Who is responsible for what under the IFTT? Parties in the trading chain are responsible for IFTT: collection calculation payment reporting

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1 Post-trade made easy Newsletter 2013-N March 2013 Italy How the IFTT will affect you Important Target audience Network managers Tax operations Triparty Lending and borrowing Effective date Immediately Highlights This newsletter: summarises our recent communications via Tax Newsflashes about IFTT contains frequently asked questions and answers in annex Actions If you act as, or on behalf of an investor you should check with your legal advisor how these new taxes will affect your trading activities and responsibilities. On 1 March 2013, the Italian Financial Transaction Tax (IFTT) entered into force. Who is responsible for what under the IFTT? Parties in the trading chain are responsible for IFTT: collection calculation payment reporting If you act as, or on behalf of, an investor in any of the below securities, we recommend that you consult your legal council to confirm what your IFTT responsibilities are Euroclear Bank SA/NV, 1 Boulevard du Roi Albert II, 1210 Brussels, Belgium Tel: +32 (0) RPM Brussels number Euroclear is the marketing name for the Euroclear System, Euroclear plc, Euroclear SA/NV and their affiliates.

2 Which transactions does the IFTT apply to? Transactions entered into since/as of Transaction type 1 March 2013 any transfer of ownership of equities and equivalent securities 1 July 2013 transactions related to derivatives 1 July 2013 High-Frequency Trading (HFT) Detail including transfers resulting from the conversion of bonds into shares equities and equity-linked securities (as defined in art of the civil code), issued by Italian resident companies all securities (issued by Italian or non-italian companies) representing interests in the above equities and equity-like securities (e.g. Depository Receipts). The tax applies only if the underlying equities and equivalent securities are subject to the IFTT financial derivatives as defined by art. 1, par. 3 of the Finance Act (Legislative Decree n. 58 of 24 February 1998) with mainly equities and equivalent securities as underlying, or which value mainly depends on such instruments. The tax applies only if the underlying equities and equivalent securities are subject to the IFTT derivatives granting a right to buy or sell mainly equities and equivalent securities derivatives involving a cash settlement defined based mainly on the value of equities and equivalent securities financial derivatives settling with transfer of shares and the transfer of ownership of such shares. For instance: - warrants - covered warrants - certificates HFT transactions struck on the Italian market for the above mentioned instruments. HFT transactions are defined as operations created automatically by a computer-based algorithm, which will generate the submission, the modification or the cancellation of orders (and their related features), at an interval no longer than 0.5 seconds. More information In the annex you can find some frequently asked questions and answers. If you have any comments or questions please contact your Account manager on +32 (0) Disclaimer The information in this message has been gathered from different sources, generally believed to be reliable. Nevertheless, Euroclear Bank disclaims any responsibility as to the accuracy and completeness of the information. Newsletters are published to provide Euroclear Participants with timely summary information about new and improved services. For complete information, see the Operating Procedures of the Euroclear System, including relevant updates. Newsletters do not form part of the contractual agreements entered into by Participants in connection with their use of the Euroclear System. Euroclear is the marketing name for the Euroclear System, Euroclear plc, Euroclear SA/NV and their affiliates. Page 2/12

3 Annex Frequently asked questions and answers Content List of used acronyms. 1. General questions 2. Application 2.1 Location 2.2 Instruments 2.3 Transactions 2.4 General 3. Calculation 4. Payment 4.1 Liable party 4.2 Intermediaries 4.3 General payment 5. Reporting 6. Penalties List of used acronyms CCP EEA ESMA FOP HFT IFTT MiFID MTF OTC Central Counterparty European Economic Area European Securities and Markets Authority Free of Payment High Frequency Trading Italian Financial Transaction Tax Markets in Financial Instruments Directive Multilateral Trading facility Over the Counter Page 3/12

