Financial services tax digest- April 2025

As Benjamin Franklin famously said, nothing is certain in this life except death and taxes. As we enter the second quarter of 2025, we find great uncertainty – and tax is at the heart of it. The prospect of an international tariff war looms. Although financial services businesses are not expected to be the primary targets of actions and retaliations by national governments, they could suffer collateral damage, if their local economies and clients are adversely affected.

Banks will need to manage their credit exposure in sectors most exposed to increased tariffs, particularly the automotives sector. If world trade flows are reduced, the banking segments most impacted may include Trade Finance and Shipping Finance. Credit standards may be tightened more generally, because of the impact of the tariffs on the economy. The economic impacts on banking operations will come under scrutiny. Enhanced hedging against FX volatility may be needed. Stress tests are already being conducted. Some banks are said to be exploring ringfencing of legal entities to mitigate potential losses in the event of a heightened global trade war.

Insurers are not immune from the disruption. Increased tariffs will cause increased costs across many sectors. Insurers will need to monitor the effects of tariffs on inflation and costs, to forecast cost trends, and to make underwriting and pricing decisions.

Asset managers will have to examine how changes in tariffs will affect business sectors, consumer behaviour and national economies and redefine their investment strategies.

Governments, too, may find their projections altered. If economic activity falters, state budgets could come under pressure, leading to tax rises.

In this, our second Global Financial Services Tax Digest, we focus on tax developments as they affect the financial services sector across seven jurisdictions. We include updates on jurisprudence, new and planned legislation, covering a range of topics. We cannot eliminate life’s uncertainties, but we hope that by sharing our tax knowledge with you, our readers, we can help you to see what is on the horizon.

Ian Thomson, Associate Director, Banking and Capital Markets Tax, Forvis Mazars

France

A significant addition into French tax law of the “beneficial owner” concept for banks and broker dealers active on equity and equity derivatives locally

In February 2025, the French Finance Bill for 2025 was enacted.

Among other provisions, the Finance Bill strengthens the French tax rules against dividend arbitrage transactions.

The French tax code now includes the concept of “beneficial ownership” to determine the French withholding tax applicable on dividend distributions.

Article 119 bis, 2 of the French Tax Code (“FTC”) now provides that a French withholding tax shall be levied on all cross-border dividend distributions that benefit to a “beneficial owner” that is not tax resident in France, subject to applicable tax treaty or EU directive protection.

This amendment of Article 119 bis of the FTC has been designed by a group of members of parliament (so called “amendment Husson”) following the decision of the French administrative Supreme Court rendered on December 8, 2023[1] in which the judges ruled that Article 119 bis of the FTC did not contain any “beneficial ownership” concept which could be used by the French tax authorities as a legal basis to challenge banks and broker dealers on some dividend arbitrage transactions. This latter Supreme Court decision left the French tax authorities with no other way than to use the complex anti-abuse law procedure to challenge some dividend arbitrage transactions it considered as being aggressive.

In the current tax environment, domestic and foreign banks with equity and equity derivative desks in France must address immediately the direct consequences for their business of the “beneficial ownership” concept provided for by Article 119 bis of the FTC and must start to withhold taxes in France on some transactions that are now directly captured by the amended article of the FTC.

On-going discussions among banks active in France on equity and equity derivative transactions are taking place with the French tax authorities to clarify quickly whether some transactions may be excluded from withholding, either directly or indirectly, via a refund process when equity transactions are rightly dealt with on exchanges where it is quasi-impossible to determine the “beneficial owner”.  In the meantime, the relevant banks and broker dealers may carefully address the legacy and new transactions they have booked and are currently booking on their desks while focusing now on the newly enacted “beneficial ownership” tax concept.

Jérôme Labrousse, Partner, Forvis Mazars in France

Germany

Federal election; crypto-asset taxation

1. Federal election on 23 February 2025
   
   On 23 February 2025, the federal election to the German parliament took place. Currently, the winning parties are carrying on coalition negotiations to build a new government. By now, some plans and possible initiatives resulting from these previous negotiations have been published, including potential changes in German tax law. However, to date these plans and initiatives are not yet concrete and it remains to be seen what will be decided upon until the new government is formed and beyond.
   
