Spanish FTT: Is it finally under starter’s orders?
In early August the Spanish Prime Minister announced at a press conference that the long-expected tax reform would have to be put on hold until Spain recovers levels of growth on a par with those seen before the Covid19 pandemic crisis.
Spain’s GDP had fallen in the second quarter of 2020 by 18.5% compared to the first quarter. Within this now delayed tax reform package lies the Spanish Financial Transactions Tax (FTT) or Tobin tax1.
In the securities sector in Spain earlier this year we were expecting its imminent implementation, but during Q3 the timing became illusive.
However, just in time for submission of this article, the scrutiny of the tax by the Spanish Senate, where amendments were proposed (ranging from rejection of the draft bill to technical amendments regarding what the taxable event should be, the taxable base, the taxpayer, the rate, and which also include a proposal for a longer implementation period) has been finalized and proposed amendments thrown out.
The idea to introduce the tax has a long history in Spain and Europe:
It appears in Spain in 2012, when a draft bill for a Spanish Financial Transaction Tax was presented. However, this was suspended in 2013 when Spain joined the group of European Union Member States promoting the Enhanced Cooperation Procedure for the adoption of an EU FTT.
The approach of the group was based on the idea that “A Financial transaction tax will strengthen the Single Market by reducing the number of divergent national approaches to financial transaction taxation and it will ensure that the financial sector makes a fair and substantial contribution to public revenues.”2 (10 Member States Belgium, Germany, Greece, Spain, France, Italy, Austria, Portugal, Slovenia, Slovakia participated.
This year there is finally some European progress to report, as German Finance Minister, Olaf Scholz, in January 2020 said he is confident that an agreement can be reached on a European Union financial transactions tax and that the member states negotiating the terms of the proposed EU FTT are close to reaching a conclusion. Scholz presented what he described as a final proposal for an EU FTT to the 10 member states participating in the initiative in December 2019.
This European wide agreement is taking a long time to come to fruition, and when the Spanish FTT is eventually legislated for, it will follow in the footsteps of other European countries which have introduced such a tax, without waiting for the European community (eg France, Italy and Belgium).
Returning to Spain: during a period of political instability in the country, the Socialist party published a number of proposed tax measures in the 2019 Draft Budget (on 23rd October 2018) including the introduction of a Spanish FTT. It was approved at a council of ministers in January 2019 but the bill was halted and never progressed due to continuing precariousness of the government during 2019, and general elections taking place.
The bill was again approved in February 2020, but this was just before the COVID19 crisis took hold and all attention and resources were diverted to handling the emergency. Indeed, Spain is still functioning today under the legacy budget of the previous government, as it has not been possible so far with a coalition government to approve a new budget which would include the FTT.
The Tax Rate
The tax structure planned is very similar to France’s, with a rate of 0.2% on the acquisition of shares issued by listed companies with a market capitalisation exceeding EUR 1 billion. Shares of small and medium size enterprises (SME), unlisted companies, public and private debt, and derivatives will not be subject to the tax.
Should the European project for a Directive on the tax eventually move forward, as seems to be the case after Olaf Scholz’s announcement, the question arises as to whether the effort to introduce it at national level will be wasted as Spain then has to scramble to adapt to the EU ruling.
Opinion in the industry in spain
The opinion of BME (Bolsas y Mercados Españoles, the Spanish stock market operator) in any forum or publication where it has made its voice heard has been to oppose the tax saying it goes against the growth of listed companies in Spain, against the Capital Markets Union, and that it will reduce volume traded in the stock exchange. Other opinions from market participants refer to the negative effects on investment and pension funds results. There is concern that the tax being on Spanish shares is discriminatory and will cause a shift away from investment in the country.
Despite the industry’s unwillingness to accept this tax, the government has been strongly in favour and has pushed forward with the appropriate steps to do so.
At the time of writing, the Bill is being sent back to Congress and will receive Royal Assent, following which it will be published in the BOE (official state bulletin). Entry into force will be 3 months after publication in the BOE, so finally we can expect the implementation of the Spanish Tobin Tax in January 2021.
1 Tobin tax after the Nobel-prize winning American economist James Tobin who put forward the idea, in 1972, of a tax on all spot currency conversions.