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  • Service: Tax
  • Type: Business and industry issue
  • Date: 8/26/2013

Chapter I: Subject matter and definitions 

European Commission proposal for a Council Directive implementing enhanced cooperation in the area of financial transaction tax. COM(2013) 71 final. Issued Brussels, 14.2.2013.

Article 1: Subject matter

  1. This Directive implements the enhanced cooperation authorised by Decision 2013/52/EU by laying down provisions for a harmonised financial transaction tax (FTT).
  2. Participating Member States shall charge FTT in accordance with this Directive.

Article 2: Definitions

  1. For the purposes of this Directive, the following definitions shall apply:
    (1) 'Participating Member State' means a Member State which participates, at the time when FTT becomes chargeable pursuant to this Directive, in enhanced cooperation in the area of FTT by virtue of Decision 2013/52/EU (PDF 706 KB), or by virtue of a decision adopted in accordance with the second or third subparagraph of Article 331(1) of the TFEU;
    (2) 'Financial transaction' means any of the following:
      (a) the purchase and sale of a financial instrument before netting or settlement;
    (b) the transfer between entities of a group of the right to dispose of a financial instrument as owner and any equivalent operation implying the transfer of the risk associated with the financial instrument, in cases not subject to point (a);
    (c) the conclusion of derivatives contracts before netting or settlement;
    (d) an exchange of financial instruments;
    (e) a repurchase agreement, a reverse repurchase agreement, a securities lending and borrowing agreement;
    (3) 'Financial instruments' means financial instruments as defined Section C of Annex I to Directive 2004/39/EC of the European Parliament and of the Council, and structured products;
    (4) 'Derivatives contract' means a financial instrument as defined in points (4) to (10) of Section C of Annex I to Directive 2004/39/EC, as implemented by Articles 38 and 39 of Commission Regulation (EC) No 1287/2006;
    (5) 'Repurchase agreement' and 'reverse repurchase agreement' means an agreement as defined in Article 3(1)(m) of Directive 2006/49/EC of the European Parliament and of the Council;
    (6) 'Securities lending agreement' and 'securities borrowing agreement' mean an agreement referred to in Article 3 of Directive 2006/49/EC;
    (7) 'Structured product' means tradable securities or other financial instruments offered by way of a securitisation within the meaning of Article 4(36) of Directive 2006/48/EC of the European Parliament and of the Council or by way of equivalent transactions involving the transfer of risks other than credit risk;
    (8) 'Financial institution' means any of the following:
      (a) an investment firm as defined in Article 4(1)(1) of Directive 2004/39/EC;
    (b) a regulated market as defined in Article 4(1)(14) of Directive 2004/39/EC and any other organised trade venue or platform;
    (c) a credit institution as defined in Article 4(1) of Directive 2006/48/EC;
    (d) an insurance and reinsurance undertaking as defined in Article 13 of Directive 2009/138/EC of the European Parliament and the Council;
    (e) an undertaking for collective investments in transferable securities (UCITS) as defined in Article 1(2) of Directive 2009/65/EC of the European Parliament and of the Council and a management company as defined in Article 2(1)(b) of Directive 2009/65/EC;
    (f) a pension fund or an institution for occupational retirement provision as defined in Article 6(a) of Directive 2003/41/EC of the European Parliament and of the Council, an investment manager of such fund or institution;
    (g) an alternative investment fund (AIF) and an alternative investment fund manager (AIFM) as defined in Article 4 of Directive 2011/61/EU of the European Parliament and of the Council;
    (h) a securitisation special purpose entity as defined in Article 4(44) of Directive 2006/48/EC;
    (i) a special purpose vehicle as defined in Article 13(26) of Directive 2009/138/EC;
    (j) any other undertaking, institution, body or person carrying out one or more of the following activities, in case the average annual value of its financial transactions constitutes more than fifty per cent of its overall average net annual turnover, as referred to in Article 28 of Council Directive 78/660/EEC:
      (i) activities referred to in points 1, 2, 3 and 6 of Annex I to Directive 2006/48/EC;
    (ii) trading for own account or for account or in the name of customers with respect to any financial instrument;
    (iii) acquisition of holdings in undertakings;
    (iv) participation in or issuance of financial instruments;
    (v) the provision of services related to activities referred to in point (iv);
    (9) 'Central Counter Party' (CCP) means a CCP as defined in Article 2(1) of Regulation (EU) No 648/2012 of the European Parliament and of the Council;
    (10) 'Netting' means netting as defined in Article 2(k) of Directive 98/26/EC of the European Parliament and of the Council;
    (11) 'A financial instrument referred to in Section C of Annex I to Directive 2004/39/EC and structured products issued within the territory of a participating Member State' means such a financial instrument that is issued by a person who has its registered seat or, in case of a natural person, its permanent address or, if no permanent address can be ascertained, its usual residence in that State;
    (12) 'Notional amount' means the underlying nominal or face amount that is used to calculate payments made on a given derivative contract.

