Trade Information Bulletin No. 326

Supplement to Commerce Reports

Price, 10 cents

INTRODUCTION

The present bulletin was compiled from reports submitted by European offices of the Bureau of Foreign and Domestic Commerce in connection with taxation investigations of the division of commercial laws, supplemented by material from other sources.

It is hoped that this pamphlet will be of service to American companies that are placing securities in foreign markets and to those who are planning to incorporate under the laws of the countries herein described. While in the case of such countries as Belgium, France, and Germany, where changes in tax legislation are contemplated, the information may be of ephemeral value from the point of view of exactness, yet even for those countries it will be useful to the extent of giving an idea of the kind of taxes that must be met. In most instances new legislation would only increase or reduce the rates.

The changes alluded to are being watched for by our foreign representatives. When reports of modifications are received they will be published in the form of special circulars. A list of other publications of the division of commercial laws on the subject of taxation is printed at the end of this pamphlet. As investigations in this field are being carried on all the time, this list will be continually lengthened.

APRIL, 1925.

JULIUS KLEIN, Director.

5-1-1925

TAXATION OF SECURITIES IN EUROPE

CHARACTERISTICS OF EUROPEAN SECURITIES TAXATION

A. J. Wolfe, Chief, Division of Commercial Laws

A comparison of the reports submitted by the European offices of the Bureau of Foreign and Domestic Commerce and other material assembled in this pamphlet reveals a number of general characteristics in the systems of securities taxation in Europe. In most of the countries treated in this bulletin there are stamp taxes on both the issue and sale of stocks and bonds. The tax on the issue is usually based on the par value, while the one on the transfer or sale, which is commonly called a "sales tax" or "turnover tax," is calculated on the amount of the purchase price. Such is unqualifiedly the case in Belgium, Germany, Netherlands, and Spain. While frequently the tax is the same for stocks and bonds, in some instances distinctions are made between them, and between nominative, bearer, and other kinds of securities.

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Certain countries have methods peculiar to themselves. example, in the United Kingdom issues of stock are reached indirectly by means of a stamp duty levied on the statement of the amount which is to form the nominal share capital of registered limited companies, and on the statement of the amount of any increase of registered capital. A similar tax is levied in Austria. In the former country there is also a stamp duty on contract notes. In most of the countries the sales tax is collected when the transfer is made. France collects a stamp tax on the face value of securities, a transfer tax on bearer securities, which is based on the average quoted price for the preceding year, and a tax on coupon payments is collected on an annual basis. A tax similar to the annual tax on the transfer of securities is found in Italy. Switzerland is unique in that its taxation of securities is effected through levying a stamp duty on the coupons of all kinds of securities. Special provisions for foreign securities appear only in few instances. In France, while the tax rate is virtually the same as for French securities, nevertheless before the securities of foreign companies can be issued in France or quoted on the bourse, a responsible agent must be named. Belgium levies a special stamp tax on securities issued in that country by foreign companies. In Italy the capital of foreign companies which is employed in operations in Italian territory is subject to a special tax.

No-par-value stock is so rarely found in European bourses that mention of it is rarely made in tax legislation or literature. However, specific provisions are found in the laws of Belgium, Spain, and Switzerland. In the first-mentioned country, the Government

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may compel the company to make a declaration of the real value of such stock, which is then taxed according to the ordinary rate. A fixed rate is levied in Spain. In Switzerland the coupons of such securities are taxable at a fixed percentage. The issue of nopar-value stock is discouraged in France.

In the succeeding pages the general and special methods which have been merely indicated in this brief summary will be treated in detail, together with much additional information. If still further advices are desired the division of commercial laws will welcome the opportunity to provide them.

AUSTRIA

Translation of report from the Austrian Finance Ministry, submitted by American Commercial Attaché William Ford Upson

The principal Austrian tax which affects stocks and bonds is the 'securities turnover tax," based on the purchase price. Issues of stock are reached through a tax on the company agreements which provide for the raising of capital, while a small percentage is collectible on bonds. Provisions as to no-par-value stock are not reported.

SECURITIES TURNOVER TAX

According to the decree of the Finance Ministry of August 6, 1924 (B. G. Bl. No. 291), "Effektenumsatzsteuergesetz, 1924," in general only transactions made at the stock exchange, or outside of the stock exchange but with the help of a stock broker, are subject to the securities turnover tax.

