Brief overview of the FTT
France introduced the FTT as part of the Amending Finance Bill for 2012 dated 14 March 2012. The FTT applies to the transfer for consideration of the ownership of any equity instrument (i.e. instruments giving access to the capital or voting rights of the company) issued by a French listed company whose market capitalization exceeds €1 billion. The tax is applicable regardless of the localization and of the nature of the purchaser and regardless of the place of the transaction.

The FTT is applicable to transactions carried out as from 1 August 2012, and the tax rate is fixed at 0.1% of the value of the equity instrument.

Some transactions are excluded from the FTT:
- the primary issuance of shares and other equity instruments (“primary market exemption”),
- the acquisitions of convertible bonds and exchangeable bonds
- the acquisitions made through the use of employee incentive plans and the acquisitions made by financial institutions in the course of their market making activities
- some intra-group reorganizations
- the transfer of equity instruments by clearing house or central security deposits in the course of their ordinary business
- temporary transfers such as stock loans or sale and repurchase agreements.

FTT rate doubled to 0,2% as from 1 August 2012
The Bill doubles the FTT rate to 0.2% of the value of the equity investment (the 0.1% rate would therefore never have been applied).

Appreciation date for the market capitalization of the issuer
The Bill provides that the market capitalization of the issuer shall now be appreciated on the first of December of the year preceding the taxation (it was initially to be appreciated on the first of January of the year preceding the taxation).

This would be applicable as from the first of January 2013 (i.e. for the next fiscal year), and would allow investors to know what equity instruments are within the scope of the FTT before the beginning of the tax year so they could make informed investment decisions with regard to the FTT.

Inclusion in the scope of the FTT of depository receipts whose underlying are qualifying equity instruments
The Bill provides that the depository receipts whose underlying are qualifying equity instruments (i.e. instruments giving access to the capital or voting rights of the company) are within the scope of the FTT. This closes a potential loophole for financial operators who could have been tempted to use depository receipts to circumvent the FTT. It would apply to acquisitions realized as from the first of December 2012.

FTT liability on the intermediary who received his purchase order directly from the final purchaser
The Bill clarifies that, when multiple intermediaries transmit a purchase order from the final purchaser to a financial institution, it is the intermediary who is the closest to the emission of the init ial purchase order who is liable to the FTT.
In short, it is the intermediary who receives the purchase order directly from the final purchaser (or who deals on own account) who is liable to the FTT.

Operational implications for the accountable parties
The parties accountable to the FTT will have to review their business lines to assess which of those lines are impacted by the FTT. The entities involved on those lines (intermediaries, final purchaser, central depository funds, involved participants of the said funds, etc.) should also be determined in order to establish their respective obligations (payment of the FTT, reporting, keeping of legal documentation, etc.). The IT systems and information procedures of the accountable parties will then have to be modified so that each party can comply with its obligations. The accounting, the reporting (both financial and regulatory) and the legal documentation will also have to be adjusted.

Source: www.taxand.fr