    Each of the operations referred to in points (a), (b), (c) and (e) of paragraph 1(2) shall be considered to give rise to a single financial transaction. Each exchange as referred to in point (d) thereof shall be considered to give rise to two financial transactions. Each material modification of an operation as referred to in points (a) to (e) of paragraph 1(2) shall be considered to be a new operation of the same type as the original operation. A modification is considered to be material in particular where it involves a substitution of at least one party, in case the object or scope of the operation, including its temporal scope, or the consideration agreed upon is altered, or where the original operation would have attracted a higher tax had it been concluded as modified.
  2. For the purposes of point (8)(j) of paragraph 1:
      (a) the average annual value referred to in that point shall be calculated either over the three preceding calendar years or, in the case of a shorter period of previous activity, over that shorter period;
    (b) the value of each transaction referred to in Article 6 shall be the taxable amount as defined in that Article;
    (c) the value of each transaction referred to in Article 7 shall be ten per cent of the taxable amount as defined in that Article;
    (d) where the average annual value of financial transactions in two consecutive calendar years does not exceed fifty per cent of the overall average net annual turnover, as defined in Article 28 of Directive 78/660/EEC, the undertaking, institution, body or person concerned shall be entitled, upon request, to be considered as not being or no longer being a financial institution.



Article 331 (1) of the TFEU

  1. Any Member State which wishes to participate in enhanced cooperation in progress in one of the areas referred to in Article 329(1) shall notify its intention to the Council and the Commission.

    The Commission shall, within four months of the date of receipt of the notification, confirm the participation of the Member State concerned. It shall note where necessary that the conditions of participation have been fulfilled and shall adopt any transitional measures necessary with regard to the application of the acts already adopted within the framework of enhanced cooperation.

    However, if the Commission considers that the conditions of participation have not been fulfilled, it shall indicate the arrangements to be adopted to fulfil those conditions and shall set a deadline for re- examining the request. On the expiry of that deadline, it shall re-examine the request, in accordance with the procedure set out in the second subparagraph. If the Commission considers that the conditions of participation have still not been met, the Member State concerned may refer the matter to the Council, which shall decide on the request. The Council shall act in accordance with Article 330. It may also adopt the transitional measures referred to in the second subparagraph on a proposal from the Commission.

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Section C of Annex I of Directive 2004/39/EC of the European Parliament and the Council:

  1. Transferable securities;
  2. Money-market instruments;
  3. Units in collective investment undertakings;
  4. Options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, or other derivatives instruments, financial indices or financial measures which may be settled physically or in cash;
  5. Options, futures, swaps, forward rate agreements and any other derivative contracts relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event);
  6. Options, futures, swaps, and any other derivative contract relating to commodities that can be physically settled provided that they are traded on a regulated market and/or an MTF;
  7. Options, futures, swaps, forwards and any other derivative contracts relating to commodities that can be physically settled not otherwise mentioned in C.6 and not being for commercial purposes, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are cleared and settled through recognised clearing houses or are subject to regular margin calls;
  8. Derivative instruments for the transfer of credit risk;
  9. Financial contracts for differences;
  10. Options, futures, swaps, forward rate agreements and any other derivative contracts relating to climatic variables, freight rates, emission allowances or inflation rates or other official economic statistics that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event), as well as any other derivative contracts relating to assets, rights, obligations, indices and measures not otherwise mentioned in this Section, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are traded on a regulated market or an MTF, are cleared and settled through recognised clearing houses or are subject to regular margin calls.

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Section C of Annex I of Directive 2004/39/EC of the European Parliament and the Council, as implemented by Articles 38 and 39 of Commission Regulation (EC) No 1287/2006:


Article 38 of the Commission Regulation (EC) No 1287/2006 (Article 4(1)(2) of Directive 2004/39/EC of the European Parliament and the Council):

