§ Mr. Ralph Howell
asked the Chancellor of the Exchequer if he proposes any changes in the law relating to the payment of stamp duty on a takeover; and if he will make a statement.
§ Mr. Moore
The Board of Inland Revenue is advised that the House of Lords' decisions in Ramsay and Furniss v. Dawson are likely to apply in a stamp duty context to the arrangements, commonly known as the "Pref-Trick", for the transfer of shares on the occasion of a takeover by one company of another. Where those decisions do apply, the effect would be as follows. If on a takeover the offer for shares of the company being taken over is conditional on a reorganisation of its capital so that the shares to be acquired are reduced in value by the creation of new shares for the purpose of achieving a stamp duty saving, the chargeable consideration for the transfer of the old shares will include the value of the shares issued in exchange for the newly created shares.
These arrangements have been standard commercial practice for many years and the board will not seek to challenge the use of the "Pref-Trick" on the basis of the decisions in Ramsay and Furniss v. Dawson where on or before today as a result of having purchased shares or having obtained the necessary number of commitments the acquiring company has obtained effective control of more than 50 per cent. of the votes in the company being taken over.
It is proposed to provide an exemption from stamp duties in next year's Finance Bill for transfers of shares in a company being taken over in exchange for shares or other marketable securities in the acquiring company resulting from a general offer made by the acquiring company to the members of the company being taken over, or any class of them, in consequence of which the one company has obtained control of the other. It is intended that this legislation shall apply to instruments giving effect to transfers of shares which are executed on or after 28 July 1984. The proposed exemption will not apply where the shareholders of the company being taken 864W over get cash for their shares. The Board of Inland Revenue have been authorised to treat as exempt any qualifying transfer until this change can be given legislative effect.
An exemption for share for share exchanges on the occasion of a takeover was canvassed in the stamp duty consultative document. The response to the consultative document indicated a wide measure of support for this.
Further details of the proposed legislation and the terms of the extra-statutory concession are contained in an Inland Revenue press release which is being issued later today, copies of which are being placed in the Library.