DEPOSITARY RECEIPTS (Hansard, 17 July 1986)

§ Mr. Ian Stewart
I beg to move amendment No. 148, in page 59, line 27, leave out 'registered' and insert 'incorporated'.

§ Mr. Deputy Speaker
With this it will be convenient to take Government amendments Nos. 205, 206, 150, 207, 151 to 155, 208, 156, 159, 160, 209, 210, 210, 162, 162, 244, 165 to 170, 211, 184, 215, 186, 216 to 220, 191, 221, 194 to 198, 222 and 223.

§ Dr. McDonald
Amendments Nos. 148 to 200 correct drafting errors in the stamp duty provisions and clarify the text. However, other amendments are a little more puzzling. Amendments Nos. 205 to 224, which were tabled on 10 July, deal with securities issued or sold partly paid.
It appears from inquiries made that those amendments all concern the 1.5 per cent. stamp duty charge imposed when securities are converted into depositary receipts—A DRs — or are placed in a clearing system. The amendments arc designed to ensure that if the securities are paid for by instalmnts, the 1.5 per cent. duty is also paid in instalments, or, at least, that is the description that I obtained when I made inquiries about the meaning of the amendments. However, neither I, nor any tax experts whom I consulted, can understand how the amendments achieve the result which was explained to me and to others by the Inland Revenue from whom I made inquiries.
In commenting on this group of amendments, I hope that the Minister will explain how exactly they achieve the purpose that they are alleged to achieve by the Inland Revenue. It is completely and utterly mystifying to me and to those whom I have consulted. It may all be clear to the Minister. I hope that it is. If so, perhaps he will tell us. If 1220 it is not, I suggest that he is suffering from enormous difficulties because, unlike the procedure on other Bills.. he will not be able to add another 200 or so amendments in the other place to be considered at some future date here. Therefore, I hope that the hon. Gentleman has an adequate and clear explanation of how this group of amendments achieves the purpose which, according to the Inland Revenue, it is supposed to have.
It may be that the amendments do not have that purpose at all, but, if so, what purpose do they have? I regret to say that the amendments do not seem to clarify the situation, but rather muddy the waters still further. No doubt that will cause great headaches for those outside when they seek to apply them to their financial dealings.

§ Mr. Ian Stewart
The hon. Member for Thurrock (Dr. McDonald) gives me an invitation which I cannot resist, which is to comment at greater length on those amendments that deal with payment by instalment. I shall discuss the relevant amendments which, as the hon. Lady said, are most of the amendments Nos. 205 to 224 I shall begin with amendments Nos. 205, 206, and 207.
When shares are sold and the price is payable by instalment, the vendor may be unwilling to transfer the share certificates to the purchaser until the final instalment payment has been made. In those circumstances, a third party, normally a custodian bank, will hold the shares until the purchase price is fully paid and then provide the purchaser with an interim or substitute certificate which can be bought and sold on the stock exchange in the normal way.
The possibility of a double charge in this case arises because the terms of the instalment arrangement involve the deposit with a depositary bank of different documents of title at different times. When the interim certificate is deposited, a 1.5 per cent. stamp duty or reserve tax charge results which will be based either on the instalment paid on the issue of the interim certificate or on the price paid for the certificate, depending on whether the depositary receipt holder was an original subscriber for the shares sold, or whether he bought the certificates in the market.
Amendment No. 208 follows on from that. It is a further amendment to clarify the application of clause 67 where securities are sold under instalment — an arrangement which provides for an interim certificate to be issued to the person buying the securities. That amendment is necessary because an interim certificate attracts stamp duty on transfer and it would be wrong for it to be treated as a depositary receipt. Doubts have been expressed about whether the definition of a depositary receipt provided in clause 69 could arguably apply to interim certificates of the type issued in connection with an instalment sale. The amendment is intended to make it clear that the definition does not apply to interim certificates.
Amendments Nos. 209 and 210 are the clearance services equivalent of amendments Nos. 205 to 207. The hon. Lady will remember that parallel provisions for clearance services and A DRs were necessary. Those amendments merely provide the equivalent for clearance services.
Amendments Nos. 211 to 214 deal with the reserve tax equivalent of what is provided on stamp duty in amendments Nos. 205 to 207. That is the other variation on the theme. Amendment No. 216 provides the stamp duty reserve tax equivalent only as applied to clearance 1221 services. Those are the various combinations of ADRs, or rather depositary receipts or clearance services and stamp duty or stamp duty reserve tax.
Amendments Nos. 217 to 220 provide the reserve tax equivalent of amendments Nos. 209 to 210, which is the clearance services provision for stamp duty. All those amendments hang together. They are followed by amendment No. 223 which is concerned only with definitions.
Amendments Nos. 184 and 215 were also mentioned. The hon. Lady mentioned the payment of the duty or the tax by instalment as well as the payment for shares by instalment. Those two amendments deal especially with that provision. First, they provide for the recovery of the 1.5 per cent. reserve tax charge under clause 92, where the depositary bank is not resident in the United Kingdom and has no branch or agency here. In those circumstances, the proposed new subsection (5A) will provide for the person to whom the shares are transferred, that is the bank's nominee company, to be liable.
Secondly, the amendments deal with the liability arising where the securities deposited are interim certificates issued in connection with the sale of shares under instalment arrangements. The amendment clarifies the application of the clause in those circumstances by making it clear that the charge arises on each instalment as it becomes payable, and that it does not arise on the entire sale price at the outset when the interim certificate is first deposited.
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Where shares are sold under instalment arrangements that involve the purchaser acquiring for a time an interim certificate rather than the underlying shares, it was, of course, always intended that clause 90 should apply to each instalment separately. Doubts have been expressed about whether clause 90, as it stands, has that effect in practice. Therefore, the new subsection is intended to make the position absolutely clear.
The amendments deal partly with the point raised by the hon. Lady and partly with the point about the holding of an interim certificate in the United Kingdom not for ordinary deposit receipt purposes. I hope that, for the sake of the hon. Lady, and for the sake of putting the reasons on the record, it has been helpful for me to comment on the points that she raised.