Effective 1 August 2012, the financial transactions tax (taxe sur les transactions financières — TFF), recently adopted by the French Parliament, entered into force.1 The TTF, in fact, consists of three distinct taxes: (i) a TFF on acquisitions of equities in listed companies having their registered offices in France, with a stock market capitalisation exceeding 1 billion euros; (ii) a TTF on “high frequency” trading transactions in equities, by entities dealing as principal; and (iii) a TTF on naked sovereign debt credit default swaps (CDSs).

Tax on the Purchase of French Equities

The tax, at a rate fixed at 0.2%, applies to any purchase of equities, meeting all of the following conditions:

  • ƒƒ The transaction is an acquisition, for consideration, of an equity or a security deemed equivalent to an equity within the meaning of the Monetary and Financial Code (Code monétaire et financier — FMC) (collectively, Equity).
  • ƒƒ The acquisition gives rise to a transfer of ownership upon payment, with the Equities being recorded in the purchaser’s securities account. This acquisition may take the form of the exercise of an option, a forward purchase, an exchange or an allotment in return for a capital contribution.In the event of a swap, the two parties will pay the tax on the amount of their respective acquisitions.
  • ƒƒ The Equity is admitted for trading on a recognised foreign market, or on a European or French regulated market.
  • ƒƒ The Equity is issued by a company having its registered offices in France, which company had a stock market capitalisation exceeding one billion euros on 1 December of the year preceding the imposition of the tax2. This threshold is aimed at taxing only French companies in Euronext compartment A3.

The tax applies to investment certificates (certificats d’investissement) as well as depositary receipts (certificats représentatifs d’actions — CRAs) issued by any entity irrespective of its place of establishment (e.g., American depositary receipts). For CRAs, the first acquisitions subject to the tax will be those made as of 1 December 2012.

The tax also applies to securities giving access directly or indirectly to the equity of an issuer, such as: (i) convertible bonds (obligations convertibles en actions — OCAs); (ii) equity commitment notes (obligations remboursables en actions — ORAs); (iii) warrants (bons de souscriptions d’actions — BSAs); and (iv) preferential subscription rights (droits préférentiels de souscription — DPSs). However, these securities will only be taxed when the bond or commitment is converted into shares.

The following, however, fall outside the scope of the tax: (i) debt securities; and (ii) shares or units in collective investment undertakings (organismes de placement collectif — OPCs), including exchangetraded funds (ETFs) and derivative products (such as options and futures), so long as they are not Equities within the meaning of French law.

Acquisitions of Equities will be subject to the TTF, irrespective of: (i) the place of establishment of the regulated market on which the Equity is traded; (ii) the place of establishment or residence of the parties to the transaction; and (iii) the place where any relevant contract was entered into.

The following exemptions have been provided:

  • ƒƒ Equities issued on the primary market;
  • ƒƒmarket-making activities carried out by investment companies and credit institutions, including abroad;
  • ƒƒ transactions carried out by a clearing house or central depositary;
  • ƒƒ transactions carried out on behalf of issuers in order to contribute to the liquidity of their Equities, in accordance with practices accepted by the French regulator (Autorité des Marchés Financiers — AMF);
  • ƒƒ intra-group acquisitions between parent company and subsidiary (within the meaning of Article L.233-3 of the Commercial Code) and restructuring transactions;
  • ƒƒ temporary transfers of Equities (such as securities borrowing and lending, sale and repurchase agreements); and
  • ƒƒ acquisitions by a fund for employee savings plans.

The tax is due on the first day of the month following the transfer of ownership of the Equities.

The payer of the tax is the entity that provides “investment services” (as defined in Article L.321-1 of the FMC), wherever its place of establishment, when carrying out purchase orders on behalf of a third party or when purchasing as principal.

In the event that several investment service providers are involved in the transaction, the tax is payable by the entity that receives the purchase order from the final purchaser. However, if the acquisition is made without an intermediary investment service provider, the tax will be payable by the entity that acts as custody account-keeper.

