Financial Transaction Tax in Italy: an overview

This briefing provides an overview of the current state of the Italian Financial Transaction Tax (Italian FTT).

Scope of application

Transactions subject to (or potentially subject to) Italian FTT are:

• purchases (Purchases) of shares or certain quasi-equity instruments issued by Italian incorporated companies and certain similar instruments, e.g. ADRs over such shares (Italian Equities);¹
• transactions in derivatives or equity-linked notes, whether cash or physically settled, where the underlying asset is Italian Equities (Derivative Transactions);²
• high-frequency trading (HFT) transactions in Italian Equities but only if executed on Italian financial markets or multilateral trading facilities (MTFs). For these purposes, a HFT transaction occurs where the decisions to order, modify or cancel a trade are automatically generated by a computer algorithm where the ratio of orders amended and cancelled in no longer than half a second exceeds 60 per cent of the total orders entered.

Italian FTT applies irrespective of the place of tax residence or incorporation of the parties and, save for (c) above, irrespective of where the transaction is executed.

Exclusions and exemptions

Italian FTT does not apply to:

• transactions executed in the course of "market-making activities";³
• transactions executed by entities acting as liquidity providers in commonly accepted market practices, as per EU Regulation 596/2014 pursuant to a contract with the issuer of the securities involved; 
• transactions relating to bonds and debt securities which are principal-protected (i.e. redeemed at par or above par); 
• the grant of security (as long as the charged instruments are returned to the grantor);
• stock-lending transactions, repo transactions, buy-sell back and sell-buy back transactions (settled through the delivery of the same securities); 
• transactions involving the issue of new shares (including in the case of bond conversion or the exercise of an option granted to a shareholder), cancellation of existing shares or buy-back made from the issuer;
• purchases of or derivatives over shares in società a responsabilità limitata, units of collective investment funds and SICAV shares;
• transactions where one of the counterparties is:
  
  1. the European Union or a European Union institution;
  2. any of the entities covered by the protocol on the privileges and immunities of the European Union, the European Central Bank and the European Investment Bank;
  3. the central bank of any EU Member State or a central bank or organisation also managing the official reserves of other States;
  4. any body or international organisation established in accordance with international agreements enforced in Italy;

• transactions involving shares issued by "small cap" companies that are Italian companies listed on a regulated market or on an MTF whose average market capitalisation during November of the previous year was lower than EUR 500 million as identified by a decree of the Italian Ministry of Economy and Finance to be published on a yearly basis; 

• transactions involving products and services classified as "ethical" and "socially responsible" in accordance with Italian securities law and regulations;

• purchases and transactions executed by a financial intermediary:
  
  1. which intermediates between two parties and acts as counterparty of both parties; and
  2. which buys securities of other financial instruments from one party and sells to the other party to the extent that the price, quantity and settlement date of the buy and sale transactions match except for situations where the buyer does not fulfil its obligations;

• purchases of shares, equity-linked participating financial instruments and securities representing equity investments and transactions on derivatives executed by an entity which acts as an intermediary in a transaction providing clearing and settlement services to the extent that such entity is authorised under Regulation (EU) 648/2012 of 4 July 2012 of the European Parliament and the Council (as amended);4

• transactions between companies belonging to the same group pursuant to Article 2359 of the Italian Civil Code;
• transactions executed by pension funds subject to oversight pursuant to EU Directive 2016/2341 of the European Parliament and of the Council of 14 December 2016 (as amended) and to the national social security contribution authorities established in the EU Member States, Norway and Iceland and by pension fund poolings participated in solely by such funds and authorities; 
• transfers of securities in the context of restructuring transactions governed by Article 4 of EU Directive 2008/7/EC of 12 February 2008 (as amended) (including mergers and demergers); and
• transfers by way of gift or inheritance.

Italian FTT taxable basis 

The Italian FTT taxable basis is determined as follows:

• Purchases – Italian FTT applies to the net daily balance of taxable transactions executed by a buyer in an in-scope financial instrument on the local purchase price paid. Thus, where the same quantity of Italian Equities is purchased and sold on the day of their purchase (reference is made to the settlement date), that reduces the FTT payable. There are rules to determine the date of acquisition and sale. 
• Derivative Transactions – Italian FTT applies on the notional value of the derivative, determined in accordance with the guidelines of the Decree.
• HFT – Italian FTT is calculated on a daily basis and is payable where – in a single trading day – the ratio between (1) cancelled and modified orders and (2) the sum of entered and modified orders exceeds 60 per cent, with reference to a single financial instrument. In such case:
  
  • Italian FTT is charged, for each trading day, on the value of the cancelled and modified orders exceeding the 60 per cent threshold;
  • Italian FTT does not apply on high-frequency trades which are executed in the context of certain market-making activities or in accordance with the best execution rules as per Article 21 of EU Directive 2004/39/EC (as amended).

