TaxCorporate TaxHSBC reminds UK to heed Europe

HSBC reminds UK to heed Europe

Taxman falls foul of European law in latest case before ECJ concerning an acquisition by HSBC

hsbc building

Sometimes it’s impossible for the UK taxman to avoid tripping over EU law and
so it is in the latest case before the European Court of Justice involving HSBC
and the acquisition of a French bank.

Once again it’s believed that the ruling, when it comes, could well open the
door to more claims against HM Revenue & Customs. More immediately it’s
likely to see HSBC recoup £27m in tax it needn’t have paid.

The case dates back to 2000 when HSBC acquired the French Bank, Crédit
Commercial de France, and offered shareholders of the bank either cash or shares
in HSBC. The shares were then subject to the French Sicovam clearance service.

Ordinarily, a tax would be payable by the clearance service on issuing the
shares, who would in turn transfer the charge on to shareholders. However, HSBC
paid the 1.5% entry charge itself. But HSBC didn’t need to do that and is now
claiming £27m in tax from HMRC.

Last week, the Advocate General supported the claims by HSBC and ECJ rulings
rarely, if ever, contradict an Advocate General’s opinion.

According to Andrew Loan, corporate tax group partner at City law firm
Macfarlanes, the case exemplifies a growing need for UK companies to be aware of
the differences in clearance tax rates when undertaking these transactions.

‘I can’t recall another case as big as this where the UK is subject to EU law
principles and it has only been over the past decade that tax advisers really
need to look at EU law principles when advising on these types of taxes,’ he
says.

Loan says he wouldn’t be surprised if larger cases were in existence and
expects the ECJ’s final decision to be keenly observed by companies undertaking
share-by-share arrangements across EU territories.

The decision is expected within the next two to three months, with most
experts believing the ECJ will follow the Advocate General’s opinion and rule in
favour of HSBC.

‘The Advocate General has said it’s not a transfer tax because it has been
paid upfront and the ECJ usually follows this opinion. There’s a pretty good
chance HSBC will get its £27m back,’ Loan says.

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