Companies that have paid stamp duty reserve tax ("SDRT") on issuing shares into a clearance service on a listing on a non-UK stock exchange should take note of the Advocate General's opinion in the ECJ case of HSBC Holdings plc v HMRC (C-569/07). If the AG's Opinion is followed, then such companies will be able to get a refund of the SDRT paid. It is also possible that any decision that the charge is illegal under EU law will also be applicable to shares issued to a depositary receipt system (such as on the creation of American Depositary Receipts).

Companies might consider making refund claims now rather than waiting for the ECJ final decision.


Secondary listings by UK companies in EU countries often involve the issue of shares into a clearance service.

Stamp Duty Reserve Tax ("SDRT") is normally imposed at a rate of 0.5% on agreements to transfer certain kinds of securities (including shares of a company incorporated in the UK). However, where such securities are transferred or issued to the provider of clearance services, the provider is liable to a one-off SDRT charge at a rate of 1.5%, but subsequent agreements to transfer shares held in that clearance service will not be subject to the 0.5% charge. Typically, the company issuing the shares agrees to bear the 1.5% entry charge.

As an alternative to the 1.5% entry charge, the legislation provides that the operator of a clearance service can elect out of the entry charge and instead apply the normal 0.5% charge on transfers within the clearance system.

EU Law

EU Law can place restrictions on what tax laws a member state such as the UK may pass. In particular:

  • the imposition of indirect taxes on the issue of securities by a company (Article 11 of Directive 69/335/EEC (the "Directive")) if forbidden. However, Article 12 of the Directive permits Member States to impose duty on a transfer of securities; and
  • Article 56 of the EC Treaty forbids restrictions on the free movement of capital between EU Member States if they discourage investments between States, unless those restrictions have adequate justification.  


HSBC plc, a UK incorporated company, sought to acquire a French company and offered its shares as an alternative to cash consideration. To make the share consideration more attractive to shareholders operating on the French market, HSBC decided to list its shares to be given as consideration on the Paris Stock Exchange. As was common with such listed shares, the consideration shares were issued into the clearance service ("Sicovam") associated with the Paris Stock Exchange. HSBC paid £27 million of SDRT charge on the listing.

HSBC sought a refund from the UK tax authorities for the one-off SDRT charge paid on the basis that the charge breached:

  • the Directive; and
  • fundamental rights under the EC Treaty, primarily, the right to the free movement of capital (Article 56 of the EC Treaty).  

The matter was referred to the European Court of Justice ("ECJ") and Advocate General ("AG") Mengozzi delivered an opinion on 18 March 2009.

AG's Opinion

Whether the imposition of SDRT was permissible in light of the Directive?

The AG opined that the imposition of a one-off SDRT at a rate of 1.5% on the transfer or issue of shares into a clearance service was incompatible with the prohibition of tax on the issue of shares contained in Article 11 of the Directive.

The UK Government had argued that the one-off SDRT charge was effectively a tax collected in anticipation of future transfers of shares and so within the Article 12 permission to tax share transfers. The AG rejected this, drawing attention to the facts that the 1.5% SDRT charge clearance service charge was calculated on a different basis to the regular 0.5% transfer charge and was imposed on a different person.

The AG also held that if the first transfer of the shares following issue was into a clearance service, and this transfer triggered the 1.5% SDRT clearance service charge, then the Article 11 prohibition of charge would still apply. Such a transfer should be regarded as forming an integral part of the process by which the shares were issued into the clearance service, thus engaging Article 11, and the exemption from the prohibition in Article 12 for transfers of shares would not apply.

The AG finally considered whether the possibility that the operator of a clearance service could opt into the regular regime might lead to the conclusion that the 1.5% charge should be permitted. The AG thought not.

Whether the imposition of such a tax can be reconciled with the fundamental freedoms, primarily, the free movement of capital?

Given that he considered that the 1.5% SDRT charge contravened the Directive, the AG considered that it was not necessary to decide whether the SDRT charge was in breach of the fundamental freedoms laid down in EC law.

Nonetheless, he expressed his view that the one-off 1.5% SDRT charge constituted a restriction on the free movement of capital and was thus in prima facie breach of Article 56 of the EC Treaty. He rejected the UK government's argument that the special tax regime was justified by the need to ensure effective fiscal supervision.

What Next?

The ECJ’s judgment is awaited. The ECJ are not obliged to follow the opinion of the AG (though they generally do). If they do not follow it in this case, the status quo remains and any previous SDRT charges will remain lawful.

If the ECJ do rule that the tax is illegal then there is the further issue generally on time limits for claims. The current law on the time barring of claims based on European rights is not clear. HMRC are likely to argue that the 6 years limitation period runs from date of payment of the SDRT. Taxpayers will want to argue that the 6 years runs from the date the ECJ held that the UK law was wrong. In practice, such a limit would permit claims going as far back as either 1988 (when the UK abolished capital duty, which was permitted under the Directive) or possibly 1986 (when SDRT was introduced). The HMRC are currently vigorously opposing such a time limit in other cases.

Who should these developments interest?

If the ECJ follows the AG's opinion that the 1.5% clearance service charge can amount to an impermissible tax on the issue of securities then the following UK tax charges could or might be affected:

  • the 1.5% clearance charge where securities are issued into a clearance service;
  • the 1.5% clearance charge where securities are transferred into a clearance service, where that transfer was the first transfer after issue;  
  • the analogous 1.5% charge imposed in similar situations when securities are issued or transferred to a person issuing depositary receipts. Thus companies which have paid SDRT on ADRs issued into the US or on the issue of other depositary receipts might benefit; and  
  • The 1.5% bearer stamp duty on the issue of certain bearer instruments.  

As noted above, the position on time limits applying to claims is not clear. A taxpayer who has paid any of the taxes of duties outlined above and who wished to reserve his position to the maximum would be well advised to consider putting in a protective claim now (including for interest), so that it could make the maximum possible recovery once the final position was clearer.