End of the line for dividend arbitrage?

Changes in national dividend tax laws in Italy and France are unlikely to catch out equity derivatives desks. But they do look set to hit dividend tax arbitrage trading and may reduce overall volumes.

Dividend taxation policy in Europe has traditionally been highly fragmented. France, for example, with its avoir fiscal tax credit established in 1965 to eliminate double tax on dividends, allows domestic shareholders to claim as much as 50% back on dividend tax. A similar system existed in Italy until the beginning of this year, also offering a 50% tax credit for investors.

This meant domestic