We are writing to seek urgent clarification concerning the possible unintended capture within scope of the Digital Services Tax (DST) of a range of financial markets activities, which would underpin the proper functioning of Europe’s capital markets.
As representatives of Europe’s major financial markets infrastructures and participants, we note that the current scope of the DST proposal incorporates services provided through a “multi-sided digital interface” (Art 3.1b). As currently defined in the context of the DST proposal, such interfaces lie at the core of Europe’s financial markets.
The stated aim of the proposal (in the Recitals to the Proposed Directive and public statements of the Commission) is to respond to a misalignment between the place where the profits of large digital businesses are taxed and the place where value is created. That aim is not served by taxing financial markets, which seems to us a wholly unintended consequence.
While the original proposal recognizes the intent not to capture financial services providers, its legal text only includes a very limited set of exemptions (Recitals 18-21 and Art. 3.4 b & c, 3.5, 3.6) – incorporating MiFID trading venues, systematic internalisers, crowd-funding platforms and data reporting by a trading venue where these are located in the EU.
This falls substantially short of the full range of activities potentially captured and serving Europe’s markets, including but not limited to all trading venues (including spot FX), liquidity providers, data service providers, benchmark administrators, clearing houses and settlement infrastructures as well as those responsible for multilateral systemic risk reduction such as portfolio compression providers, whether or not located in the EU.
We are therefore concerned that the DST would have the effect of imposing a de facto 3% revenue tax on key elements of EU and non-EU infrastructure and service providers serving Europe’s capital markets. That will result in disproportionate double-taxation, disregarding the tax contributions already made by the above-mentioned service providers. It will also affect the international competitiveness of EU participants in trading venues, other financial market infrastructure and service providers.
We would therefore strongly urge that you put the point beyond doubt in the Articles of the legal text by confirming that the full spectrum of activities linked to capital markets are excluded from scope – to ensure an efficient financing of the EU economy while avoiding disproportionate inefficiencies to the detriment of capital markets and their users. The important political objectives of the Capital Markets Union initiative should not be impaired via unintended consequences of the DST.
The international role and competitiveness of Europe’s markets depends on the proper treatment and consideration of this issue and we stand ready to provide any further information necessary to help in this regard.
Documents (1) for Digital Services Tax – Industry Letter on Financial Services
Latest
Joint Response to EBA Consultation
On August 12, ISDA and the Association for Financial Markets in Europe (AFME) responded to the European Banking Authority’s discussion paper on certain taxonomy key performance indicators (KPIs) and other aspects of the Disclosures Delegated Act under Article 8 of...
Response to JSCC on Clearing Fund Consolidation
On August 12, ISDA responded to the Japan Securities Clearing Corporation’s (JSCC) consultation on its proposal to consolidate clearing fund consumption, calculation and deposit segmentation across six clearing qualifications under the Financial Instruments and Exchange Act. ISDA members broadly support...
Response on CSDD Guidelines
On August 6, ISDA responded to the European Commission’s (EC) consultation on due diligence guidelines under the Corporate Sustainability Due Diligence Directive (CSDDD). While ISDA acknowledges that model contractual clauses can be a helpful resource for in-scope companies, there are...
Response to BoE on Extension of Settlement Hours
On August 6, ISDA responded to the Bank of England’s (BoE) consultation paper on the extension of settlement hours for RTGS and CHAPS, the UK’s high-value payment system. ISDA supports the BoE’s plan to extend RTGS and CHAPS settlement hours...
