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Capital duties 2

Case C-466/03

Judgment in Albert Reiss Beteiligungsgesellschaft mbH v Land Baden-Württemberg (C-466/03)
28 June 2007, First Chamber

The dispute leading to this case concerns the payment of notarial fees in Germany in relation to the authentication of a transfer of shares. Albert Reiss, a German company, decided to increase its capital through a non-cash capital contribution – the transfer to Albert Reiss of a shareholding in another company. When asked to pay 11,424 euro in notarial fees to certify the transfer, the former German company challenged the validity of the fees in light of Directive 69/335. This concerns the imposition of indirect taxes or duties on the raising of capital and attempts to eliminate tax barriers to the raising of capital, particularly through contributions of capital by shareholders.

The Court held first that the imposition of notarial fees did constitute a tax for the purposes of the Directive. In line with the case law, this is when a charge is levied by notaries who are civil servants and is, at least in part, paid to the state.  According to the ECJ ruling,  Article 10 of the Capital Duty Directive prohibits taxes with the same characteristics as a capital duty. The Court has held previously that the increase in capital constitutes a formality necessary for the carrying on of the company’s business. As such the fees charged in relation to these formalities, which are necessary to complete this operation, fall within the scope of the Directive. The ECJ held that such fees were prohibited.


Duty Capital Directive and Bearer Bonds
Trades in bonds are not chargeable for SDRT where the instrument satisfies the exemption requirements set out in section 79 (4) of the Finance Act 1986. In broad terms this exemption covers most transfers in vanilla structured bonds, but does not include convertible bonds.
Gilts and bonds issued by designated international organisations are also exempt from SDRT.

In an interesting article ((SDRT and bearer bonds, by Sarah Gabbai on May 12, 2010)), Sarah Gabbai finds that since the C-569/07 judgment, “HMRC has permitted UK-based issuers to reclaim any 1.5% Stamp Duty Reserve Tax (SDRT) charges paid on issues of chargeable securities into clearance services or depositary receipt systems within 6 years from the later of the SDRT payment date or the ‘accountable date’ as per the SDRT Regulations…. Despite its acceptance of the ECJ’s decision, HMRC feared that issuers of securities intended for the US market would take advantage of the combined effect of the ECJ ruling and the existing exemption by routing the securities through EU-based systems in order to avoid SDRT, which was not an intended consequence of the legislation. In an attempt to forestall such activity, HMRC announced measures to impose SDRT charges on subsequent transfers of chargeable securities from EU clearance services / depositary receipt systems to non-EU equivalents. These measures have since appeared in Finance Act 2010 with retrospective effect from the date of the ruling.”

According to Mrs. Gabbai, the Court ruling  “could have wider-reaching implications and, in particular, whether it could impact the current 1.5% SDRT charge on issues of bearer instruments (‘bearer duty’), including bearer bonds….The current legislation under paragraph 1(1) Schedule 15 Finance Act 1999 imposes a 1.5% charge on i) issues of bearer instruments in the UK; and ii) issues by (or on behalf of) UK companies of bearer instruments outside the UK. (The charge will not apply if the bearer instruments meet any of the exemptions listed in Part II of Schedule 15, the most obvious of which is the non-sterling denomination exemption).”

Herbert Smith LLP ( 

Tax e-bulletin
5 October 2009))

suggested that the 1.5% bearer duty may also be illegal. Because sterling-denominated bearer bonds are often issued by UK companies into the international capital markets, and any 1.5% bearer duty may be contrary to Directive 69/335/EEC if EU investors are involved.


HMRC will also consider whether and how to amend the SDRT rules to ensure movements of shares into and within clearance services bear their fair share of tax, whilst ensuring the rules are compatible with Community law.


The imposition of tax on the acquisition of securities newly issued on the occasion of a public offer constituted taxation on the initial acquisition of newly issued shares, which article 11(a) prohibits.

Wider Implications of the ECJ Decision????

considered that the SDRT charge on the transfer of existing (i.e. not newly issued) shares to the service also contravened article 11(a) of the Capital Duty Directive.

The UK’s Finance Act 1986 also applies a 1.5 per cent SDRT charge to the issue or transfer of shares to depositary receipt issuers (DRIs). It is questionable whether the charge to SDRT on the issue of shares to DRIs is valid in the light of the decision in HSBC Holdings plc. The Advocate General’s opinion in that case also calls into question the legality of the charge to SDRT on the transfer of existing shares to DRIs.


Poner integramente:

Stamp Taxes Group Litigation Order

On 21 October 2010, the High Court granted a group litigation order (“GLO”) to provide for the case management of claims for restitution and/or damages against the Commissioners for Her Majesty’s Revenue & Customs (“HMRC”) in circumstances where it is alleged that:

•(i) the charge to stamp duty at the rate of 1.5% pursuant to sections 67 or 70 of the Finance Act 1986 arising on the transfer of relevant securities to a depositary receipt issuer or a clearance service (wherever located); or
•(ii) the charge to stamp duty reserve tax (“SDRT”) at the rate of 1.5% pursuant to sections 93 or 96 of the Finance Act 1986 arising on: (a) the issue of chargeable securities to a depositary receipt issuer or a clearance service located outside the European Union; or (b) the transfer of existing chargeable securities to a depositary receipt issuer or a clearance service (wherever located),
contravened Article 10 and/or Article 11 of Council Directive 69/335/EEC (as amended by Council Directive 85/303/EEC), and/or one or more Articles of the Treaty establishing the European Economic Community, Council Directive 88/361/EEC, or the Treaty on the Functioning of the European Union.

The terms of the GLO provide for the determination of the following further issues: (i) whether claims for restitution commenced by claimants in the High Court are excluded (in whole or in part) by any applicable statutory regime; (ii) whether claims for restitution and/or damages where the relevant SDRT or stamp duty was paid more than 6 years before the claims were issued are entirely and legitimately time-barred; and (iii) if the charge to SDRT or stamp duty under sections 67, 70, 93 or 96 of the Finance Act 1986 is found to be contrary to EU law, whether a claimant has a right to claim (by way of restitution) an award of compound interest in respect of the time value of any monies paid to HMRC by way of SDRT and/or stamp duty, and/or whether a claimant is entitled to claim damages.

The GLO is called the Stamp Taxes Group Litigation and applies to all claims falling within its scope irrespective of when those claims were issued. The Chancery Division of the High Court of Justice is responsible for the management of any claims to which the GLO applies and PricewaterhouseCoopers Legal LLP of 1 Embankment Place, London, WC2N 6DX have been appointed as the Lead Solicitors (contact: Mr Mark Whitehouse, telephone number: 020 7804 1455).

Potential claimants or other interested parties who wish to find out more about the terms of the GLO or who have any queries should contact HRMC.

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