Cross-matching and tax clarity

Thu, 01/10/2015

Amendments to the CDCC rules will influence the operating models of Croatian market participants. By Jelena Bilušić, Relationship Manager, GSS Croatia     

The Rules and Procedures of the Central Depository & Clearing Company (CDCC) in Croatia will go through a number of amendments. Among these is the introduction of cross-matching criteria. Additionally, non-taxable dividends disclosure requirement deadlines have now been regulated.

In general, the amendments have been driven by the intention to introduce the CCP on the market. However, amendments related to the CCP were not accepted as the whole process of the introduction of the CCP has been postponed until further notice.

The amendments to the Rules and Procedures that have been accepted are primarily related to the introduction of cross-matching criteria. As of 21 September cross-matching is mandatory for all market participants, including local broker and money market participants. As per the new criteria, to achieve full STP both settlement parties to the transaction should enter their own local CDCC code together with the respective CDCC account number. In order for settlement instructions to be matched, stated CDCC account numbers must differ. This change will have no impact on the current set up of settlement instructions for clients of GSS Croatia until real STP, based on local participants’ BIC code and the respective CDCC account number, is introduced.

Furthermore, the procedure surrounding taxable dividends, processed using the CDCC as the paying and tax agent, was previously part of the protocol for the cooperation and implementation of taxable payments to holders of the securities that are kept in custody accounts. With the amendment, provisions previously covered by the protocol are now transposed into the CDCC rules.

The above mentioned amendment will not impact the clients as it has been in effect since 2013 through the previously mentioned protocol. In order to proceed with a taxable dividend payment, local custodians must provide CDCC with the beneficial owners’ details (CDCC account number, local tax ID (OIB) number, type of entity, residency, and full address), no later than one working day prior to the dividend payment date. CDCC will put on hold the dividend payments for securities deposited on custody accounts until the mandatory data is delivered.

GSS Croatia strongly recommends that all beneficial owners’ details are disclosed prior to each dividend payment to ensure compliance with local regulatory requirements on reporting of dividend proceeds towards the Croatian Tax Administration

 

Clarification on non-taxable dividends

The amended procedure additionally clarifies non-taxable dividend payments where CDCC is engaged by the issuer as the paying agent and thus has taken over the reporting responsibility towards the Croatian Tax Administration.

In order to proceed with non-taxable dividend payments for natural persons, local custodians must provide CDCC with the same beneficial owners’ details as for taxable dividends. Investors/legal persons have the possibility to disclose beneficial owners’ details by the end of the calendar year in which the dividend payment has been executed. Disclosure of beneficial owners’ details after the dividend payment primarily relates to new investors on the market and investors that did not manage to obtain a local tax ID (OIB) number in time.