FTT tax rates 

Italian FTT is levied at different rates depending on the type of transaction and relevant market.

• Purchases:
  
  1. 0.1% on Purchases executed on regulated markets or MTFs;
  2. 0.2 on the value of Purchases executed other than on regulated markets or MTFs.
     
     

  The lower rate at 1. above only applies to a regulated market or MTF qualified for the application of Italian FTT if:

  1. it is established in a country with whose tax authorities Italy can exchange information and is recognised by the European Securities and Markets Authority (ESMA) and listed on the MTF section of the website https://registers.esma.europa.eu/publication/searchRegister?core=esma_registers_upreg; or
  2. it is authorised by a national public authority and is subject to the oversight of a competent authority in a country with whose tax authorities Italy can exchange information.
     
     

  It is important to note that:

  1. Italian FTT also applies at the reduced rate at 1. above in scenarios where a financial intermediary is interposed between the seller and the buyer and such intermediary purchases securities subject to Italian FTT on a regulated market or an MTF and to the extent that price, quantity and settlement date of the buy and sale transactions match pursuant to a predetermined agreement; and
  2. Italian FTT applies at a blended rate (detailed calculation rules apply) where transactions are effected both on and off regulated markets or MTFs.

• Derivative Transactions. The key point to note here is that the maximum FTT payable is EUR 200, regardless of the size or duration of the derivative. More particularly, the FTT is calculated on a fixed sliding scale amount ranging from EUR 0.01875 to EUR 200 (see Annex 3 to Law 24 December 2012, no. 228), depending on the type of derivative and the notional value of the contract. Italian FTT is reduced to 20 per cent of the original amount due (so a maximum of EUR 40) in the case of transactions executed on a regulated market or MTF.

• HFT transactions. The value of the transaction for HFT is set out in the Decree.

Taxable person

Italian FTT is due from:

• the buyer on Purchases;
• both parties to the transaction in the case of derivatives, i.e. up to EUR 200 per counterparty; and
• as regards HFT transactions, the person on whose behalf the orders are executed.

The entities responsible for collecting and paying Italian FTT are banks, financial intermediaries, fiduciary companies, and other investment companies duly authorised to carry out financial services and investment activities on a professional basis for the benefit of the public pursuant to Italian securities laws. In addition, notary public officers involved in transactions where Italian FTT applies are also responsible for the collection and payment of Italian FTT.

Non-Italian resident intermediaries will also be responsible for the collection and payment of Italian FTT through their Italian permanent establishment (if any) or an Italian fiscal representative, if appointed. Alternatively, non-Italian resident intermediaries may carry out such formalities directly. If filing formalities are required, non-Italian resident intermediaries need to register with the Italian tax authorities.

Payment of Italian FTT

Generally, Italian FTT is payable to the Italian tax authorities by the 16th day of the month following that in which Italian FTT applies. Italian FTT is not deductible from other Italian taxes.

Tax assessment, penalties, collection and litigation

Assessment procedures, penalties, collection and litigation are governed by the Italian VAT legislative regime to the extent applicable.

Notes:

1. FTT applies to the transfer of the legal ownership of the shares of any category issued by Italian joint stock corporations (società per azioni and società in accomandita per azioni).
2. In case of equity-settled derivatives in Italian Equities, FTT also applies on the transfer of legal ownership of the Italian Equities.
3. As per Article 2, paragraph 1, letter (k) of Regulation (EU) 236/2012 of the European Parliament and the Council of 14 March 2012 and the document ESMA/2013/158 "Final Report on Guidelines on the exemption of market-making activities and primary market operations under Regulation (EU) 236/2012 of the European Parliament and the Council on short selling and certain aspects of Credit Defaults Swaps" (Regulation), provided that the entity which carries out such activity has been duly authorised by the competent authority or by CONSOB (the Italian securities authority). The exclusion from Italian FTT is strictly limited to the transactions carried out in this respect only. UK firms should note that post-Brexit (i.e. from 1 January 2021), market makers operating on UK markets may no longer be afforded the market making exemption in Italy (subject to any post-Brexit arrangement regulating the matter). Firms may preserve the market making exemption by either obtaining it as members of another EU regulated market or by requesting a specific authorisation from CONSOB for these purposes.
4. For jurisdictions not subject to Regulation (EU) 648/2012 of 4 July 2012 of the European Parliament and the Council but with which Italy has an exchange of information with the relevant tax authorities, reference has to be made to analogous authorised systems subject to the surveillance of a national public authority.
5. Article 56 of the Law Decree 21 June 2013, no. 69 in force as of 22 June 2013 and still to be approved in final form by the Italian Parliament