Investors the world over, those of you who enjoy the thrilling world of finance, this article is for you.
Many of you will have heard of the Tobin Tax, in place for years in some countries but non-existent in others. Some of you will also know what it involves and which transactions it taxes, but let’s go through it and explain why it’s now a hot topic.
On 16 January, the Financial Transaction Tax, known worldwide as the Tobin Tax, came into force in Spain. This indirect tax affects anyone who purchases Spanish shares, regardless of his or her fiscal residence. The above sentence is highly significant for tax purposes, as it will be applied regardless of where the investor making the purchase resides, provided that the shares he or she buys are taxed.
But what are these shares? Each December the Spanish Tax Administration Agency will publish the list of Spanish companies to which the tax will be applied. The list will be made up of the companies which, as of 1 December the previous year, had a market capitalisation totalling more than one billion euros. In other words, in 2021 all share purchase transactions involving Spanish companies which, as of 1 December 2020, had a market capitalisation totalling more than one billion euros will be taxed.
The applicable tax rate is 0.2% of the effective amount of the purchase, without taking into account the associated fees and/or costs. However, investors who carry out intra-day speculation transactions will be taxed for the net amount, regularised at the end of each day.
Now that we know what the famous Tobin Tax involves, we should mention that it has effects worldwide, explained as a widespread application of the tax, provided that the purchased asset appears on the list of Spanish companies that are affected. It doesn’t matter where the investor, the bank executing the order or the financial intermediary is located; provided that Spanish shares are purchased, the executor of the sale will have to assign 0.2% of the purchase amount to the Tobin Tax.
The main effect of this tax, like all other taxes, is that it reduces the net return on investments. From now onwards it will be more difficult to hit the profitability targets set by investors when making investments in the taxed companies.
It’s therefore time to broaden horizons and look further ahead when it comes to building investment portfolios in an economic, fiscal and financial environment that optimises a set target return. There are markets around the world with no application of the Tobin Tax or similar ones that penalise investments, beyond the natural fluctuations of the markets.
Finally, after analysing the other side of the coin, it could be said that the Tobin Tax constitutes a competitive disadvantage for Spain as to other countries where this tax is not applicable. We’ll have to wait and see how international investors react to the above tax and whether there’s a downturn in investments in Spanish shares, given that in the globalised world we live in, investors have access to all the financial markets in the world.