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The implications of the European Court of Justice’s decision in HSBC Holdings plc and Vidacos Nominees Ltd v CRC (Case C-569/07) are being considered in detail by HMRC and the Treasury.
In light of the judgment the Revenue says it will not apply a 1.5% stamp duty reserve tax on the issue of shares into a clearance service within the EU where it previously would have done so.
Legislation currently provides certain exemptions with the aim of preventing a double charge arising when securities that have already been exposed to a 1.5% charge move between clearance services or between depositary receipt schemes, or between a clearance service and a depositary receipt system, and vice versa.
HMRC say legislation will be brought forward to take effect from 1 October 2009, to ensure that movements of securities between these different systems are taxed.
Specifically, as the 1.5% charge on issues into clearance services within the EU will no longer apply in future, the exemptions currently in place could mean that securities intended for the US market could be routed via a clearance service within the EU to avoid a stamp duty or stamp duty reserve tax charge.
This could lead to a significant tax loss for the Exchequer.
The new legislation will ensure that where securities enter a clearance service or depositary receipts scheme without stamp duty or stamp duty reserve tax, in accordance with the HSBC decision, a subsequent transfer of those securities into a clearance service or depositary receipts scheme will no longer benefit from the exemptions designed to prevent a double charge.
Commenting on the likely effect of the decision, Michael Quinlan, head of stamp taxes at Deloitte, who assisted HSBC in the case, said, ‘Our client sought to recover stamp duty reserve tax levied on capital it raised by issuing shares on the French stock exchange on the grounds that the charge infringed its EU law rights.
'Now that the ECJ has followed the Advocate General’s recommendations, HSBC will finally receive the SDRT to which it is entitled. The sum at stake is substantial.'
He added that the ruling clearly had implications for many other businesses.
KPMG’s Chris Morgan suggested that the decision could trigger tax rebate claims of between half and one billion pounds from UK companies: ‘This particular case concerned a European clearance system.
'But in our view the same principle should apply where shares have been issued into the US depositary receipt system. This means there is the potential for claims way beyond purely European cases.’
Mr Morgan added that while HMRC will expect claims from taxpayers going back over the past six years, potentially ‘such claims could go back as far as 1986'.