Tax on High-Frequency Trading

The following conditions all must be met for the tax to be applied:

  • ƒƒ The company carries out “high-frequency” transactions using “automated processing systems”. A high-frequency transaction is defined as “habitually sending orders using a system for the automated processing of these orders characterised by the sending, modification or cancellation of successive orders for a given security separated by a period of less than half a second”. An automated processing system is “any system enabling transactions to be made on financial instruments in which a computer algorithm automatically determines the various parameters of the orders, such as the decision to make the order, the date and time of making the order and the price and quantity of the financial instruments concerned”. 4
  • ƒƒ The transactions concern Equities. As opposed to the tax on Equity purchases, there is no limitation with respect to the country in which the Equity issuer’s registered offices are located or the issuer’s stock market capitalisation.
  • ƒƒ The company operates in France — this includes branches of foreign companies operating in France with a European Passport under the freedom of establishment rules. As opposed to the tax on Equity purchases (which also concerns transactions made abroad), this tax focuses on a company that engages (in France) in speculative transactions in these securities.
  • ƒƒ The transactions are carried out by the company for its own account. In practice, this excludes all transactions carried out on behalf of third parties under a management mandate or collective investment scheme (CIS).

The TTF is also imposed, above a certain threshold (described below), with respect to orders that are cancelled or modified over the course of a stock market business day. The tax rate applicable to such cancelled/modified orders is fixed at 0.01%, and the tax is imposed only upon the orders that are cancelled/modified over the course of a stock market business day that exceed the threshold of 80% of the orders placed on that day. The taxable base is obtained by multiplying (i) the amount of orders cancelled/modified that exceed the 80% threshold by (ii) the average price of the security during the stock market business day. Once the 80% threshold has been met, the TTF will be due on the first day of the month following the day on which the cancelled or modified orders were transmitted.

As with the TTF on Equity purchases, transactions in the context of market making are exempted, provided that they contribute to the proper working of the market by ensuring its liquidity.

Tax on Naked Sovereign Credit Default Swaps

The imposition of the TTF on naked sovereign CDSs requires that all of the following criteria are met:

  • ƒƒ The instrument must be a credit default swap — that is, a derivative instrument used for the transfer of credit risk within the meaning of Annex I, Section C(8) of Directive 2004/39/EC of 21 April 2004 (MIFID I Directive).
  • ƒƒ THE CDS must be issued by a Member State of the European Union, not by a private issuer.
  • ƒƒ The instrument must be the subject of a purchase.
  • ƒƒ The purchase must be “naked”. The purchase of a sovereign CDS will only be subject to payment of TTF if the purchase is not made to hedge assets or commitments related to the value of the sovereign debt covered by the CDS.
  • ƒƒ The buyer of the CDS must be established in France for tax purposes — that is, natural persons domiciled in France within the meaning of Article 4B of the General Tax Code, companies operated in France within the meaning of Article 209 I of the General Tax Code, and legal entities established or registered in France. In this respect, this should include the foreign branches of a legal entity that is established or registered in France.

The rate of the tax is fixed at 0.01% of the notional amount of the contract, which means the par value or face value used to calculate payments connected with the CDS. The TTF is due as of the conclusion of the CDS and paid together with the payment of VAT.

As with the TTF on share purchases and the TTF on high-frequency trading, transactions made in a market-making context are exempted, provided that they contribute to the proper working of the market by ensuring its liquidity.


The scope of the French TTF is relatively narrow and should not have a significant impact on market participants.

There may be reason to temper celebration, with the prospect of a Financial Transaction Tax (FTT) at the European level. The European Commission recently proposed plans for an EU-wide FTT to take effect from 1 January 2014. This tax would be payable on all transactions of equities and bonds at 0.1% of value and all derivative transactions (both exchange-traded and OTC) at 0.01% of value calculated on the basis of the derivative’s notional underlying value. However, whether such an EU FTT will ever be agreed upon remains unclear.