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Scarto Tax Explanation
- As a generale rule, the rate applied as Substitute tax on Italian Bonds is 12.50% and will be applied if the involved safekeeping account is setup as taxable, i.e. is not covered by proper fiscal documentation allowing relevant tax exemption.
Just a brief explanation about how Italian substitute tax works:
Taxable clients buying/selling Italian bonds traded on the gross market basis are debited/credited as follows:
RECEIPT AGAINST PAYMENT/ RECEIPT FREE: client is Credited with the amount of substitute tax on interests accrued from the previous coupon date of involved security until the settlement date of the trade (and on possible issue discount, i.e. Scarto ).
DELIVERY AGAINST PAYMENT/DELIVERY FREE: client is Debited with the amount of substitute tax on interests accrued from the previous coupon date of involved security until the settlement date of the trade (and on possible issue discount ).
ON COUPON DATE CLIENT client is debited with the amount of tax related to the whole period (from the previous coupon payment).
As a consequence, in case of a trade, just as an example:
Period interest rate/days of period(from previous coup. paym to following coup paym)*days from previous coup. paym to settl date = rate of trade
NV*rate of trade%*12.50% = Substitute tax on interests
The application of the substitute tax for BOT (a particular kind of Governmemnt zero coupon bond) works instead as follows:
RECEIVE AGAINST PAYMENT/RECEIVE FREE: client is debited with the amount of the substitute tax on interests accrued from the settlement date of the trade until the maturity date of involved bond.
DELIVER AGAINST PAYMENT/DELIVER FREE: client is credited with the amount of the substitute tax on interests accrued from the settlement date of the trade until the maturity date of involved bond.
As a consequence, in case of a trade, just as an example:
Redemption price-issue price/life of involved bond*days from settl date to maturity date = rate of trade
NV*rate of trade%*12.50% = Substitute tax on interests
Just for your info, "Scarto" is the Italian for "issue discount": if the specific involved bond had a redemption price higher than issue price, an additional piece of 12.50% taxation would be applied on this percentual difference on trades and redemptions.
As a consequence, in case of a trade, just as an example and as a general rule:
Redemption price-issue price/life of involved bond*days from issue date to settl date = trade issue discount (i.e. Scarto) rate
NV*Scarto rate of trade%*12.50% = Substitute tax on Scarto
Such rules can be applied to any kind of bond transaction, independently from the involved kind of trade: no matter if it is free of paym or against paym.
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