Tour de Farce

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Satch

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Got sucked into a system build out for this last week and it is amazingly stupid, even for French politicians: they have created a tax that completely missed the intended target, pushes up costs for investors, pension funds etc and is a complete shambles.

We are all just guessing!



Brokers lament French tax tour de farce

"European brokers remain in the dark as to how a new French financial transaction tax will be implemented just two and a half weeks before it is due to come into effect. Two brokers have privately described the ongoing confusion as “mayhem”.

“Brian Gallagher, managing director of European electronic trading at Morgan Stanley, said: “We understand the intention of the tax, but the execution has not been as well constructed and there has been a lack of clarity in terms of who is affected, how they are affected and which securities are included.”

Simon Andrews, a director at the Futures and Options Association, said: “It’s widely understood that this tax was rapidly introduced as an election gambit by former President [Nicholas] Sarkozy. But there hasn’t been enough thought on how the tax will be collected.”

The French FTT, introduced in March 2012 and due to come into force on August 1, comprises three taxes: a tax on acquisitions of French equity securities and equity instruments issued by companies with a capitalisation of more than €1bn; a tax on high-frequency trading; and a tax on naked sovereign credit default swaps.

The equity FTT, which was originally set at a rate of 0.1% and raised on July 4 to 0.2%, is causing the most confusion. Firms say it is unclear which products are caught by the tax, which firms are exempt, how the tax is to be collected, and whether the increased 0.2% rate will apply from August 1.
Juan Pablo Urrutia, European general counsel at broker ITG, said of the recent increase: “There hasn’t been appropriate planning for such a fundamental change. Some may still be hoping that it will be delayed, but I can’t see that happening given the political ‘war on finance’ platform on which President François Hollande was elected.”

Two major areas of concern relate to how brokers will collect the tax on behalf of their clients and whether American depositary receipts and other derivatives are included. Transactions may be netted before they are taxed, meaning a firm that ends the day flat would pay no duty. But no one broker has visibility on a client’s entire trading activity.

Urrutia said: “The other issue trying the patience of the market is the lack of clarity as to whether ADRs are included and, if they are, who is going to collect the tax.”

Tax firms and banking associations have submitted queries to the French ministry of finance, which did not respond to requests for comment in time for print. One French banker involved in the discussions said: “Knowing France, I doubt they will be able to answer in the timeframe available, especially given it’s the holiday season.”

In an ironic twist, most European HFT firms – the original target of the tax conceived by Sarkozy – are expected to avoid the specific HFT duty as this is levied on firms domiciled in France where few, if any, major HFT firms are located. Many HFT shops also end the day flat.

The French tax is regarded as a dress rehearsal for other European governments mulling similar schemes. A botched implementation could give other governments pause for thought, said Andrews. He added: “Problems in implementing the French FTT may sour the appetite of other countries to follow suit.

At the very least, it will provide a model of how not to go about implementing it.”
Brokers lament French tax tour de farce
 

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