2. New circular on crypto assets
   
   On 6 March 2025, the German Federal Ministry of Finance (“BMF”) published a circular on “Questions regarding the income tax treatment of specific crypto-assets in Germany”[2], which replaces the initial circular on this topic from 10 May 2022.
   
   The circular provides further definitions and discusses various regulations, e.g. regarding declaration, cooperation and record-keeping obligations (from paragraph 87). This chapter includes e.g.:

• Explanations of the burden of proof of tax payers in regard to all transactions at de- and centralised exchanges;
• The general obligation to cooperate applies and especially where crypto-assets are purchased or sold through a centralised exchange run by a foreign operator: taxpayers are subject to an extended obligation to cooperate (e.g. they must regularly and completely retrieve the transaction overviews made available by centralised exchanges);
• The general tax-related (and non-tax law) account-keeping and record-keeping obligations, as well as the GoBD,[3] apply.

Furthermore, the document discusses details on so-called tax reports, a summary of crypto-related tax information, which service providers are offering to taxpayers and which may serve as a basis for the tax assessment (paragraphs 29b, 90). In addition, it comments on the “claiming” of crypto assets (paragraphs 13, 48a) and the valuation of assets or transactions, e.g. based on daily rates (paragraphs 43, 58 and 91).

Where taxpayers hold or trade crypto assets, it is crucial that they familiarise themselves with the declaration, cooperation and documentation requirements and ensure that their documentation is compliant with tax (and non-tax) law.

Non-fungible tokens (NFTs) and liquidity mining are not yet covered, neither are employment and wage tax related questions. It is expected that the circular will be further developed in the future. Due to the international relevance of the contents, a non-legally binding English translation of the circular has been provided by the BMF.

Veronika Gloßner, Partner, and Jens Nußbaumer, Partner, Forvis Mazars in Germany

Ireland

Consultation on tax treatment of interest

The Department of Finance has held a public consultation on the tax treatment of interest, seeking views on reforms to make the tax regime resilient, competitive, and aligned with international standards.

Current System

Taxation of interest income of companies depends on whether the source is active or passive:

• Interest income from trade: Interest income from trading activities is taxed at the standard corporate tax rate of 12.5%. This applies to financial institutions and companies whose primary business involves lending and borrowing (e.g. Group Treasury companies).
• Interest income from investments: Interest income from investments, such as deposits or bonds, is classed as non-trading income and taxed at 25%.

Interest expense can be deductible under specific conditions:

• Interest as a trading expense: Interest incurred “wholly and exclusively” for the purposes of a trade is deductible against trading income. This includes interest on borrowings for day-to-day business operations. The deduction reduces taxable trading profits, which are taxed at 12.5%.
• Interest as a charge on income: Interest that qualifies as a charge on income, such as interest on loans to acquire certain investments or shares in a trading company, is deductible against total income, including non-trading income.  

Issues

Stakeholders’ responses included:

1. Complexity and coherence: The current rules are a patchwork, built up over time. BEPS initiatives on Interest Limitation, Transfer Pricing and Hybrid Mismatch have added complexity.
2. Asymmetry: In groups, the treatment of interest can be asymmetrical. For example, if a group borrower receives a deduction against trading income at the 12.5% rate, while the lender’s interest income is taxed at 25%, there is a disparity in taxation of the intra-group financing.
3. Onerous conditions for “charge on income”: To qualify as a charge on income, interest must meet various conditions, otherwise the benefit is lost entirely. Some conditions (e.g. the need to have a common director throughout the loan) are onerous and lack clear policy rationale.