4 1. General questions Which law is the IFTT in response to? No. 228 of 24 December 2012 (Legge di stabilità 2013) What is the provision reference for the practical application of the law and the responsibilities of the impacted parties? What is our role? What is the role of the Italian CSD, Monte Titoli? Where can you find more information on your website? Not available yet. We expect the Italian revenue agency (Agenzia delle Entrate) to publish a circular soon. More information on this will be released as and when we receive it. According to Italian regulation, custodians are not identified as a liable, reporting or paying entity. Nevertheless, the expected provisions on how to apply the rules should help to further clarify whether we as custodian could effectively assist you to comply with your obligations. We will keep you posted. Monte Titoli can be appointed as calculating, paying and reporting agent. You can find more information on euroclear.com. 2. Application 2.1 Location What impact does the IFTT on the countries on the white list published by the Italian revenue agency (Agenzia delle Entrate)? Do you need to be an Italian resident to be subject to IFTT? Will the liable party and/or its counterparty be impacted by IFTT if they are located (or not) in Italy? Does your trade need to be executed in Italy (or not) to be impacted by the IFTT? Countries listed in the white list are those which have an agreement in place with Italy to exchange fiscal information on beneficiaries. This white list has been issued by authorities and is now available on our website. Certain types of exemptions/exclusions are given based on this list. For instance, transactions executed in regulated markets and MTFs located in the white listed countries can benefit from a lower tax rate. Financial intermediaries receiving an execution order by an intermediary resident in a country different from this list shall consider such intermediaries as the final purchaser for IFTT purposes. Intermediaries resident in a black list country acting as final purchaser shall not pay directly the IFTT. No, the concept of territoriality amongst counterparties does not apply. No, the place of transaction is not taken into account as an eligibility criteria except for High Frequency Trading (HFT) Transactions (as they need to be struck on the Italian market to be subject to IFTT). Page 4/12

5 2.2 Instruments Which instruments will the IFTT be applied to? Which shares are impacted? Which issuers are not impacted? IFTT will be applied to the following instruments: equities issued by entities with a legal seat in Italy (UCITS and SICAV shares are not subject to the IFTT) participating financial instruments (as defined in art of the civil code) issued by Italian resident companies. Participant financial instruments are those issued by companies which assign certain administrative and property rights against contributions by shareholders or third parties, resulting in any form of participation of the stakeholders to the performance of the company or of part of its business. all securities issued or not by Italian companies representing the above security types (i.e. Depositary receipts and other certificates representing such instruments, e.g. ADRs) certificates, warrants, covered warrants and derivatives based for at least 50% on the above applicable securities Borsa Italiana issued an unofficial list of securities listed on the Italian market (22 February 2013) indicating which ones may be subject to IFTT. We recommend that you consult the list and related IFFT information available on the Borsa Italiana website. Italian listed securities issued by entities with a capitalisation of less than EUR 500 million are exempt from IFTT. Each year the Italian authorities will publish such list of issuers to be applied for the following year. This list will be published annually on the 20 December You will be able to find this information on the MEF s (Ministero dell Economia e delle Finanze) webpage. Page 5/12

6 2.3 Transactions To which transactions will the IFTT be applied to? When will the various transactions be considered as taxable? Applicable transactions are: any transfer of ownership of applicable instruments (including transfers resulting from the conversion of bonds into existing shares) conclusion, modification, or early cancellation (except if the new contract has been signed) of a derivative contract High-Frequency Trading (HFT) transactions struck on the Italian market for the above mentioned instruments Note: HFT is defined as an operation created automatically by a computer-based algorithm, which generates the submission, the modification or the cancellation of orders (and their related features), at a minimum interval of 0.5 seconds 1 March 2013 Transfers of ownership on shares and equivalent securities settling as from 1 March 2013, provided they have been traded after 28 February 2013 HFT on shares and equivalent securities with orders delivered since 1 March July 2013 Derivative contracts subscribed, modified or cancelled as from 1 July 2013 HFT on derivatives and equivalent with orders delivered as from 1 July 2013 Which transactions are excluded from the scope of the IFTT? All excluded securities: Inheritance or donations Share issuance, cancellation or launch on a stock exchange Bonds converted into new shares or receipt of new shares by the exercise of rights or derivatives Intra-group transactions and corporate restructuring Broker/intermediary activity - transactions where intermediary buys from a party & sells to another based on a predefined contract with same price, quantity and settlement date for both transactions (but the final investor will still pay the tax) CCP activity - Purchases for purposes of clearing and collateral by authorized entities under EU regulation 648/2012 (or by the national authority for non EU white listed countries) Only for Shares, participating financial instruments or securities representing them: Securities financing transactions and temporary transfers of ownership in financial collateral transaction (L and B, repos, buy-back, sell back) Transfer of ownership (OTC or not) of such securities listed on regulated market/mtf and issued by companies with an average capitalisation lower than EUR 500 million in the month of November of the previous year HFT Transactions only: Transactions for market making activity (if orders are generated by desks dedicated to this) Transactions aiming to comply with best execution requirements from directive 2004/39EC(MiFiD) Page 6/12

