// Darragh Rogan: Public Consultation – Review of Stamp Duty on Share Transactions

Public Consultation – Review of Stamp Duty on Share Transactions

Further to http://www.finance.gov.ie/updates/minister-donohoe-launches-public-consultation-on-review-of-stamp-duty-charge-on-share-transactions/ I am of the opinion that stamp duty on shares transactions in Irish securities should be eliminated.

I provide my rationale below, answering the questions asked in the consultation, and based on the briefing document: http://www.finance.gov.ie/wp-content/uploads/2017/09/Stamp-Duty-Shares-Public-Consultation-.pdf
As an aside, from reading the document above, it was very refreshing to read that securities on Irish Stock Exchange's MSM are exempt from stamp duty if the trade is less than €1,000, or that securities on the Irish Stock Exchange's ESM are exempt altogether as of June 2017. The prospect of stamp duty per trade has always acted as a discouragement from investing through the ISE - these exemptions, while difficult to communicate clearly I suspect, are welcome.

Contemporary newspaper article: https://www.irishtimes.com/business/markets/government-starts-consultation-on-stock-market-trades-stamp-duty-1.3238758

My answers, from the perspective of a private investor:

Whether stamp duty on share transactions continues to be justified as part of our overall taxation system
Given the more frequent electronic trading of shares now undertaken, in contrast with the more infrequent paper based trading which occurred when this tax was introduced, it could be argued that stamp duty discourages modern day share trading norms.

The extent to which Brexit related developments should influence policy on reducing or eliminating stamp duty on share transactions
It is unclear the degree to which, if at all, Irish or rest of EU access to securities on the London Stock Exchange will be curtailed due to Brexit.
Owing to Ireland's traditional and well established business links with Britain, it may be an opportunity to encourage securities listed on the LSE to establish a dual listing on the Irish Stock Exchange, so as to maintain access to investors across Europe.
If access to the LSE were restricted, it could be a negotiated trilateral agreement between the UK, Ireland & the EU that capital transactions between Ireland & the UK be restricted less than with the EU, in context of the entire Brexit negotiations.
In this event, it would be optimal if investors to LSE listed securities did not have additional costs imposed on them were they to purchase shares via the ISE.

What alternative revenue streams from the financial services area or elsewhere could be considered to replace the revenue forgone in the event of a reduction or elimination of stamp duty on shares
If stamp duty were reduced / eliminated, and if more companies & Exchange Traded Funds listed on the Irish Stock Exchange as a result, the revenue lost to stamp duty could be made up by normal Corporation Tax on these companies, due to potentially increased investment in them.
It has been stated that the rise in value of various "crypto-currencies" suggests that there is excess capital available for investment at present ( https://www.bloomberg.com/news/articles/2017-07-11/cryptocurrency-boom-turns-into-bear-market-as-skepticism-rises ).
Minimising barriers (e.g. stamp duty) to investors who have excess capital could encourage them to invest in Irish companies listed on the Irish Stock Exchange. It could also encourage more companies to seek investment via the ISE, in lieu of the recent trend of "crowd funding" which offers poorer protections to investors compared to public listed companies ( https://www.theguardian.com/media-network/media-network-blog/2014/may/09/crowdfunding-startup-finance-ipo-flotation vs. IPOready).

What direct impact stamp duty on share transactions would have on Ireland’s competitive position post-Brexit
If access to the LSE is restricted or has tariffs imposed upon it from European Union traders, it is possible that many of the funds currently traded on the LSE will relocate to EU accessible stock exchanges to capture EU investors. In this scenario, it is probable that Ireland's stamp duty would be considered a negative factor in comparison with other stock exchanges which have lower stamp duty (e.g. French or Italian) or no stamp duty.

