ECJ heavyweight backs HSBC on shares tax

ECJ supports HSBC in tax case

A leading figure at the European Court of Justice has supported a case brought by HSBC against HM Revenue and Customs which could net the retail bank a tax refund of £27m on a shares transaction.

Paolo Mengozzi, the advocate general acting on behalf of the ECJ, where the case is being heard, found application of the UK’s stamp duty reserve tax of 1.5% on shares used as part of the acquisition of a French bank was illegal under EU law. The advocate general’s opinion is not a ruling but is rarely contradicted.

HSBC paid the tax upfront in 2002 after offering shareholders of Crédit Commercial de France – the French bank it was acquiring – either cash or shares. To make its shares more attractive to French investors, HSBC arranged for them to be traded on the Paris stock exchange and included within the French Sicovam clearance service.

An entry charge is typically payable by the clearance service, however, HSBC paid the charge itself and is now seeking the £27m from HMRC. Shares worth £1.8bn were issued to Crédit Commercial de France shareholders in the transaction.

Andrew Loan, tax partner at City law firm Macfarlanes, said, if the judgment of the ECJ follows the opinion, taxpayers who have paid the 1.5% charge in past years should be entitled to a refund of the tax.

‘The UK tax authorities resisted HSBC’s request for a refund of the tax in 2002. HMRC sought to justify the 1.5% charge on the grounds that it was effectively a season ticket, an advance payment on account of the tax foregone on transfers within the system,’ he said.

A spokesman for HMRC said the opinion issued by the advocate general is not conclusive in the final decision handed down by the ECJ.

‘As an opinion, it is in no way binding on the court. We will, of course, study the opinion in detail, and await with interest the decision of the court,’ he said. The final decision is expected from the ECJ within two or three months.

A spokesman for HSBC said while the bank welcomes the advocate general’s opinion, it is not appropriate to pre-empt the ECJ’s final decision.