In a landmark case, the ECJ decided in favour of the taxpayer, HSBC, and found that the UK Stamp Duty Reserve Tax (SDRT) it was charged when it bought the French bank CCF, contravened EU law.

SDRT was introduced in 1986 to deal with transactions in shares where no instrument of transfer was executed and which were therefore outside the scope of Stamp Duty. It is a transaction tax, charged on ‘agreements to transfer chargeable securities’ unlike Stamp Duty which is charged upon documents. SDRT accounts for the majority of taxation collected on share transactions affected through the UK's Exchanges i.e. London Stock Exchange, LIFFE etc.

However, the ECJ has now ruled that SDRT is incompatible with the Capital Duty Directive of 1969 which banned capital duty on the issuance of shares. With immediate effect, HMRC will not seek to apply a 1.5 per cent SDRT on the issue of shares into a clearance service within the European Union to which a 1.5 per cent charge would have previously applied. HMRC have also stated that it intends to bring forward legislation, following the European Court of Justice's decision, to prevent exploitation of the Stamp Duty and Stamp Duty Reserve Tax rules applying to transfers of shares between different clearance services and depositary receipts systems.

The ECJ judgement can be accessed from http://curia.europa.eu.

HMRC's statement on the judgement is reproduced below at 2.06.