7 2.4 General Who is exempt from IFTT? Both parties of transactions involving: the EU or the European institutions the European Central Bank and the European Investment Bank the central banks of EU member States the central banks or sovereign funds of other States international organisations recognised by Italy Both parties of operations related to ethical and socially responsible products Exempt parties: Parties involved in market-making activity Parties involved in providing liquidity on behalf of the issuer Pension funds subject to supervision according to EU directive 2003/41/EC Mandatory social security institutions, established in an EU country or in a EEA white-listed country How can market makers be exempt from IFTT? How will certification for exemption be provided? Are the movements linked to lending and borrowing impacted? Are Triparty settlement instructions affected? Which corporate actions are subject to IFTT? How will corporate actions be notified of the IFTT? How is the IFTT for corporate actions declared? The implementation decree states that market makers recognised under EU Regulation n.236/2012 can be exempted by the relevant authority. For countries not covered by Regulation 236/2012, market makers will have to provide Consob (the Italian financial market regulator) with a specific request. This request would allow them to be recognised as an exempt market maker. Consob has issued an exemption procedure available on their website. To benefit from the above mentioned exemption/exclusion certification will be required. The exact process and form still need to be clarified in a provision to be issued by Italian authorities. They are excluded from the IFTT scope, but reportable. The form of this reporting will be clarified by the provisional rules to be published by the Italian revenue agency. They are excluded from the IFTT scope, but reportable. The form of this reporting will be clarified by the provisional rules to be published by the Italian revenue agency. Corporate actions generating movement of applicable securities with a change of ownership and/or for which the security proceeds are not newly issued securities. We will transmit the IFTT information received by the issuers, if and when received. We expect that the circular to be published by the Italian revenue agency (Agenzia delle Entrate) to clarify this. We will transmit the IFTT information received by the issuers, if and when received. To be confirmed in the circular to be published by the Italian revenue agency (Agenzia delle Entrate) Page 7/12

8 3. Calculation What is the tax rate? For the purposes of IFTT (as per the previous question) what is a MTF/ regulated market? What is the tax base on which the tax rate will apply? How to calculate the net balance and the tax amount for shares, participative financial instruments and securities representing them? for Shares, Participating financial instruments and Securities representing them: - 0.1% (0.12% for 2013 only) for applicable transactions executed on an applicable Multilateral Trading Facilities (MTFs) or on an applicable regulated market (see next question for definition) - 0.2% (0.22% for 2013 only) for other types of applicable transactions for derivatives: A fixed amount will be applied on applicable transactions. It will vary according to the type of instrument and the contract value as per the table provided in the newsflash sent on 28 December The fixed tax amount can be reduced to 1/5 for transactions executed on applicable regulated markets or applicable MTFs. for HFT Transactions: 0.02% MTFs and regulated markets are defined as: those recognised under the Markets in Financial Instruments Directive (MiFID) (EU directive 2004/39/EC) appearing in the European Securities and Markets Authority (ESMA) list established in a white-listed country For countries outside the European Union (EU) and the European Economic Area (EEA), regulated markets and MTFs are defined as entities: authorised to operate as such by a national public authority subject to public supervision, including those recognised by Consob (the Italian Securities and Exchange Commission), as long as they are established in a white-listed country for Shares, Participating financial instruments and Securities representing them: The transaction value, i.e. the resulting net balance of settlement instructions executed on the same day for the same subject in the same financial instrument. for derivatives: A fixed amount will be applied on applicable transactions. It will vary according to the type of instrument and the contract value as per the table provided in the newsflash sent on 28 December The fixed tax amount can be reduced to 1/5 for transactions executed on applicable regulated markets or applicable MTFs. for HFT Transactions: The tax is applied on the value of the cancelled or modified orders exceeding for each trading day a threshold of 60% per day of the sum of generated and modified orders for each applicable security. select the transactions executed on the same day for the same final investor based on: - the effective settlement date, as per default rules - the contractual settlement date, if intermediaries and final investor agree to do so - the legal effective date for conversions sum up over-the-counter (OTC) and the on-exchange transactions of the day separately. Exempt sales and purchases will not be included in the calculation Add together these two balances to get the net balance of the day if positive: - multiply the average weighted price of the purchases used in each considered transactions - multiply the resulting amount by the weighted average of the two applicable tax rates based on the quantity of securities purchased (if the final net balance is composed of OTC and on-exchange transactions) if negative: no IFTT is due for that day Page 8/12

