Stamp Duty Reserve Tax on Issue of Shares for Depositary Receipts Held to Have Been Wrongly Levied


Following the recent First-tier Tribunal decision in HSBC Holdings PLC and The Bank of New York Mellon Corporation v HMRC [2012] UKFTT 163 (TC) HMRC have accepted that the levy of a 1.5% Stamp Duty Reserve Tax (“SDRT”) charge on a company raising capital to the extent that it issues shares represented by depositary receipts including American Depositary Receipts (“ADRs”) is contrary to EU law. The Tribunal held that SDRT cannot be charged on the issue of depositary receipts where this is connected with the raising of capital by an EU company, regardless of the location of the depositary. HMRC have now announced that they will not be appealing against the First-tier Tribunal decision and therefore repayment claims can be made for SDRT paid on issues of shares to depositary receipt issuers and clearance services.

The EU Capital Duty Directive restricts the duties and taxes which can be imposed on a company when it issues share capital. HMRC argued in HSBC that the SDRT charge was not a levy on capital raising but a charge on the transfer to the Bank of New York Mellon. The Tribunal held that the transfer of shares to the Bank of New York Mellon was integral to the raising of new capital. Consequently, the 1.5% tax levied on the transfer did therefore amount to a tax on the issue of HSBC shares which is incompatible with the EU Capital Duty Directive. It also confirmed that the Capital Duty Directive applies to issuers in the EU irrespective of the location of investors.

The practical effect of this is twofold...

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