Tobin Tax: What Are The Implications For Online Trading?

The Tobin Tax is a tax on financial transactions. Although its conception dates back to 1972, it has only been applied in Italy since March 2013, when it was established by the Stability Law of the same year.

In this article we will do an in-depth look at the Tobin Tax, illustrating in which cases and for which financial instruments it is applied. In dealing with trading, we will mainly deepen the application of the Tobin Tax in trading.

Tobin Tax, What Does It Apply To?

According to paragraphs 491, 492 and 495 of Law 228/2013, the tax is charged to the buyer and applies:

  • On transfers of ownership of shares and participatory financial instruments;
  • On derivative contracts and securities underlying shares;
  • High frequency operations.

As you can see, the second point is the one that affects online trading. High-frequency trades are those carried out by powerful software in times of less than half a second.

Online Trading and Tobin Tax

Let’s look at how the Tobin Tax affects online trading and for which types of transactions.

According to the current law, the Tobin Tax affects the shares of Italian companies listed on the Stock Exchange with a capitalization of more than 500 million euros. The capitalization must refer to November 30 of the previous year.

The Tobin Tax is calculated for all shares of Italian companies with such capitalization requirements, even those that are listed on other markets. In addition, it also applies regardless of the country of origin of the order.

Now be careful:

Since the Tobin Tax also applies to derivative instruments that have as their underlying a company with such requirements, it means that it also applies to CFDs.

Summary:

The Tobin Tax is applied to the trading of CFDs that have as underlying Italian shares with a capitalization greater than 500 million euros (to November 30 of the previous year).

How the Tobin Tax is Applied

The Tobin Tax is applied to transactions on financial instruments with the requirements seen so far, in relation to the net balance of the financial instrument traded. It is applied on a daily basis. This means that at the end of each day the Tobin Tax is calculated for each individual economic result concerning the individual securities with the requirements.

Attention: considering what we have just said, this means that the tax is not applied to intraday transactions, i.e. open and closed within the same day.

The mechanism is simple:

If the operation opens and closes within the range of trading hours of a given market, the tax is not applied.

How Much is the Tobin Tax?

For CFDs on stocks and indices, the Tobin Tax ranges from a minimum of €0.25 to a maximum of €200. However, it is difficult to reach very high tax rates, which require investments and above all massive profits.

In fact, the Tobin Tax rate for shares traded on OTC markets is 0.20%, which is reduced to 0.10% for transfers on regulated markets and multilateral trading facilities.

As far as online CFD trading is concerned, let’s summarize:

  • Forex: The Tobin Tax does NOT apply;
  • Share CFDs: The Tobin Tax applies and costs from a minimum of €0.25 to a maximum of €200;
  • CFD on Indices: the Tobin Tax applies and costs from a minimum of 0,25€ to a maximum of 200€;
  • Options on indices: from a minimum of €0.00375 to a maximum of €3.

Example of a Tobin Tax Application

Let’s take a couple of examples to understand how the Tobin Tax is calculated and applied in CFD trading on Italian stocks above 500 million capitalisation, as well as on CFD trading on the FTSE MIB index (also known as FTSE 40 on trading platforms).

Equity CFDs

With regard to CFDs, consider for example the equity CFDs that have as their underlying Unicredit shares.

First calculate the notional value, which is obtained by multiplying the price of a single share by the number of lots.

Therefore, if the value of the Unicredit shares is 18 euros and we open the position on a CFD with 300 lots of Unicredit underlying, we will have a notional value of 5400 euros.

At the opening of the contract, the Tobin Tax will be equal to 1 euro as it falls in the range of 5000-10.000€ . As for the closing, the calculation will be the same, so the total value of the Tobin Tax to be paid for the opening and closing of a Unicredit CFD contract of this type will be 2 euros.

CFDs on Indices

The calculation for the Tobin Tax for index CFDs has a small difference in the calculation of the notional value. In fact, if for example the FTSE MIB stands at 20,000 points and you want to buy 0.5 lots of CFDs with this underlying, the notional value will be 20000 * 5 * 0.5 = 5,000€.

In this case, 5 is the value for every single point of the index. 0.10 is the number of lots.

Again, the range to consider is 5,000 – 10,000€ so it will again be 1€ for the opening and 1€ for the closing.

How to Pay the Tobin Tax

When working with a foreign broker, such as the most popular online brokers including Plus500, Markets.com and others, you must pay tax by the 16th of the month following the month in which your transactions were closed.

Payment must be made using the F24 model, taking these codes into account:

  1. Transfers of ownership of shares and other participative financial instruments: tax code 4058.
  2. Derivatives and other transferable securities: tax code 4059
  3. High-frequency negotiations: Toll code 4060

Therefore, the Tobin Tax code for traditional CFD trading is 4059.

In the new telematic model to be used for the taxation of financial transactions the first three sections have been updated:

  • Section I: this section is dedicated to the number of transactions and taxable income relating to individual derivative financial instruments or high-frequency transactions.
  • Section II: dedicated to the greater credit deriving from the supplementary declarations.
  • Section III: separate columns for excluded/exempt equity and derivative transactions.

Important: The Tobin Tax is not deductible for income tax and IRAP purposes.

For more information about paying the Tobin Tax for the broker or intermediary you are working with, please contact their customer service department and ask for confirmation of how and when to pay the Tobin Tax.

Last note: remember that these regulations can change so it is good to stay up to date about the new rates and methods of payment. For this reason, it is always good to stay in touch with the customer service of your broker.

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