroclear France, will administer the collection of the tax
Last updated 28th December 2016