The turnover tax per 10,000 crowns of the assessment basis is as follows:

1. On business with dividend-bearing papers (shares of stock) and premium bonds (Praemienschuldverschreibungen), with the exception of Austrian Government premium bonds (Titres der oesterreichischen Staatspraemienanleihen), 24 crowns. The same rate of taxation applies also to certain securities that are to be treated like dividend-bearing stocks with respect to the turnover tax. They are enumerated in the annex to the decree of the Finance Ministry of November 7, 1921 (B. G. Bl. No. 615).

2. Transactions with bonds of the Republic of Austria, Provinces, districts, and municipalities are taxed 2 crowns. The same rate applies also to dealings in bonds of the former Austrian Empire and the former Austro-Hungarian monarchy bearing a nostrification stamp on basis of the peace treaty of St. Germain, irrespective of the tax exemption granted for Austrian war loans and bonds of the Austrian Empire. Bonds taken over by a State for payment shall be treated in like manner as the bonds emitted by that State. 3. Transactions with other securities are taxed 4 crowns.

4. In the case of business on premiums (Praemiengeschaefte) the charge is twice the amount provided under (1) to (3). In the case of commission business (Art. 360 of the Commercial Code) the tax is payable for the transaction between the commission agent and a third party as well as for the final transaction between commission agent and his employer.

1 Konsignierungs oder Nostrifizierungsvermerk of the Austrian Republic.

The transfer of securities from the party emitting them to the first holder of such securities is free from turnover tax. As a rule, the price agreed for the securities sold forms the basis of tax assessment. There are no special regulations with regard to the turnover tax for shares quoted under par.

CHARGES FOR NEW EMISSIONS

In the Republic of Austria it is not customary to regard the emission of shares of stock as such as an object of taxation, but only the company agreement (Gesellschaftsvertrag) authorizing the establishment of a stock company or limited partnership with shares of stock (Kommanditgesellschaft auf Aktien), or a company agreement or resolution to increase the share capital, contracts or agreements which result in the emission of shares. For such company agreements or resolutions the share companies and limited share companies (Kommanditgesellschaften) are required to pay a charge equivalent to 7 per cent of the net value of the property agreed upon to be paid in, whether in cash or otherwise (apports). This fee is based upon paragraphs 8 to 14 of the law of July 15, 1920 (St. G. Bl. No. 299), in connection with paragraph 1 of the law of July 14, 1921 (St. G. Bl. No. 401). It is pointed out that in the case of capital increases the charge of 7 per cent is only made for the amount of the increase.

Since the fee is charged on the net value of the property agreed upon-the term "property," including all cash payments, real estate, and chattels, and all services of nonpersonal nature rendered by the partners or by third persons for their account in accordance with the company agreement for the attainment of company rights-it is insignificant whether the shares are sold at face value or below or above par. Of late shares have not been issued under par.

In accordance with paragraphs 1 to 14 of the law of February 29, 1924 (B. G. Bl. No. 65), and the order of execution of March 29, 1924 (B. G. Bl. No. 96), a tax on the right to subscribe for new shares or on a syndicate is charged, in addition to the above-mentioned 7 per cent, whenever the capital of a stock company or a limited share company is increased. The tax on the right to subscribe (Bezugsrechtsteuer) is charged when old shareholders are given a right to new shares. The tax in this case is 400 crowns per 10,000 crowns of the value of all purchase privileges allowed by the company. Wherever no such right is granted to the shareholders, a so-called syndicate tax is collected. The latter is 1,200 crowns per 10,000 crowns of the amount by which the amount to be paid by the first purchasers (acquirers) of the stock falls short of the value of the same number of the old shares of the same company.

Charges on bonds (Obligationen): In accordance with T. P. 36, Z. 2. of the law of December 13, 1862 (R. G. Bl. No. 89), bonds of every description (Schuldscheine, Obligationen, Bonds u. dergl.) are taxed according to Class III (average 2 per cent of the value of the loan), if such bonds are payable to bearer and run for a certain time longer than 10 years. If such bonds read for a certain time less than 10 years they are subject to taxation under Class II (average 1 per cent). Bonds not payable to bearer are subject to taxation under Class II. The coupons of bonds ("Teilschuldverschreibungen ") are