  1. For the purposes of Section C(7) of Annex I to Directive 2004/39/EC (link) a contract which is not a spot contract within the meaning of paragraph 2 of this Article and which is not covered by paragraph 4 shall be considered as having the characteristics of other derivative financial instruments and not being for commercial purposes if it satisfies the following conditions:
      a. aIt meets one of the following sets of criteria:
      i. It is traded on a third country trading facility that performs a similar function to a regulated market or an MTF1;
    ii. It is expressly stated to be traded on, or is subject to the rules of, a regulated market, an MTF or such a third country trading facility;
    iii. It is expressly stated to be equivalent to a contract traded on a regulated market, MTF or such a third country trading facility;
    b. It is cleared by a clearing house or other entity carrying out the same functions as a central counterparty, or there are arrangements for the payment or provision of margin in relation to the contract;
    c. It is standardised so that, in particular, the price, the lot, the delivery date or other terms are determined principally by reference to regularly published prices, standard lots or standard delivery dates.
  2. A spot contract for the purposes of paragraph 1 means a contract for the sale of a commodity, asset or right, under the terms of which delivery is scheduled to be made within the longer of the following periods:
      a. Two trading days;
    b. The period generally accepted in the market for that commodity, asset or right as the standard delivery period.
    However, a contract is not a spot contract if, irrespective of its explicit terms, there is an understanding between the parties to the contract that delivery of the underlying is to be postponed and not to be performed within the period mentioned in the first subparagraph.
  3. For the purposes of Section C(10) of Annex I to Directive 2004/39/EC (link) a derivative contract relating to an underlying referred to in that Section or in Article 39 shall be considered to have the characteristics of other derivative financial instruments if one of the following conditions is satisfied:
      a. That contract is settled in cash or may be settled in cash at the option of one or more of the parties, otherwise than by reason of a default or other termination event;
    b. That contract is traded on a regulated market or an MTF; the conditions laid down in paragraph 1 are satisfied in relation to that contract.
  4. A contract shall be considered to be for commercial purposes for the purposes of Section C(7) of Annex I to Directive 2004/39/EC (link), and as not having the characteristics of other derivative financial instruments for the purposes of Sections C(7) and (10) of that Annex (link), if it is entered into with or by an operator or administrator of an energy transmission grid, energy balancing mechanism or pipeline network, and it is necessary to keep in balance the supplies and uses of energy at a given time.

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Article 3(1)(m) of Directive 2006/49/EC of the European Parliament and the Council:


‘Repurchase agreement’ and ‘reverse repurchase agreement’ mean any agreement in which an institution or its counterparty transfers securities or commodities or guaranteed rights relating to title — to securities or commodities where that guarantee is issued by a recognised exchange which holds the rights to the securities or commodities and the agreement does not allow an institution to transfer or pledge a particular security or commodity to more than one counterparty at one time, subject to a commitment to repurchase them — or substituted securities or commodities of the same description — at a specified price on a future date specified, or to be specified, by the transferor, being a repurchase agreement for the institution selling the securities or commodities and a reverse repurchase agreement for the institution buying them.


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Article 3 of Directive 2006/49/EC of the European Parliament and the Council:


‘Securities or commodities lending’ and ‘securities or commodities borrowing’ mean any transaction in which an institution or its counterparty transfers securities or commodities against appropriate collateral, subject to a commitment that the borrower will return equivalent securities or commodities at some future date or when requested to do so by the transferor, that transaction being securities or commodities lending for the institution transferring the securities or commodities and being securities or commodities borrowing for the institution to which they are transferred.


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Article 4(36) of Directive 2006/48/EC of the European Parliament and the Council:


‘Securitisation’ means a transaction or scheme, whereby the credit risk associated with an exposure or pool of exposures is tranched, having the following characteristics:

  a. Payments in the transaction or scheme are dependent upon the performance of the exposure or pool of exposures; and
b. The subordination of tranches determines the distribution of losses during the ongoing life of the transaction or scheme.

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Article 4(1)(1) of Directive 2004/39/EC of the European Parliament and the Council:

  1. ‘Investment firm’ means any legal person whose regular occupation or business is the provision of one or more investment services to third parties and/or the performance of one or more investment activities on a professional basis;

    Member States may include in the definition of investment firms undertakings which are not legal persons, provided that:
    a. Their legal status ensures a level of protection for third parties' interests equivalent to that afforded by legal persons, and b. They are subject to equivalent prudential supervision appropriate to their legal form.

    However, where a natural person provides services involving the holding of third parties' funds or transferable securities, he may be considered as an investment firm for the purposes of this Directive only if, without prejudice to the other requirements imposed in this Directive and in Directive 93/6/EEC, he complies with the following conditions:
    a. The ownership rights of third parties in instruments and funds must be safeguarded, especially in the event of the insolvency of the firm or of its proprietors, seizure, set off or any other action by creditors of the firm or of its proprietors; b. The firm must be subject to rules designed to monitor the firm's solvency and that of its proprietors; c. The firm's annual accounts must be audited by one or more persons empowered, under national law, to audit accounts; Where the firm has only one proprietor, he must make provision for the protection of investors in the event of the firm's cessation of business following his death, his incapacity or any other such event.

