Earlier this year, we reported that the ECJ was considering whether the UK's stamp duty reserve tax ("SDRT") rules that levy a tax charge of 1.5% on the issue or transfer of shares into a clearance service breach EU law (click here to see the article).

The Court's decision has now been published. It confirms that this tax charge is contrary to EU law, because it is prohibited by the Capital Duty Directive.

HMRC have responded by suspending the 1.5% SDRT charge on the issue of shares into a clearance service within the EU. For the time being, future share issues of this kind will therefore not be subject to stamp taxes.

However, the implications of the ruling are potentially far wider. Clearance systems are common in many EU countries, and shares are often issued into such systems to facilitate trading. Many UK companies, who have paid the 1.5% SDRT charge in the past, may now be entitled to a repayment of that tax. In addition, it is at least arguable that SDRT paid on the issue of shares into a US depositary receipt system should also be recoverable.

HMRC regard claims for repayments of SDRT as being subject to a six-year time limit – so the number of claimants clearly includes those who have paid the 1.5% SDRT charge in the last six years. However, there is an argument that the time limit for claims should run from the date that this tax was discovered to be unlawful (i.e. the date of this court decision) rather than the date the tax was paid. If that is right, claims can potentially be brought by reference to any period back as far as 1986 (when SDRT was first introduced).

We are currently assisting clients in reclaiming tax paid under the SDRT clearance service regime. Where shares have been admitted to a clearing service as part of a substantial public offering, the amount of tax reclaimed can be significant. If you would like to discuss your eligibility to make a claim, please speak to one of the individuals named below or your usual contact at the firm.

Click here to see the ECJ's decision.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 16/10/2009.