Is there any evidence that reduction or elimination of stamp duty on shares will result in an increase in availability of equity finance for corporate entities
Question is beyond my knowledge, however it is interesting to note that in the case of the ETF which tracks the ISEQ 20 ( https://www.wisdomtree.eu/en-ie/etfs/market-access/wisdomtree-iseq-isqe-20-ucits-etf ), it has a dual € denominated listing on the Irish Stock Exchange and London Stock Exchange.
Looking at value traded in 2016 for both listings ( http://www.ise.ie/market-data-announcements/statistical-reports/ise-annual-report-2016.pdfhttps://uk.finance.yahoo.com/quote/ISQE.L/history?period1=1451599200&period2=1483135200&interval=1mo&filter=history&frequency=1mo ) it appears that a ratio of 8:1 of the trading is split between the ISE & LSE. That suggests that the approximately 11% of investors who choose to invest in this security which is identical in both stock exchanges did so in London for a particular reason. It could be due to familiarity of exchange, or more advantageous fees in London for them, or it could be due to reduced stamp duty in London compared to the ISE.
Whilst it would be a stretch to claim that this approximately 11% of trading in the ISEQ 20 ETF is additional equity finance that wouldn't have been invested otherwise, it does suggest that stamp duty may be part of investors decision criteria.

What impact, if any, will a reduction or elimination of stamp duty on shares have on trading in equities in terms of volume and share price volatility
It is intuitive that removing barriers to trading (such as stamp duty) will result in more frequent trading. Per https://www.uts.edu.au/sites/default/files/qfr-archive-03/QFR-rp332.pdfThe paper finds that if high frequency trading is available, both asset and portfolio price volatility tend to decrease.

Will a reduction or elimination of stamp Duty on shares have any impact for pension funds or wealth management activity?
It could have a positive impact on pension funds & wealth activity.
If reduction or elimination of stamp duty encouraged providers of Exchange Traded Fund securities (which form the basis of many pension funds) to list their securities on the Irish Stock Exchange, it would allow pension fund investment fees to consumers drop, and potentially more balanced pension funds, better able to cope with future shocks.
At present, I, like many other Irish citizens, have a self-directed PRSA. This PRSA has different fees depending upon what stock exchange securities are purchased from (http://www.davyselect.ie/binaries/content/assets/davyselect/pdfs/execution-only-fees-charges.pdf#page=5 ). If securities are purchased from the UK or Ireland, the fee is quite low, however if securities are purchased from other European exchanges, there is a €25 fee added (for reasons unknown - possibly due to a captive audience having little other choice).
This fee is quite expensive in context of contemporary quarterly portfolio rebalancing strategies, where one is encouraged to make multiple trades in order to maintain a particular ratio of ETFs in the pension portfolio ( https://www.bogleheads.org/wiki/Rebalancing#Other_considerations ).
It is possible that if Ireland were able to capitalise on it's well recognised financial services sector, it could attract many funds to take a listing on the Irish Stock Exchange ( http://www.ise.ie/Products-Services/Listing-ETFs/ ) and for there to be much higher trade volume than at present.
That would make it feasible for pension funds to have low fees on many ETFs, maximising compound interest type gains to citizens pensions.
Additionally, were there no stamp duty on Irish shares, I would be more likely to invest in Irish companies & ETFs (e.g. on the Main Securities Market) than other European companies & ETFs.

General Comment
From reading http://www.finance.gov.ie/wp-content/uploads/2017/09/Stamp-Duty-Shares-Public-Consultation-.pdf , it was very refreshing to learn that securities on Irish Stock Exchange's MSM are exempt from stamp duty if the trade is less than €1,000, or that securities on the Irish Stock Exchange's ESM are exempt altogether as of June 2017.
The prospect of stamp duty per trade has always acted as a discouragement from investing through the ISE - these exemptions are welcome, however I note that I was not aware of these exemptions (and suspect many other citizens similarly were unaware). Perhaps this is due to a general understanding that "1% stamp duty" is quite persistent. If Revenue's decision is to reduce the stamp duty amount rather than eliminate, I suggest that a way of ensuing that people understand the exemptions is considered e.g. refer to it as "large trade stamp duty" rather than "stamp duty" - so that people are aware there are exemptions, and not blanket duties to be paid.


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