Official: ADRs Fall Under France's Transaction Tax
American Depositary Receipts will be included as part of a transaction tax just approved by France's Parliament but market players will be given a reprieve until December 1 to comply.
The transaction tax, aimed at curtailing market speculation, would be paid on the purchase of 109 French stocks with market value of more than 1 billion Euros ($1.2 billion) including such brand names as Pernot Ricard and Vivendi. The UK, Europe's largest financial center, has a stamp duty.
The new transaction tax of 0.2 percent will be applied to transactions resulting in a "transfer of property" of companies trading in Paris regardless of where the buyer or seller is based.
The decision to delay implementation of the tax to ADRs allows sufficient time to determine just how the tax is applied. Custodian banks say it will be an operational challenge and the specific details have yet to be worked out. Among the unknown are who is responsible for calculating the tax, reporting it and collecting it.
ADRs are certificates representing ownership in underlying common stock of a foreign company. They help investors tap overseas markets without the need to trade on foreign exchanges and deal with currency exchanges. Transactions in ADRs are settled in US dollars at the U.S. national securities depository Depository Trust Company and rely on three-day settlement cycle, the same way US equities do.
The transaction tax, for net purchases of French equities must be implemented in November. It is being collected through a "declaration system" run by France's national securities depository Euroclear France.
On August 1, France's Parliament endorsed the new transaction as part of a revised 2012 budget which has focused largely on raising taxes rather than cutting spending. France's President Francoise Hollande has pledged to cut the budget deficit to 4.5 percent of gross domestic product this year from 5.2 percent in 2011. France has estimated that the new tax -- doubled from the initial version proposed by former President Nicolas Sarkozy will bring an additional 170 million euros in 2012 and 500 million euros next year.
Written by Chris Kentouris, Editor-in-chief (Chris can be contacted through Chris.Kentouris@hotmail.com)