Italy, Drafts, and Stamp Duty: Why Confirming Banks Prefer ‘Available by Payment’ in LCs

 QUESTION 

Dear Mr. Old Man,

I have a scenario that I’d appreciate your thoughts on:

• The issuing bank is located in Singapore.
• The advising/confirming bank is in Trieste, Italy.
• In the original LC,
  • Field 31D (Date and Place of Expiry) is: 18 June 2025 – Singapore.
  • Field 41A (Available With… By) is: Available with the confirming bank by NEGOTIATION.

The confirming bank has requested an amendment as follows:

• Field 31D: 18 June 2025 – Trieste.
• Field 41A: Available with the confirming bank by PAYMENT.

Could you please explain:

1. Why the confirming bank might request these changes, particularly the switch from negotiation to payment?
2. Would these amendments expose the issuing bank to any additional risk?

Thanks so much,

Susan

—–

ANSWER 

Hi Susan,

1. Place of expiry should match the place of availability

It is standard practice that the place of expiry should also be the place of availability, meaning the place where documents are to be presented. According to SWIFT’s definition of Field 31D – Date and Place of Expiry, this field specifies both the latest date for presentation and the place where the documents may be presented.

In your case, the credit is available with the confirming bank in Trieste (Italy), so the place of expiry should logically be Trieste (or at least Italy), not Singapore. The confirming bank’s request to amend the expiry location is therefore consistent with accepted banking practice.

1. Why change from negotiation to payment?

In Italy, financial instruments such as bills of exchange, cheques, and promissory notes may be subject to stamp duty or similar charges. When a credit is available by negotiation, it generally involves the presentation of a draft (bill of exchange), exposing the confirming bank to these potential taxes or administrative burdens.

In contrast, a credit available by payment does not require a draft. Payment is made directly against a compliant presentation, without the need for a negotiable instrument.

This reasoning aligns with the ICC Guidance Paper on the Use of Drafts under Documentary Credits, which states:

“A draft is not required under a credit available by payment or deferred payment, unless stipulated in the credit.”

The guidance also notes that banks may prefer to avoid the use of drafts for operational efficiency or cost-related reasons.

In short, the confirming bank is likely requesting the amendment to avoid the use of drafts—and thus avoid stamp duty liability—under Italian regulations. This amendment is for the confirming bank’s benefit and poses no risk to the issuing bank, as the payment obligation under the credit remains unchanged.

Hope this clarifies things!

Kind regards,

Mr. Old Man