The bill, approved by the Italian Parliament on the 29th December 2012, sees the Italian Financial Transaction Tax (IFTT) on all transfers of ownership enter into law on 1st March 2013. The scope of the tax is restricted to equities (and assimilated instruments) and equity derivatives. Final details of the technical framework have been published in a Finance Ministry decree dated 21st February 2013. Implementation for derivatives has been delayed by a decree of the President of the Republic dated 21st June 2013.
The main features of the IFTT are as follows:
The tax applies to transfers of shares, equity and equity-like, issued by Italian resident companies, including ADRs/GDRs. The transfer of shares following conversion of convertible bonds is also taxable.
The tax applies regardless of where the transaction is executed or the country of residence of the counterparties. The tax on equities is due by the party that acquires ownership (the buyer).
The tax rate for transactions executed on a regulated market or MTF is set at 0.1% (0.12% for 2013). OTC equity transactions are taxed at 0.2% (0.22% in 2013).
All “on-exchange transactions” are taxed at the lower rate; this applies to bilateral transactions registered by regulated markets/MTFs (e.g. “on-exchange off-order book”).
Note: Hong Kong has signed certain tax treaties with Italy and therefore in August 2016 the Italian Minister of Finance published a new list of States and territories that have an adequate exchange of information for income tax purposes, which includes HK. The enactment of the new list meant that equity and derivative transactions executed on the Hong Kong exchanges (e.g. in Prada shares) were now able to qualify for the reduced “on exchange” IFTT rates.
Transactions carried out bilaterally by intermediaries, including those executed by systematic internalisers and so-called crossing networks, irrespective of the procedures to comply with post-trade transparency obligations, are treated as OTC.
The tax applies from 1st March 2013.
The IFTT applies to equity derivatives with underlying Italian shares and equity-like or equity-related financial instruments, including equity structured notes, equity warrants, covered warrants and certificates which are assimilated to derivatives for the purpose of taxation. The tax applies when the underlying is more than 50% constituted by Italian instruments.
The tax applies regardless of where the transaction is executed or the country of residence of the counterparties. A notable difference from equities is that the tax on derivatives is due by both counterparties to the transaction.
Equity derivatives are subject to a fixed charge, depending on the type of contract, in accordance with the table below. For example, trading 3 lots of the MIB future is taxed at €3.75 (assuming that the index has 17,500 points and the future contract multiplier is 5). Interestingly, the IFTT rate is reduced to one fifth of the given fixed amount when the transaction is executed on a regulated market or MTF, essentially penalising OTC transactions. Transactions carried out bilaterally by intermediaries, including those executed by systematic internalisers and so-called crossing networks, irrespective of the procedures to comply with post-trade transparency obligations, are treated as OTC.
The purchase of shares, participating financial instruments and securities representing equity investment resulting from the settlement of derivative financial instruments or other transferable securities is always subject to 0.2 % tax rate.
The tax applies from 1st September 2013.
High-frequency Trading (HFT)
HFT is hit especially hard by the new Italian tax. Under the approved bill, order amendments and cancellations are taxed when they take place within a time frame shorter than 0.5 seconds. The tax, which applies on all instrument types listed in the previous paragraphs, is levied at a rate of 0.02% on the value of those orders that have been modified or cancelled during a trading day that exceed a certain threshold. This threshold is set by the ministerial decree mentioned above at 60% of the value of the submitted orders.
The start date for the tax on high-frequency trading depends on the traded instrument; 1st March 2013 for equities and 1st September 2013 for derivatives.
There are some notable exemptions to the IFFT (but not to the tax on HFT).
Market makers and liquidity providers, as defined by EU regulations, are explicitly exempt from the tax. In addition, smart order routers are exempt from the HFT tax.
No tax is applicable when the counterparty is the Italian Government, the European Union, the European Central Bank, central banks of EU member states, foreign central banks managing the reserves of other states or international organisations whose foundational treaty has been ratified by Italy.
Other categories excluded by the tax are pension funds, intra-group transactions and transactions on instruments qualified as ethically or socially responsible.
For equities, share issuance and cancellation, debt instruments, stock lending and repurchase agreements are non-taxable. In addition, the tax does not apply to transactions relating to shares of companies with a capitalisation of less than €500 million. Transfers of Global Depository Receipts (GDRs) for companies with market capitalisation less than €500 million are also not taxable.
With reference to convertible debt securities and bonds with embedded derivatives, it is established that transactions in bonds and debt securities are excluded from the scope of the tax.
Inheritance and donations of shares are exempt.
Italian Financial Transaction Tax Rates (all figures in €)
Source: Gazzetta Ufficiale della Repubblica Italiana No. 302, 29th December 2012
Last updated 20th February 2017