9 How to calculate the net balance and the tax amount for shares, participative financial instruments and securities representing them? (continued) Example 1: On same effective settlement date, the following transaction for the same beneficiary and share are settled: an exempt purchase of 200 shares on regulated market at EUR 24 a sale of 160 shares on regulated market a purchase of 40 shares on regulated market at EUR 30 an OTC sale of 50 shares The net balance for regulated markets: = -120 The net balance for OTC markets: -50 Total net balance: -170 The total net balance is negative: tax is not due Example 2: On same effective settlement date, the following transaction for the same beneficiary and share are settled: a purchase of 200 shares on regulated market at EUR 24 a sale of 160 shares on regulated market a purchase of 40 shares on regulated market at EUR 30 an OTC purchase of 60 shares at EUR 20 The net balance for regulated markets: = 80 The net balance for OTC markets: 60 Total net balance: 140 The average purchase price is ((200*24) + (40*30) + (60*20))/300 = EUR 24 The taxable base is 140 * EUR 24 = EUR 3360 The average tax rate will be: ((200*0.12) + (40*0.12) + (60*0.22))/300 = 0.14% The tax to be paid will be: 3360*0.14% = EUR How do we need to consider the purchase price in the tax calculation for shares, participative financial instruments and securities representing them? Is there an impact on Free of Payment (FOP) transactions? According to type the of transaction, the purchase price will be: the amount paid for spot transactions the exercise price defined in the contract for transfers resulting from derivative executions the amount shown in the prospectus for redemption, exchanges or conversions the consideration agreed in the contract in cases not mentioned above the normal value determined according to the rules provided in the Consolidated Act (DPR 917/1986, art. 9 par. 4) (only if the purchase price is unavailable) Yes, they are subject to the IFTT if there is a transfer of ownership. The purchase price will be: the amount paid for spot transactions the exercise price defined in the contract for transfers resulting from derivative executions the amount shown in the prospectus for redemption, exchanges or conversions the consideration agreed in the contract in cases not mentioned above the normal value determined according to the rules provided in the Consolidated Act (DPR 917/1986, art. 9 par. 4) (only if the purchase price is unavailable) Page 9/12

