Minister for Finance Brian Cowen has prepared the ground for the Government to rule out the imposition of stamp duty on contracts for difference (CFDs) by initiating a "review" of the tax treatment of such deals, to end before his next Budget.

In light of Mr Cowen's review, the Revenue will tell stockbrokers this morning that it is withdrawing a compliance notice, which said stamp duty at 1 per cent would be levied on CFDs and that past deals would be subject to retrospective liability with interest and penalties.

CFDs are a form of derivative instrument that enables an investor to take a position on a stock - and its likely performance - without actually owning shares. In some estimates, such deals comprise up to 40 per cent of trading on the Irish market. Such contracts were considered exempt from stamp duty before the Revenue made its position clear on St Patrick's Day.

Mr Cowen's review amounts to an immediate response to the Irish Stock Exchange and its members, who met the Revenue and Department of Finance officials last Monday, and who maintained that the stamp duty on CFDs would undermine investment in Irish stocks. They added that a fall-off in investment would reduce the capital gains tax take from the profits investors make.

The exchange indicated last Friday that it had contacted the department about its concerns. Mr Cowen acknowledged such concerns in a statement yesterday which said he "was anxious the market in Irish equities would continue to be a liquid market, conducive to capital acquisition by Irish firms".

He added that the department will "consult with the Revenue and with market participants with a view to an appropriate announcement being made in Budget 2007".

The Revenue's spokesman said yesterday it did not consult with the department before issuing the notice to brokers. "We would talk to Finance about that general subject, but interpretation of the law would be our area," he said.

Brokers will be informed of the Revenue's decision to change its position in a circular on the Crest electronic trading system.

Retrospective liability would have run to many millions of euro. Such payments would fall to stockbrokers' clients in the first instance, but brokers feared their firms could be left with liability. The Revenue also indicated investors who leveraged up their stake would have to pay 1 per cent stamp duty in respect of each multiple of the original stake. Brokers said that would have killed the market.