Securities finance firms face turbulent tax environment
22 June 2023 Lisbon
Image: SFT
The securities lending industry is navigating a “somewhat tricky” and “slightly turbulent” tax environment with increased scrutiny from tax authorities across Europe, according to the Legal & Tax Initiatives 2022/23 panel at the ISLA 30 Conference in Lisbon.
The panel provided an overview of the tax environment in which the securities lending industry operates and the challenges the industry is facing from a tax perspective.
Tax rules have always existed on securities lending and continue to evolve, one panellist confirmed.
In 2018, tax came into the spotlight when a consortium of investigative journalists in the EU shone a light on the cum-ex scandal. In the same year, the European Parliament estimated that, at that time, approximately €50 billion was lost to aggressive cum-ex countries in Europe.
Following these events, associations including the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) launched investigations into such schemes.
Currently, the industry is required to comply with an extensive body of legislation requiring market participants to implement robust tax reference frameworks for identifying, mitigating and reporting potential tax abuses, conference attendees heard.
Some initiatives target aggressive forms of securities lending, for example, anti-CoCo circulars in Germany. Some initiatives are more general in their application, such as the Organisation for Economic Co-operation and Development’s (OECD’s) Mandatory Disclosure Regime. And some “perfectly sensible” initiatives, a panellist noted, have had unintended consequences for securities lending.
The discussion on tax concluded that tax rules should be clear, intelligible, predictable and certain so market participants can confidently comply with their obligations.
In addition, member states need to strike a balance between promoting business and fair play, tax collection and control of tax abuse to maintain the efficiency of capital markets.
The panel provided an overview of the tax environment in which the securities lending industry operates and the challenges the industry is facing from a tax perspective.
Tax rules have always existed on securities lending and continue to evolve, one panellist confirmed.
In 2018, tax came into the spotlight when a consortium of investigative journalists in the EU shone a light on the cum-ex scandal. In the same year, the European Parliament estimated that, at that time, approximately €50 billion was lost to aggressive cum-ex countries in Europe.
Following these events, associations including the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) launched investigations into such schemes.
Currently, the industry is required to comply with an extensive body of legislation requiring market participants to implement robust tax reference frameworks for identifying, mitigating and reporting potential tax abuses, conference attendees heard.
Some initiatives target aggressive forms of securities lending, for example, anti-CoCo circulars in Germany. Some initiatives are more general in their application, such as the Organisation for Economic Co-operation and Development’s (OECD’s) Mandatory Disclosure Regime. And some “perfectly sensible” initiatives, a panellist noted, have had unintended consequences for securities lending.
The discussion on tax concluded that tax rules should be clear, intelligible, predictable and certain so market participants can confidently comply with their obligations.
In addition, member states need to strike a balance between promoting business and fair play, tax collection and control of tax abuse to maintain the efficiency of capital markets.
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