FTT – Collection methods and data requirements Specific Contract No3 TAXUD/2013/DE/314 based on Framework Contract No TAXUD/2012/CC/117 Final Report EY - October 2014 April 2014 | 1 FTT – Collection methods and data requirements Disclaimer The information and views set out in this report are those of the author(s) and do not necessarily reflect the official opinion of the Commission. The Commission does not guarantee the accuracy of the data included in this study. Neither the Commission nor any person acting on the Commission’s behalf may be held responsible for the use which may be made of the information contained therein. October 2014 | FTT – Collection methods and data requirements Abstract This EY report (i) reviews the collection mechanisms of certain existing financial transaction taxes (FTTs), (ii) considers the challenges which EU FTT poses with regard to collection models and data requirements (iii) how and whether these challenges could be overcome, (iv) assesses the pros and cons of a range of theoretical collection models, and (iv) provides a view on what an overall collection approach might look like if an EU FTT is adopted as proposed by the European Commission in early 2013. The collection approaches considered have to deal with significant collection and enforcement challenges under the proposed EU FTT Directive which can be addressed to various degrees. There is no one clear path to follow, but considering decentralised and centralised approaches to collection, we believe that the latter are likely to be the preferred types at least for some asset classes, provided the challenges we have identified can be adequately overcome. Centralisation could, in theory, be through: . following the transactions themselves to the central points of transactions processing at CCP or CSD level; . following the reporting of transaction to Trade Repositories or Authorised Reporting Mechanisms; . a new utility (or utilities) if existing infrastructure cannot be leveraged successfully. There are various functions which a central collection mechanism could perform in relation to collection, reporting and enforcement. The type of central model will, to a large extent, depend upon what functions it needs to perform and the capacity to overcome the commensurate data and other challenges. October 2014 | FTT – Collection methods and data requirements Résumé Ce rapport d’EY (i) examine les mécanismes de perception utilisés dans le cadre de certains impôts sur les transactions financières (TTF) existants, (ii) étudie les défis que pose la UE TTF en termes de modèles de perception, (iii) évalue les points positifs et négatifs d’une série de modèles de perception théoriques, et (iv) donne un aperçu de ce à quoi pourrait ressembler une approche de perception globale si une UE TTF est adoptée. Les mécanismes de perception envisagés soulèvent importants défis de recouvrement et d'exécution en matière de la directive UE TTF proposée qui peuvent être adressées à des degrés divers. Il n'y a pas un seul chemin à suivre, mais comparant les approches décentralisées et centralisées de perception, nous croyons que les dernières sont à préférer au moins pour certaines classes d'actifs, à condition que les défis que nous avons identifiés peuvent être surmontés de manière adéquate. La centralisation peut, en théorie, s’effectuer : . Soit par le suivi des transactions elles-mêmes jusqu’au point central de traitement de ces transactions au niveau du CCP ou du CSD ; . Soit par le suivi des déclarations de ces transactions aux référentiels centraux (« Trade Repositories ») ou aux mécanismes certifiés d’établissement des déclarations (« Authorised Reporting Mechanism ») ; . Soit par la création d’un nouvel instrument (ou de plusieurs) si l’infrastructure existante ne peut être utilisée avec succès. Un mécanisme de perception centralisé peut accomplir de multiples tâches en lien avec la perception, la déclaration ou la mise en œuvre de l’impôt. Le type de modèle centralisé dépendra, dans une large mesure, des fonctions qu’il lui sera nécessaire de réaliser et de sa capacité à traiter les données appropriées et toute autre difficulté rencontrée. October 2014 | FTT – Collection methods and data requirements Table of Contents 1. Executive Summary ................................................................................... 1 2. Methodology and assumptions ..................................................................... 3 2.1 Methodology ..................................................................................... 3 2.2 Assumptions ..................................................................................... 3 3. Review of selected national FTTs from a collection and compliance viewpoint .................................................................................................. 5 3.1 Belgium ............................................................................................ 6 3.2 France .............................................................................................. 7 3.3 Italy ................................................................................................. 8 3.4 Switzerland ......................................................................................10 3.5 United Kingdom ................................................................................11 4. Challenges to the collection of EU FTT .........................................................14 4.1 Clear determination of EU FTT Liability ................................................14 4.2 Challenge of ensuring effective EU FTT remittance ................................19 4.3 Challenge of ensuring effective compliance and enforcement ..................20 4.4 Uncertain cost and economic model for tax collection is an obstacle to designing collection models (C15) .......................................................25 5. Identifying potential approaches in the light of EU FTT collection challenges .....26 5.1 Method ............................................................................................26 5.2 Design principles for effective and efficient EU FTT collection ..................26 6. Four theoretical approaches for EU FTT collection .........................................34 6.1 Introduction .....................................................................................34 6.2 Approach 1: Self-administered ...........................................................34 6.3 Approach 2: Delegation of collection responsibilities ..............................35 6.4 Approach 3: Central Clearing or Settlement .........................................37 6.5 Approach 4: New Utility .....................................................................38 7. Practical considerations for assessing the theoretical EU FTT collection models ....................................................................................................40 7.1 The ongoing significant EU regulatory reform of the financial services industry ...........................................................................................40 7.2 Considerations specifically relating to EU infrastructure as an EU FTT collecting agent ................................................................................44 7.3 Assessment of the leverage potential for EU FTT collection on existing and future transaction reporting .........................................................49 8. Pros and cons of potential EU FTT collection approaches ................................53 8.1 Introduction .....................................................................................53 8.2 Self-administered approach ................................................................53 8.3 Delegated collection approach ............................................................54 8.4 Central clearing or settlement approach ...............................................56 8.5 New utility approach .........................................................................58 8.6 General market reaction to collection approaches for EU FTT ..................60 9. Mitigating certain collection challenges ........................................................63 9.1 Introduction .....................................................................................63 October 2014 | FTT – Collection methods and data requirements 9.2 Gross vs net (Challenge 4) .................................................................63 9.3 Intermediary Relief (Challenge 9) .......................................................65 9.4 Global enforcement and the issuance principle (Challenge 13) ..............66 9.5 ‘Counterparty’ identification (Challenge 3) ...........................................68 10. A comparative analysis of collection models: towards an overall system ..........69 10.1 Relative collection model assessment across asset classes .....................73 10.2 Assessing costs for the models ...........................................................76 10.3 Comparison of models’ relative feasibility .............................................81 10.4 Towards an overall system .................................................................84 Appendix 1 - Overview of key features of existing national FTTs: Belgium, France, Italy, Switzerland, United Kingdom ..................................................88 Appendix 2 - From UK SDRT collection to EU FTT collection: A gap analysis .............98 Appendix 3 - Considerations regarding a standardized