ISLA responds to BMF鈥檚 draft circular 20 February 2018London Reporter: Brian Bollen
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The International Securities Lending Association (ISLA) has sent a letter to the German Ministry of 麻豆影视传媒 (BMF) responding to the BMF鈥檚 draft circular released on 25 January 2018 on the subject of a manufactured dividend rule.
In the letter, written under the name of Mark Hutchings, ISLA鈥檚 London-based chief operating officer, ISLA said that it remains committed to working with the BMF to ensure compliance with the provisions of the Investment Tax Act, whilst also trying to find possible solutions to the anticipated liquidity problems that it believes will arise for stock lending and repo transactions performed by investment funds.
At one point, it warned that non-German investment funds may simply stop lending their German equity securities around income date periods, thereby potentially compromising the liquidity of the German market.
In evidence, ISLA explained that a poll it undertook amongst the major securities lenders shows that approximately 70 percent of available German equities will be recalled over income dates.
Steve Raddon, BNY Mellon and the chair of ISLA鈥檚 Tax working group, provided a helpful brief summary on the ISLA website explaining what the response intends to do.
In that summary, ISLA said that the main point it makes in this submission is that to ensure the maximum amount of available liquidity is retained, there should be optionality around withholding of the tax rather than the enforcement of a lender to file a corporation tax return.
Raddon highlighted the principal aims of the communication. These included, to demonstrate and explain that enforcing lenders to file a German corporation tax return may have a significant and negative impact on liquidity, and ask the BMF to consider whether a German or foreign agent can be appointed to withhold tax; explain that funds may need to change their year-end to tie in with the accounting requirements of the corporate tax return; request clarity on the dates around in-scope transactions; ask whether offshore branches of German banks can/are required to be a withholding agent; and finally, request details of the tax office to whom a non-resident fund should file a return.
According to ISLA, this is a direct response to the January draft circular. Further issues will be raised during the next phase of its engagement with EY.
ISLA explained it has stressed the urgency of the formal publication of this circular, given the significant change to the tax base it makes.
Hutchings ended the letter by thanking the BMF for its ongoing engagement on this matter.
He said: 鈥淭here are a number of other, more detailed points, which we would like to raise with you鈥攆or instance the possibility of more detailed guidance as to which types of lender are in scope of the Investment Tax Act and which are not鈥攚hich we will send to you in due course.鈥�
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