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Article 4(1)(14) of Directive 2004/39/EC of the European Parliament and the Council:


‘Regulated market’ means a multilateral system operated and/or managed by a market operator, which brings together or facilitates the bringing together of multiple third party buying and selling interests in financial instruments – in the system and in accordance with its nondiscretionary rules – in a way that results in a contract, in respect of the financial instruments admitted to trading under its rules and/or systems, and which is authorised and functions regularly and in accordance with the provisions of Title III.


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Article 4(1) of Directive 2006/48/EC of the European Parliament and the Council:


‘Credit institution’ means: a. An undertaking whose business is to receive deposits or other repayable funds from the public and to grant credits for its own account; or b. An electronic money institution within the meaning of Directive 2000/46/EC (link to the external document)


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Article 13 of Directive 2009/138/EC of the European Parliament and the Council:


‘Insurance undertaking’ means a direct life or non-life insurance undertaking which has received authorisation in accordance with Article 14.


‘Reinsurance undertaking’ means an undertaking which has received authorisation in accordance with Article 14 to pursue reinsurance activities.


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Article 1(2) of Directive 2009/65/EC of the European Parliament and the Council:


UCITS means an undertaking:

  a. With the sole object of collective investment in transferable securities or in other liquid financial assets referred to in Article 50(1) of capital raised from the public and which operate on the principle of risk-spreading; and
b. With units which are, at the request of holders, repurchased or redeemed, directly or indirectly, out of those undertakings’ assets. Action taken by a UCITS to ensure that the stock exchange value of its units does not significantly vary from their net asset value shall be regarded as equivalent to such repurchase or redemption.

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Article 6(a) of Directive 2003/41/EC of the European Parliament and the Council:


‘Institution for occupational retirement provision’, or ‘institution’, means an institution, irrespective of its legal form, operating on a funded basis, established separately from any sponsoring undertaking or trade for the purpose of providing retirement benefits in the context of an occupational activity on the basis of an agreement or a contract agreed:

  a. Individually or collectively between the employer(s) and the employee(s) or their respective representatives, or
b. With self-employed persons, in compliance with the legislation of the home and host Member States,
And which carries out activities directly arising there from.

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Article 4 of Directive 2011/61/EU of the European Parliament and the Council:


‘AIFs’ means collective investment undertakings, including investment compartments thereof, which:

a. Raise capital from a number of investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors; and b. Do not require authorisation pursuant to Article 5 of Directive 2009/65/EC.


‘AIFMs’ means legal persons whose regular business is managing one or more AIFs.


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Article 4(44) of Directive 2006/48/EC of the European Parliament and the Council:


‘Securitisation special purpose entity (SSPE)’ means a corporation trust or other entity, other than a credit institution, organised for carrying on a securitisation or securitisations, the activities of which are limited to those appropriate to accomplishing that objective, the structure of which is intended to isolate the obligations of the SSPE from those of the originator credit institution, and the holders of the beneficial interests in which have the right to pledge or exchange those interests without restriction.


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Article 13(26) of Directive 2009/138/EC of the European Parliament and the Council:


‘Special purpose vehicle’ means any undertaking, whether incorporated or not, other than an existing insurance or reinsurance undertaking, which assumes risks from insurance or reinsurance undertakings and which fully funds its exposure to such risks through the proceeds of a debt issuance or any other financing mechanism where the repayment rights of the providers of such debt or financing mechanism are subordinated to the reinsurance obligations of such an undertaking.


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Article 28 of Council Directive 78/660/EEC of the European Parliament and the Council:


The net turnover shall comprise the amounts derived from the sale of products and the provision of services falling within the company’s ordinary activities, after deduction of sales rebates and of value added tax and other taxes directly linked to the turnover.


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Points 1, 2, 3, and 6 from Annex I of Directive 2006/48/EC of the European Parliament and the Council:


  1. Acceptance of deposits and other repayable funds
  2. Lending including, inter alia: consumer credit, mortgage credit, factoring, with or without recourse, financing of commercial transactions (including forfeiting)
  3. Financial leasing
    (…)
  1. Guarantees and commitments

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Article 2(1) of Regulation (EU) No 648/2012 of the European Parliament and the Council


‘CCP’ means a legal person that interposes itself between the counterparties to the contracts traded on one or more financial markets, becoming the buyer to every seller and the seller to every buyer.


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Article 2(k) of Directive 98/26/EC of the European Parliament and the Council


‘Netting’ shall mean the conversion into one net claim or one net obligation of claims and obligations resulting from transfer orders which a participant or participants either issue to, or receive from, one or more other participants with the result that only a net claim can be demanded or a net obligation be owed.


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Source: adapted from the original documents (PDF 186 KB) © European Union, 1995-2013. Responsibility for the adaptation lies entirely with KPMG International.

 

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An overview of nine EU Member States understood to be currently applying a national form of FTT and of the EU proposal for an eleven Member State FTT.

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