Case C-466/03

Judgment in Albert Reiss Beteiligungsgesellschaft mbH v Land Baden-Württemberg (C-466/03)

28 June 2007, First Chamber

The dispute leading to this case concerns the payment of notarial fees in Germany in relation to the authentication of a transfer of shares. Albert Reiss, a German company, decided to increase its capital through a non-cash capital contribution – the transfer to Albert Reiss of a shareholding in another company. When asked to pay 11,424 euro in notarial fees to certify the transfer, the former German company challenged the validity of the fees in light of Directive 69/335. This concerns the imposition of indirect taxes or duties on the raising of capital and attempts to eliminate tax barriers to the raising of capital, particularly through contributions of capital by shareholders.

The Court held first that the imposition of notarial fees did constitute a tax for the purposes of the Directive. In line with the case law, this is when a charge is levied by notaries who are civil servants and is, at least in part, paid to the state.  According to the ECJ ruling,  Article 10 of the Capital Duty Directive  prohibits taxes with the same characteristics as a capital duty. The Court has held previously that the increase in capital constitutes a formality necessary for the carrying on of the company’s business. As such the fees charged in relation to these formalities, which are necessary to complete this operation, fall within the scope of the Directive. The ECJ held that such fees were prohibited.

Duty Capital Directive and Bearer Bonds

Trades in bonds are not chargeable for SDRT where the instrument satisfies the exemption requirements set out in section 79 (4) of the Finance Act 1986. In broad terms this exemption covers most transfers in vanilla structured bonds, but does not include convertible bonds.

Gilts and bonds issued by designated international organisations are also exempt from SDRT.

In an interesting article ((SDRT and bearer bonds, by Sarah Gabbai on May 12, 2010)), Sarah Gabbai finds that since the C-569/07 judgment, HMRC has permitted UK-based issuers to reclaim any 1.5% Stamp Duty Reserve Tax (SDRT) charges paid on issues of chargeable securities into clearance services or depositary receipt systems within 6 years from the later of the SDRT payment date or the ‘accountable date’ as per the SDRT Regulations. Despite its acceptance of the ECJ’s decision, HMRC feared that issuers of securities intended for the US market would take advantage of the combined effect of the ECJ ruling and the existing exemption by routing the securities through EU-based systems in order to avoid SDRT, which was not an intended consequence of the legislation. In an attempt to forestall such activity, HMRC announced measures to impose SDRT charges on subsequent transfers of chargeable securities from EU clearance services / depositary receipt systems to non-EU equivalents. These measures have since appeared in Finance Act 2010 with retrospective effect from the date of the ruling.

According to Mrs. Gabbai, the Court ruling  could have wider-reaching implications and, in particular, whether it could impact the current 1.5% SDRT charge on issues of bearer instruments (‘bearer duty’), including bearer bonds.The current legislation under paragraph 1(1) Schedule 15 Finance Act 1999 imposes a 1.5% charge on i) issues of bearer instruments in the UK; and ii) issues by (or on behalf of) UK companies of bearer instruments outside the UK. (The charge will not apply if the bearer instruments meet any of the exemptions listed in Part II of Schedule 15, the most obvious of which is the non-sterling denomination exemption).