10 4. Payment 4.1 Liable party Who is the liable party? Who has to pay the tax? Is there the notion of an accountable party? (like in France) The liable party is the person or entity that has to pay the tax. The liable party is normally the final investor: The buyer of shares, participating financial instruments as well as DRs and other certificates representing such instruments. Both counterparties in a derivatives contract (Certificates, warrants and covered warrants included). In this case the tax amount cannot be split between the two: each party involved will be impacted with the tax amount calculated separately. The generator of HFT transactions A financial intermediary resident in a black listed country is always considered as the liable party, regardless the role taken in the transaction (i.e. final investor or not) No. There is no such role foreseen. 4.2 Intermediaries Who is the paying entity? Who will calculate and remit the IFTT to authorities? What would happen if there is no intermediary in the chain? What is the impact if the intermediary/paying entity is a non-italian resident? The paying entity is the one in charge of: the collection of the IFTT its remittance to Tax Authorities the sending of the related reporting to authorities The IFTT will be collected and remitted by intermediaries involved in the transaction execution. Such intermediaries can be: banks or trust companies (società fiduciarie) investment companies authorised to perform professional services and investment activities in favour of the public (pursuant to art. 18 of the Italian Finance Act) notaries involved in the set up or authentication of the deeds related to such transactions When more than one tax collector can be assigned, the tax is paid by the one receiving the order of execution from the liable party. If no intermediary is involved, tax will be paid by the taxpayer themselves. In the case where there is no intermediary receiving an execution order, the liable party will also play the role of the paying entity. If the foreign intermediary has a permanent establishment in Italy (subsidiary, branch, representation, etc), they will need to pay the tax and comply with the related obligations through their permanent establishment. Example: Bank ABC located in Germany has a branch in Italy, the branch in Italy will have to comply with the obligation of the IFTT. If not, a fiscal agent can be appointed. The foreign paying entity can also opt to directly pay tax to authorities provided they follow the accurate application procedure (to be defined by Tax administration). If the liable party is sending different orders to multiple intermediaries in its daily operations, who would be the paying entity? Each Intermediary will act as the paying entity for its own orders received from the liable party. Upon agreement from the liable party and the other intermediaries, a unique intermediary can be appointed by the liable party for IFTT calculation across all intermediaries. This can be Monte Titoli. In this case, the selected intermediary is not obliged to accept this role. Page 10/12

11 Can the intermediary acting as paying entity delegate his role to someone else? The paying entity can delegate the calculation and the payment of the tax, as well as the reporting duties, to the CSD, Monte Titoli, but the paying entity still remains responsible for paying the IFTT. Monte Titoli will pay the tax before the 16th calendar day of the second month following the transaction date. 4.3 General payment When does the tax have to be debited from the liable party? When does the tax need to be remitted? Can the tax be paid in another currency than Euro? Can a payment be updated once it has been paid? Can a payment be cancelled? Is there a minimum tax amount to be paid? The tax needs to be debited from the liable party upon the transfer of ownership. By default, the transfer of ownership will take place on the: effective settlement date for securities held at Monte Titoli effective date on which the conversion takes legal effect If the liable party and the paying entity agree, the contractual settlement date can be used as the transfer of ownership date. Transactions on derivatives are taxable upon conclusion, i.e. when contract is signed, cancelled early (except if new contract is signed) or modified, not only when the transfer of ownership occur (for transferable securities). The tax is to be paid before the 16th calendar day of the month following the transfer of ownership: the month in which the transfer of ownership occurred (for shares and similar instruments) the month in which the contract is concluded (for derivatives) the month in which the cancelled or modified order has been delivered (HFT transactions) If the tax collector delegates the payment of the tax to Monte Titoli, Monte Titoli will pay the tax before the 16th calendar day of the second month following the transaction date. The tax due on transfers of equities and equivalent and on related HFT operations, taking place in the three calendar months following the publication of the final version of the Implementation Decree (March-April-May) is to be paid before 16 July No. This is not foreseen. For securities denominated in a non-eur currency, the daily European Central Bank exchange rate will be used to calculate the IFTT. To be confirmed in the upcoming circular that needs to be published by the Italian revenue agency (Agenzia delle Entrate) To be confirmed in the upcoming circular that needs to be published by the Italian revenue agency (Agenzia delle Entrate) No, but the report is not due if the related tax amount is less than EUR 50. Page 11/12

12 5. Reporting Who is the reporting party? How will IFTT be reported to authorities? What needs to be reported? Does a client need to report exempt transactions? Which date should be taken into account (actual or contractual settlement date) for the reporting? The reporting party is the paying entity. Once a year there will be a need to report to the Italian Authorities. The procedure still need to be specified by them in a provision to be issued by Italian Authorities Currently, taxable, exempted and excluded transactions need to be reported. You do not have to send a declaration for IFTT amounts lower than EUR 50. Yes. This is required The contractual settlement date 6. Penalties What are the penalties in the case on non payment or under payment? What are the penalties in the case of omitted or wrong reporting? 30% of the omitted amount For omitted reporting the penalty can be from 120% to 240% of the tax amount. For wrong reporting (lower amount) the penalty is from 100% to 200%. Page 12/12