The first Amended Finance Law for 2012 was published in the official Gazette on 15 March 2012 (the "Law"). The Law introduces a new 0.1 percent Tax on Financial Transactions ("TFT") applying to the purchase of equity and quasiequity securities issued by major publicly traded French companies from 1 August 2012. This anticipates a financial tax proposal currently debated by the EU Commission.
The Law also modifies the rates of registration duties applicable to the acquisition of shares to harmonize them with the rate of the TFT, also as from 1 August 2012.
Tax on Financial Transactions Scope
The TFT will be due on any acquisition for valuable consideration (acquisition à titre onéreux) of equity securities or quasi-equity securities to the extent that:
- Such securities are listed on a regulated market
- The acquisition involves the transfer of ownership of such securities
- Such securities are issued by a company whose registered office is located in France and whose market capitalization is over one €1 billion as of January 1 of the relevant fiscal year. The French Treasury Department is expected to issue the list of relevant French entities each year
TFT will be applicable irrespective of the regulated market where the transaction is executed (i.e. including outside of France) and the place where the parties and intermediates are established as long as the relevant issuer is a French listed entity and the above tests are met. Accordingly, the TFT should not materially affect the French financial market as relocations of transactions in other jurisdictions would have no effect on TFT liability.
The TFT will cover acquisitions of (i) equity securities within the meaning of Article L.121-A of French Monetary and Financial Code (CMF), i.e. shares and other securities which give or may give access to the share capital and voting rights, such as bonds redeemable in shares or warrants (convertible bonds or bonds exchangeable for shares are subject to a specific exemption — see below), and (ii) quasi-equity securities within the meaning of Article L.211-41 of CMF, i.e equivalent securities or rights representing a financial investment in a company issued in accordance with a foreign legislation. Plain vanilla debt securities that do not give rights to a company's share capital are outside of the scope of the TFT.
Acquisition / Transfer of Ownership of the Securities The TFT will apply to the acquisition of the relevant securities i.e. transfer made for valuable consideration. No TFT will be due on a transfer of securities for no consideration such as securities allocated in the context of employee benefits schemes. The Law provides that the term "acquisition" shall include (i) purchases of securities made as a result of the exercise of an option or as part of derivatives contracts, (ii) exchanges of such securities, or (iii) allocations of such securities in consideration for a contribution. Given the exemption applicable to issuance of securities — see below, only allocations of securities that are already existing should be concerned as opposed to allocations of newly issued securities.
The acquisition must entail a transfer of ownership (i.e. be duly registered on the purchasor's account). Derivatives contracts settled in cash are outside the scope of the TFT.
The Law provides that the following transactions shall be exempt from the TFT:
- Acquisitions made on the primary market upon issuance of securities, including where underwriting services are provided
- Acquisitions carried out by a clearing house or a central securities depository, acquisitions carried out as part of market making activities (activités de tenue de marché) or as part of a stabilization and liquidity agreement
- Intra-group share transfers (including transfers between affiliated companies within the meaning of Article L 233-3 of French commercial code and transfers between companies which are members of the same tax consolidated group) and transfers completed in the context of certain restructurings or M&A transactions
- Temporary transfers of securities within the meaning of the EC Regulation n° 1287/2006 (such as the lending or borrowing of shares)
- Certain acquisitions of securities related to employee benefits schemes
- Acquisitions of bonds convertible or exchangeable for shares
On the basis of such provisions, public exchange offers initiated by a foreign company on a French company should fall within the scope of the TFT, the bidder being liable for the TFT in respect of the French securities acquired as part of the offer. Conversely, public exchange offers initiated by a French company on a foreign entity should not fall within the scope of the TFT, to the extent that the bidder receives securities issued by a foreign company and the shareholders of the target company receive themselves newly issued shares of a French company in consideration for their contributions. The French Autorité des Marchés Financiers is still to confirm such interpretation.
TFT will be assessed at a 0.1 percent rate on the acquisition price of the relevant securities.
Collection of the TFT
The TFT will be due by the investment services provider (ISP) having carried out the transaction as an intermediary or acting for its own account. In the situation where no ISP is involved in the transaction, the TFT will be due by the account holder, regardless of where it is established. The ISP must mention the name of its participant to the Central Security Deposit (CSD) and the account from which the tax needs to be withdrawn for payment. When the CSD is the issuance custodian and is under the supervision of the French Autorité des Marchés Financiers, it is in charge of collecting the TFT, declaring it and paying the relevant amount of tax to the French Treasury before the 25th of the month following the acquisition. When the CSD is not under the supervision of the French Autorité des Marchés Financiers, the ISP shall declare the transaction to the French Tax Authorities and pay the tax to the French Treasury within the same deadline. A late payment interest of 0.40 percent per month together with other late payment penalties may be due by the ISP, the account holder or CSD in case of late or non-payment. Penalties up to 40 percent of the TFT may be due in case the filing formalities are not complied with.
TFT shall be applicable to transactions made as from 1 August 2012.
Modification of the Registration Duties Applicable to the Acquisition of Shares
As from 1 January 2012, the acquisition of non-listed shares or listed shares — when such acquisition is documented under a written agreement — is subject to registration duties as follows: 3 percent for the portion of the price not exceeding €200,000, 0.5 percent for the portion of the price between €200,000 and €500 million, and 0.25 percent for the portion of the price exceeding the latter threshold – other than when a specific exemption applies (such as transfers between companies which are members of the same tax consolidated group).
As from 1 August 2012, the rate for the registration duty applicable to the acquisition of non-listed shares or of listed shares — when such purchase is documented under a written agreement — will be reduced to 0.1 percent. However, the acquisition of listed shares subject to the TFT, which would have been subject to the registration duty as a result of such acquisition being documented, will be exempt from such registration duty to avoid double taxation. The transfers made between affiliated companies within the meaning of Article L 233-3 of French commercial code will also be exempt in all cases.
Taxes on certain other financial transactions
The Law further provides for (i) a tax on high frequency and automated trading operations at a rate of 0.01 percent of the amount of cancelled or modified orders if they exceed a certain threshold to be defined by a decree and (ii) a tax applicable upon the conclusion of a Credit Default Swap (CDS) by a French company relating to the default of a member State of the European Union, to be levied at a rate of 0.01 percent on the notional amount of such CDS (subject to certain exemptions). These taxes shall also apply as from 1 August 2012
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.