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2016 World Tax J. 3 (2016)

handle is hein.journals/wldtxjrn2016 and id is 1 raw text is: Caroline Heber* and Christian Sternberg** Market Infrastructure Regulation and the Financial Transaction Tax Based on the sensitivity of the European financial markets highlighted by the last financial crisis, the European Union is pushing for reforms of the existing regulatory framework and has also proposed a financial transaction tax. Until now, the European Union has already adopted a Regulation on short selling and certain aspects of credit default swaps and a European Market Infrastructure Regulation aiming at regulating over-the-counter derivatives markets. The Directive on Markets in Financial Instruments was subject to major reforms and Regulations on Markets in Financial Instruments and on Central Securities Depositories were enacted. This strand of financial market regulation shall be complemented by a Financial Transaction Tax pushed forward through the enhanced cooperation mechanism. This article analyses the interplay between the financial market regulation and the proposed financial transaction tax. The authors will conclude that both ways of regulating financial markets are not sufficiently coordinated. Contents 1. Introduction 4 2. Financial Transaction Tax 5 2.1. Tax events under the revised FTT-Proposal Directive 5 2.1.1. Overview 5 2.1.2. Purchase and sale as a single transaction under the FTT-Proposal Directive 6 2.1.3. Derivatives contracts - Triggering multiple transactions under the FTT-Proposal Directive 6 2.1.4. Material modification - A separate and distinct tax event under the FTT-Proposal Directive 8 2.2. Purpose of taxing financial instruments under the FTT-Proposal Directive 9 3. Market Infrastructure and the European Financial Single Market 10 3.1. Organized markets 11 3.1.1. Definition of organized markets 11 3.1.2. Trading of shares and similar financial instruments on organized markets 12 3.1.3. Trading of derivatives contracts on organized markets 20 3.2. Short selling of financial instruments 21 3.3. Systematic internalizers 24 3.4. Over-the-counter markets 24 4. Interplay between the Given Market Structure and the FTT 25 4.1. Interplay between the FTT and trades on organized markets 25 4.2. Interplay between the FTT and the Short Selling Regulation 29 4.3. Interplay between the FTT and the OTC Market Regulation 33 5. Final Remarks 35 * Dr Carline Heber MTax(Sydney) is a Senior Research Fellow at the Max Planck Institute for Tax Law and Public Finance, Munich, caroline.heber@tax.mpg.de. ** Christian Sternberg B.Sc. is a Research Fellow at the Max Planck Institute for Tax Law and Public Finance, Munich, christian.sternberg@tax.mpg.de. The authors are grateful for helpful comments from Professor Dr Dr h.c. Wolfgang Schon and two anonymous reviewers. Any errors are the authors'. WORLD TAX JOURNAL FEBRUARY 2016 1 3

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