The European Commission’s Clearing and Settlement Fiscal Compliance expert group (FISCO) this week issued a fact finding study examining EU Member States' fiscal compliance procedures for clearing and settlement of cross-border securities transactions.
The Study analysed how these procedures hinder the functioning of capital markets and increase the cost of cross-border settlement, particularly in relation to withholding and transaction taxes. The FISCO group is set to propose solutions to the problems raised in a follow-up report, to be issued in early 2007.
Internal Market and Services Commissioner McCreevy stated that:
"The FISCO Study will help us to identify and tackle many of those fiscal compliance practices and procedures that are current barriers to more efficient pan-European securities trading in the EU. This is an area that was highlighted as one to be addressed by the group of financial experts chaired by Alberto Giovannini and is an area where we need to make further progress to help deepen financial market integration."
The main conclusions of the study were that withholding tax collection and relief procedures vary considerably among Member States, and different procedures often apply even to different classes of securities within the same Member State.
The complexity and administrative costs resulting from these differences may lead investors to forgo the relief to which they are entitled and may discourage cross-border investment for the same reason.
In several cases, procedural tax rules often prevent foreign intermediaries from obtaining direct access to the local Central Securities Depository (CSD), or at least do not allow them to obtain access under conditions similar to those applicable to local intermediaries.
In addition, tax rules that impose tax collection responsibilities on settlement service providers do not always take into account the fact that securities transactions may be handled by several local or foreign settlement service providers. These rules do not allow all settlement service providers to collect transfer taxes under similar conditions.
This issue may put certain settlement service providers at a competitive disadvantage in comparison with others, the FISCO study argued.
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