Depositary receipt and clearance services: 1.5 per cent higher rate charge: instalment arrangements - shares issued/transferred to a third party until the last instalment is paid
Instances may occur where under the terms of an instalment arrangement, chargeable securities are to be issued or transferred and held by a third person (usually a custodian/nominee for the subscriber or purchaser) until the last instalment is paid by the purchaser.
In this situation, two different stamp tax scenarios can arise:
- When the final instalment is paid and the third person transfers the securities to a depositary receipt issuer (or its nominee) or clearance service (or its nominee) located anywhere in the world, a charge to Stamp Duty Reserve Tax (SDRT) at the rate of 1.5 per cent arises, calculated by reference to the market value of the securities at the time of transfer ( FA86/S93 (6)(c) or FA86/S96 (4)(c) );
- the subscriber/purchaser acquiring new or registered securities may receive an instrument i.e. an interim or substitute certificate, following an instalment payment giving the holder restricted rights over the securities until the securities are fully paid.
- Where the purchaser transfers an interim/substitute certificate over registered UK company shares to a depositary receipt issuer (or its nominee) or clearance service (or its nominee), a charge to SDRT at the rate of 1.5 per cent arises on each interim certificate, calculated by reference to the amount of each instalment paid. The depositary receipt issuer or clearance service is liable for the tax.
- Where, upon subscription paid in cash, an interim/substitute certificate in respect of new issued shares is simultaneously vested with a depositary receipt issuer or clearance service located anywhere in the world, no charge to SDRT at the rate of 1.5 per cent arises. This is because HM Revenue & Customs accepted the decisions of the European Court of Justice in October 2009 in the case of HSBC Holdings PLC and Vidacos Nominees Ltd v Commissioners for HM Revenue & Customs (C569/07), and the First-Tier Tribunal [Tax Chamber] in March 2012 in the case of HSBC Holdings PLC and the Bank of New York Mellon Corporation v Commissioners for HM Revenue & Customs (TC/2009/16584), that where shares in a UK incorporated company are issued, the imposition of a 1.5 per cent Stamp Duty Reserve Tax (SDRT) charge (under sections 93(4)(a) and 96(4)(a) Finance Act 1986 is incompatible with European Union law. In these circumstances, HM Revenue & Customs no longer seek to collect 1.5 per cent SDRT on the issue of UK company shares.
When, or following, on the occasion of the last instalment payment, the securities are transferred from the third party holding them to a depositary receipt issuer or clearance service (or its respective nominee) by an instrument containing a statement that the provisions of FA86/S93 (6)(a), (b) and (e) or FA86/S96 (4)(a) (b) and (e) are fulfilled, the amount of SDRT chargeable at the rate of 1.5 per cent is calculated by reference to:
i) the total of the instalments payable,
ii) less those instalments paid by a depositary receipt issuer/clearance service before the final transfer to the depositary receipt issuer or clearance service (or their respective nominee) is effected.
See STSM053030 for the meaning of ‘chargeable securities’.