Under current United Kingdom law, the transfer or issue of UK shares or securities to a depositary receipt system, where depositary receipts are then issued to investors, attracts a one-off charge of 1.5 per cent stamp duty reserve tax (“SDRT”) on the value or price paid for the UK shares or securities. A similar charge applies where such shares or securities are transferred or issued to a clearance system.
Recent case law has held that such a charge, where shares are issued to the depositary or clearance system, is contrary to the European law, in particular the European Capital Duty Directive.
The first case (HSBC Holdings plc and Vidacos Nominees Limited v Commissioners for HMRC (C-569-07)) was decided in the European Court of Justice in late 2009. It had held that the SDRT charge on the issue of UK shares to clearance services (and, by extension, depositary receipt issuers) located within the EU is unlawful.
More recently, a UK First-Tier Tax Tribunal decision (HSBC Holdings PLC and the Bank of New York Mellon Corporation V HMRC) in February 2012 held that the charge to SDRT whereby shares in a UK company were transferred to the Bank of New York Mellon in support of an American Depositary Receipt (“ADR”) programme, and as an integral part of the raising of capital by HSBC, is also incompatible with EU law, in particular the Capital Duty Directive.
On 27th April, 2012, UK HM Revenue & Customs (“HMRC”) announced that they will not be appealing the Tribunal’s decision. They stated, however, that they do not consider that the case has any impact upon transfers (on sale or otherwise than on sale) of shares and securities to depositary receipt systems or clearance services that are not an integral part of an issue of share capital.
The overall effect is that the 1.5 per cent SDRT is no longer applicable to issues of UK shares and securities to depositary receipt systems or clearance systems anywhere in the world.
Any entity that has paid SDRT on the issue of UK shares or securities to a depositary or a clearance service located within or outside the European Union, including any ADR programme, should now make a claim to have that tax refunded. Claims for such refunds have been accepted by HMRC since October 2009 in respect of issues to EU-located depositaries or clearance systems, following the HSBC case. This latest development extends this opportunity to non-EU programmes, including ADRs. Any claim for a refund of SDRT must be made within a period of four years, beginning with the later of the date on which the tax was paid and the relevant accountable date for payment of SDRT under the SDRT Regulations. Any claims made after the expiry of that period will be time-barred.