What has just happened?
Spain has begun to introduce a new indirect levy (Financial Transactions Tax) on the acquisition of shares of major Spanish listed corporations. [1] Regardless, of the country of residence or the place where the acquisition takes place. It came into force in early January 2021. [2]
What does this mean?
The proposed FTT is closely linked to the existing European models within Italy and French. In which companies with a market capitalisation of over €1,000million and who wish to acquire shares of a Spanish company will be taxed.
The proposed rate is at 0.2%.[3] Furthermore, the tax would not affect the primary market, meaning it will not have an impact on stock exchange companies. [4]
What is the impact on the legal sector?
Although, its application is limited to some extent as it only applies to the ‘onerous’ share acquisition of a Spanish-listed corporation. The introduction of the FTT is likely to shake up the Spanish and International legal sectors.
The economic impact of the tax falls on the acquiring party in an acquisition deal. The added cost of acquisition is a concern for future M & A deals within Spain. As the scope of the tax is wide, involving any transaction with listed Spanish shares, despite the country of residence. The heightened cost of acquiring a company is likely to put off many investors from doing commercial deals within Spain.
The incoming tax levy has spurred many investors to take action before its introduction. Spain’s M&A market throughout the Pandemic has been surprisingly robust.[5] With the current American take over Másmóvil, Spain’s largest telecoms firm, is estimated at over €5bn making it one of the largest since the pandemic started. [6]
There is also a growing concern for commercial law firms in Spain, as this tax levy may reduce their workload as Spain becomes less favourable for international investment. A criticism of the Spanish FTT is that it is more onerous than other EU equivalent tax levy’s. In Belgium, the scope is narrower, as it only applies to transactions executed in Belgium, via a Belgian intermediary or where at least one party must be a Belgian resident.[7] Similarly in Italy, there are 3 derivatives of the FTT depending on the parties involved, limiting the scope of its implementation.
The concern with the scope of the Spanish FTT, it that it is discriminatory in nature and will cause a shift away from investment in the country.[8] This concern has been echoed by the National Stock Market Commission (CNMV), as the FTT will create a competitive disadvantage since many EU countries have not yet applied a similar tax, including most of the ones who signed the reinforced cooperation agreement. [9]
Written by Meg Hornsby
Assessing Firms: #WhiteandCase #AkinGump #MayerBrown #KirklandEllis #DLAPiper #ReedSmith
References:
[1] Angel Calleja, ‘Spain to tax acquisitions of shares of major Spanish listed companies’ (White and Case Publications, 3 November 2020) <https://www.whitecase.com/publications/alert/spain-tax-acquisitions-shares-major-spanish-listed-companies> accessed on 1 January 2021
[2] KPMG, ‘Spain: Update on Financial Transaction Tax on transfer of shares in large companies’ (KPMG, 14 November 2020) <https://home.kpmg/us/en/home/insights/2020/10/tnf-spain-update-financial-transaction-tax-transfers-shares-large-companies.html> 31 January 2021
[3] Pablo Ulecia Rubio, ‘Spanish Parliament approves Law on Financial Transaction Tax’ (EY, 16 October 2020) <https://taxnews.ey.com/news/2020-2496-spanish-parliament-approves-law-on-financial-transaction-tax?uAlertID=Sd%2FG8rua1oj6%2Fl58EZ2AiA%3D%3D> accessed on 2 January 2021
[4] KPMG, ‘Spain: Update on Financial Transaction Tax on transfer of shares in large companies (KPMG, 14 November 2020) <https://home.kpmg/us/en/home/insights/2020/10/tnf-spain-update-financial-transaction-tax-transfers-shares-large-companies.html> 31 January 2021
[5] Juan Manuel de Remedios, ‘Spanish dealmaking defies health and economic crisis’ (White and Case, 15 Sept 2020) <https://mergers.whitecase.com/highlights/spanish-dealmaking-defies-health-and-economic-crisis>accessed on 20 November
[6] Ibid.
[7] BNY Mellon, ‘Financial Transaction Tax: A Global Perspective (BNY Mellon, 2 October 2020) <https://www.bnymellon.com/content/dam/bnymellon/documents/pdf/emea/ftt-globalperspective-brochure-03-2018.pdf> accessed on 2 January 2021
[8] Sally Mathews, ‘Spanish FTT: Is it finally under starter’s orders?’ (Societe Generale, 16 October 2020) <https://www.securities-services.societegenerale.com/en/insights/views/news/spanish-ftt-finally-under-starter-orders/> accessed on 2 January 2021
[9] Ana Garcia Valdivia, ‘The Spanish Financial Transaction Tax will see the light soon: EU Context and Interview with ATT’ (Forbes, 29 November 2018) <https://www.forbes.com/sites/anagarciavaldivia/2018/11/29/the-spanish-financial-transaction-tax-will-see-the-light-soon-eu-context-and-interview-with-attac/?sh=5033ccc64eca> accessed on 3 January 2021
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.