Possible solutions

Some solutions suggested by stakeholders included:

1. Partial participation exemption for interest: A partial participation exemption would reduce the effective tax rate on group interest income, currently taxed at 25%, to the tax rate at which the group borrower obtains a deduction (12.5%). This would remove the intra-group disparity.
2. Simplifying deductibility rules: Simplifying interest deductibility rules could reduce complexity and improve compliance. This might involve streamlining the interest rules for trading expense or charge on income by introducing a general business purpose test.
3. Implementing a unified framework: A unified framework for taxation of interest income and expense could provide clarity, consistency and alignment with international best practices.

Changes arising from the consultation could be put in the 2025 Finance Bill and take effect from 2026.

Joe Walsh, Director, Forvis Mazars in Ireland

Spain

New tax on the interest margin and fees of certain financial entities

A new tax[4] has been introduced for financial entities in Spain, for fiscal years starting in 2024, 2025, and 2026. This tax applies to net interest and commission margins earned by credit institutions, financial credit establishments, and foreign branches operating in Spain.

The taxable base is the net positive margin from interest and commission income generated in Spain, excluding revenues from foreign branches. A progressive tax scale applies, from 1% on the first €750 million to 7% on amounts exceeding €5,000 million. The first €100 million is exempt (prorated for shorter tax periods). Structural transactions exceeding the threshold may face an additional 15% charge.

The tax liability is reduced by 25% of the CIT or NRIT net liability for the same period, with further deductions for entities with a return on total assets below 0.7%. The net liability is non-deductible for CIT and NRIT purposes.

The tax period aligns with the fiscal year and accrues on the last day of the month following the tax period’s end.

An advance payment of 40% is due within the first 20 days after accrual (i.e., February for calendar-year entities). The final filing is due within the first 20 days of the eighth month after accrual (i.e., September for calendar-year entities). A special deadline applies for the FY24 advance payment.

Fernando Plata Moujir, Senior Manager, Forvis Mazars in Spain

Switzerland

Withholding tax: Decision on “beneficial ownership” in refunds based on a double tax treaty

The Swiss Federal Supreme Court recently ruled on the issue of “beneficial ownership” in relation to withholding tax refunds under a Double Taxation Agreement (DTA), specifically in case of cross-currency swap transactions with the underlying securities. In its decision, the Court confirmed that a Danish financial institution satisfied the beneficial ownership requirement for a refund of Swiss withholding tax on interest income from Swiss bonds.

The case involved the institution purchasing Swiss federal bonds and using cross-currency swaps to manage foreign exchange risks. Initially, the Swiss Federal Tax Administration (SFTA) and the Federal Administrative Court had denied the refund, arguing that the swap arrangements caused the institution to lose beneficial ownership. The Court, however, concluded that the institution retained the right to the interest income, as its payment obligations under the swaps were not dependent on receiving the bond interest, a key factor in determining beneficial ownership.

The ruling emphasizes that swap transactions do not automatically disqualify a recipient from DTA benefits, as long as they bear the relevant risks. However, the Court also noted that Switzerland may deny withholding tax relief in cases of treaty abuse, particularly when arrangements are deemed to be tax-driven.

This decision clarifies that investors in Swiss securities can generally expect withholding tax refunds if they assume the default risk on the securities and the transaction is not structured solely for tax avoidance. It also highlights the need for careful assessment of swap or similar transactions in relation to tax planning. Read the full article here.

André Kuhn, Partner, Forvis Mazars in Switzerland

United Kingdom

Legislation, mitigation and litigation

In March 2025, the Finance Act was enacted.[5] The Bill increasing employers’ national insurance contributions  to 15% received the royal assent in early April.[6]  (Read more here.)

The Finance Act is wide-ranging. The increase to 32% of capital gains tax on carried interest gains will impact some individuals in the asset management sector. The Act also extends the scope of alternative finance legislation, makes technical amendments to the UK’s Pillar 2 rules as well as to transfer pricing rules on advance pricing agreements, and facilitates international exchange of information under the crypto-asset reporting framework. (Read more here.)

