A new report released last week looks at the main barriers, national withholding processes and transaction tax charges, to a successful implementation of the Markets in Financial Instruments Directive (MiFID). This has been released by the Fiscal Compliance Experts' Group (FISCO), set up by the EU a year ago to look at fiscal barriers to the clearing and settlement of cross-border securities transactions. The MiFID report is available from the EU’s FISCO website.
Withholding tax collection varies considerably among Member States and there are even variations within a single country. Rules vary as to whom can act as a withholding agent, and some jurisdictions require the appointment of domestic financial intermediaries. These are problems for cross-border investors. Required processes in France, Italy, Ireland, Spain, Portugal and Poland all raise problems of one kind or another but none of the Members satisfied all of the criteria. The problems were similar for transaction taxes, with the UK, with its Stamp Duty, being one of eleven countries that have some form of transaction tax on the transfer of securities.
Article 34 of MiFID states that firms must have non-discriminatory access to the clearing and settlement facilities in any other Member State. The Giovannini Report identified 15 barriers to the "level playing field" needed for clearing and settlement in the EU. The FISCO report tackles the 11th and 12th of these barriers, namely that domestic withholding tax regulations should not disadvantage foreign intermediaries, and that the collection of local taxes should not mandate the usage of the local settlement system. A follow-up report is expected at the end of this year. The EC will use the FISCO report in order to establish its fiscal policies regarding clearing and settlement in the EU.
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