The following message is being issued at the request of the Irish Revenue Commissioners in relation to the use of exemptions from Irish stamp duty in respect of share transactions carried out for the purpose of hedging derivative instruments.

A. Irish Revenue Commissioners CREST Compliance Notice-Exemption from Irish Stamp Duty by reference to section 74 (Market Maker relief) of the Stamp Duties Consolidation Act (SDCA) 1999.

A1 - Section 74 SDCA 1999 (market maker relief) provides that Irish stamp duty is not chargeable on securities transferred to a market maker acting in the ordinary course of business as a market maker. The meaning given by section 68(1) to the expression ‘market maker’ is a person who at all normal times holds himself out in compliance with the rules of the Irish or London Stock Exchanges as willing to buy and sell securities of the kind concerned at a price specified by him and is so recognised by the Exchanges.

A2 - It has been alluded that for the purpose of hedging positions for derivative instruments, an industry practice has developed whereby certain market makers quoting prices for derivative instruments, invoke the market maker exemption when purchasing shares to hedge their positions.

A3 - For the purpose of section 74 it is the opinion of the Irish Revenue Commissioners that the ‘ordinary course of business as a market maker’ relates solely to the making of a market in the securities of the type concerned. In this connection the transfer to a market maker of securities purchased by him for the purposes of hedging derivative instruments is not considered by the Irish Revenue Commissioners as falling within the ordinary course of business as a market maker.

A4 - Where this practice has occurred a liability to stamp duty at the rate of 1% of the consideration paid for the shares remains to be discharged. In addition, interest on such duty calculated from the date of transfer (i.e. the date the operator-instruction is generated) at the appropriate rate (this is 0.0273% per day since 1 April 2005) together with a further penalty of 10% of the unpaid duty where the duty remains unpaid for not more than 6 months; 20% where the duty remains unpaid for not more than twelve months and 30% where it remains unpaid for more than 12 months, is chargeable.

B. Irish Revenue Commissioners CREST Compliance Notice-Exemption from Irish Stamp Duty by reference to section 75 (Member Firm/Broker Dealer relief) of the Stamp Duties Consolidation Act (SDCA) 1999.

B1 - Section 75 SDCA 1999 (broker/dealer relief) provides that no Irish stamp duty is payable on an initial purchase of securities by an Irish or UK member firm of the Irish or London Stock Exchanges provided the securities are sold-onward to a bona fide purchaser within the specified period (1 calendar month) and that a bi-annual report of all such exempt transactions is submitted to the Irish Revenue Commissioners.

B2 - It has now come to the attention of the Irish Revenue Commissioners that in respect of share transactions related to hedging of derivative instruments instances have occurred where stamp duty arising on the purchase of the underlying shares has been exempted, on an ongoing and periodic basis, using Broker/Dealer (section 75) relief by rolling over the shares, i.e. by creating an arrangement whereby shares are sold and re-purchased, and this is solely for the purposes of retaining ownership of the shares for hedging without payment of stamp duty.

B3 - It is the view of the Irish Revenue Commissioners that in these instances the onward bona fide purchase requirement under section 75 has not been satisfied and that therefore such transactions do not qualify for Broker/Dealer relief.

B4 - Consequently underpayments of stamp duty at the rate of 1% of the consideration arise in these instances. In addition, where payment of stamp duty is made later than the specified period, interest on such duty at the appropriate rate (this is 0.0273% per day since 1 April 2005) together with a further penalty of 1% of the unpaid duty per day, for each day the duty remains unpaid, is chargeable.

Where outstanding stamp duty, interest and further penalty as referred to at paragraphs A4 and B4 arise, the relevant company officer with compliance responsibilities should ensure that a full report (i.e. listing the CREST transaction IDs of the gross trades on which the underpayments are outstanding) together with the appropriate payment is submitted to Ms. Clare Omelia, Compliance Manager, Revenue Commissioners, CREST Customer Service and Audit Unit, Stamping Building, Dublin Castle, Dublin 2 (e-mail address comelia@revenue.ie).