For internationally mobile employees, from April 2025, the “remittance basis” for non-domiciled individuals is replaced by the Foreign Income and Gains (“FIG”) regime. Many non-domiciled individuals in the financial services sector will be affected. Employers and employees will face the burden of reporting FIG, as well as the tax cost of the 30% overseas workday relief (“OWR”) restriction.

Separately, from April 2025, EU, EEA and Swiss nationals will need an Electronic Travel Authorisation (“ETA”) for short-term stays in the UK, including business visits. Without an ETA, travellers may be unable to board their trip to the UK.[7]

Looking ahead, the government plans to shift responsibility for payroll taxes (“PAYE”) from “umbrella companies” to the client or agency in the supply chain. From April 2026, financial services firms engaging workers via umbrella companies will find the tax mitigation becomes an ineffective.[8]

Banks and vehicle finance companies await the outcome of the appeal to the Supreme Court of the Close Brothers decision on undisclosed commissions.[9] If the appeal fails, as an indirect consequence, banks could find that compensation due to customers is not tax deductible.[10]  

Ian Thomson, Associate Director, Forvis Mazars in the UK

United States

Legislative progress, government finance, loan workouts

Congress averted a government shutdown by passing legislation to fund the government through September 30, 2025.  The funding bill by and large generally extends fiscal 2024 spending. However, it rescinds more than $20 billion in funding for the IRS that could impact IRS operations during tax season, ongoing audits, and pending refund claims

With government funding resolved for the time being, Congress is returning to tax and budget legislation. The House of Representatives agreed on a budget framework that reduces spending by at least $1.5 and tax cuts of up to $4.5 billion.   The Trump administration’s top priority is a permanent extension of the expiring individual income tax provisions of 2017’s Tax Cuts and Jobs Act.  Lawmakers have also expressed an interest in addressing issues related to bonus depreciation, R&D capitalization, and deductibility of interest for businesses.  Limitations on interest deductibility have not generally impacted banks.

It remains to be seen if there are sufficient revenue offsets available for these items as well as some of President Trump’s campaign promises, including an exclusion from tax on tips.  Republicans have made it clear that passing tax legislation is a key priority for 2025, so we expect things to continue to evolve as they push forward to present a bill.

Currently, there is a rise in delinquencies in certain lending sectors, most notable auto lending.  As loan workouts and charge-offs occur, it will be important for taxpayers to assess the tax impact of these transactions.  Loan workouts should be evaluated under Reg. 1.1001-3 to determine if a taxable event is triggered.  If a charge-off is recorded on a loan or other receivable for financial statement purposes, taxpayers should assess whether the charge-off is eligible for a partial worthlessness deduction for tax purposes under IRC section 166. 

Leigh Hayes, Partner, Forvis Mazars US

[1] French administrative Supreme Court, December 8, 2023, n°472587; [2] see German and English version of the circular in download section under Bundesfinanzministerium – Einzelfragen zur ertragsteuerrechtlichen Behandlung bestimmter Kryptowerte; [3] “Principles for proper management and storage of accounts, records and documents in electronic form and for data access” (Grundsätze zur ordnungsmäßigen Führung und Aufbewahrung von Büchern, Aufzeichnungen und Unterlagen in elektronischer Form sowie zum Datenzugriff (GoBD), Federal Ministry of Finance circular of 28 November 2019; [4] Law 7/2024, published on December 21, 2024, replacing the previous levy on credit institutions. Royal Decree-Law 9/2024, published on December 24, 2024, modified certain provisions to mitigate accounting impacts, yet further clarifications are expected; [5] Finance Act 2025; [6] National Insurance Contributions (Secondary Class 1 Contributions) Bill – Parliamentary Bills – UK Parliament; [7] Visiting the UK as an EU, EEA or Swiss citizen – GOV.UK; [8] Tackling non-compliance in the umbrella company market: Government response (Accessible) – GOV.UK; [9] Hopcraft and another (Respondents) v Close Brothers Limited (Appellant) – UK Supreme Court; [10] s.133A Corporation Tax Act 2009