Stamp Duty Reserve Tax – Landmark decision
A landmark European Court of Justice decision ruled that the 1.5% Stamp Duty Reserve Tax (“SDRT”) charge was contrary to the Capital Duty Directive and the Free Movement of Capital. This has created a significant opportunity for businesses to recover SDRT paid to HMRC in certain circumstances as the decision affects SDRT paid since the charge was first introduced in 1986.
In light of this decision, HMRC have released their initial views on how transactions will be treated for SDRT. With immediate effect HMRC will not seek to apply a 1.5% SDRT on the issue of shares into a clearance service within the European Union to which a 1.5% charge would have previously applied.
HMRC have also announced that they intend to bring forward legislation to minimise the tax loss to the Exchequer. This legislation is aimed at situations where securities intended for the US market could be routed via a clearance service within the EU to avoid a stamp duty or SDRT charge. It is expected that this legislation (once introduced) will be applicable from 1 October 2009.
This decision may be relevant to financial and banking businesses where UK securities have been issued to either clearance services or depositary receipt systems where a 1.5% SDRT charge has been incurred. It is estimated that HMRC may face claims from businesses for hundreds of millions of pounds of overpaid SDRT.