Acupay In Italy

The same key problems were present when Italian issuers started looking into USD funding directly raised in the USA:

1.      Complex domestic Italian tax regulations that put a substantial burden on the issuer;

2.      Systems and procedures in place to identify investors and collect taxes on domestic bonds or Eurobonds could not be utilized

3.      No tax certification services available via DTC

4.      Issuance through a USA subsidiary instead of directly from the Italian company entailed certain costs and risk

In short, even though there were substantial benefits to seeking cross-border funding directly in the USA, there was no market access to issue the bonds, and to guarantee ongoing tax compliance. An additional challenge compared to the Spanish market was that:

1.      Italian tax laws required daily certification of exempt investors and their positions to comply with the administration of a tax regime based on accrued interest or “pro rata temporis” taxation. On the contrary. the Spanish regime only considers interest that is received on coupon payment which is less complex; and

2. To activate the beneficial tax regime for exempt investors in Italian debt instruments (Italian Law Decree 239 of April 1996, hereafter “LD239”), the bonds need to be issued through an entity acting as second level bank i.e. an institution with a direct electronic connection to the Italian tax authorities. DTC, or any other non-Italian CSD are not second level banks. (If DTC accepted foreign securities the problem would be solved but they don’t).

The solution that Acupay and Monte Titoli, the CSD of Italy, conceived with the help of prominent local lawyers, addressed all of these issues in a systematic and structural way:

1. Acupay runs a patented system (which you can read more about on our Patent publication page) allowing for DTC participants to transmit position confirmation & beneficial owner data in an automated manner via online portal. At the same time, the system produces all necessary documentation in an automated manner. The info received from DTC participants is reconciled in real time with information that is transmitted by DTC via secure channels. Beneficial owners that are disclosed, documented, & eligible are included by Acupay in reporting that is sent to IT tax authorities via MT. Their income from the bonds is not taxed and they receive payments that reflect their tax status on the coupon payment dates of the bonds. For those investors that are ineligible, Acupay calculates tax on their position movements, taking into account sales & purchases & the accrued interest thereof. At the end of every month, taxes due are collected by Acupay & MT & transmitted to the IT tax authority.

2. To solve the Italian tax requirement to have the security issued through a second level bank. The Italian Yankee bonds issued under the Acupay / Monte Titoli structure are initially created locally in IT via MT, but a US depositary receipt must be created based on the IT security before it can be accepted / eligible in DTC. Due to daily certification regime, all positions in receipt vs local security must match 100% (ie., no gaps in positions—all but be acounted for). Local secondary banks therefore must balance positions on the same business day so as to avoid gaps.

For more visual information, consult the graphics below: