A new Section 33 of the Stamp Duties Act, Chapter 312, came into effect on January 1 2003. The new section imposes stamp duty on any disposal of shares carried out by cancelling existing shares and issuing new shares. It appears from the parliamentary debate on the new Section 33 that the purpose of the provision is to prevent the intentional avoidance of stamp duty which arises when a sale of shares is structured by way of cancellation of existing shares and a reissue of new shares.

The potential impact of the new section on mergers is serious. A number of Singapore's most significant public company mergers of recent years have proceeded by way of Section 210 schemes of arrangement incorporating a mechanism for the cancellation of existing shares and the reissue of new shares. These mergers include:

  • the merger of Singapore Technologies Industrial Corporation Ltd and Sembawang Corporation Limited in 1998;

  • the merger of Keppel Fels Ltd and Keppel Integrated Engineering Ltd in 1999;

  • the merger of TIBS Holdings Ltd and SMRT Corporation Ltd in 2001; and

  • the merger of Comfort Group Ltd and DelGro Corporation Limited in 2003.

The exchange mechanism that has been utilized in the above mergers involves cancelling the entire existing shares in one or both of the merging companies and then immediately issuing new shares wholly owned by the merged company. The credit that arises in the books of the merging company from the cancellation is applied to paying up in full that amount of new shares in the merged company to which the shareholders of the merging company are entitled. Such a mechanism appears to fall squarely within the provisions of the new Section 33 of the Stamp Duties Act and potentially attracts the duty. Where mergers between public companies are involved, any possible stamp duty liability will present a hurdle to persuading shareholders to support the merger if it is intended to utilize the cancellation/reissue mechanism.

The issue of the scope of the new Section 33 arose in the Comfort/DelGro merger which became effective on March 29 2003, after the new Section 33 came into effect. In that merger the relevant regulatory authority, the Inland Revenue Authority of Singapore (IRAS), agreed with the scheme solicitors that the merger fell outside the potential ambit of Section 33. The solicitors had submitted to the IRAS that the merger was not caught by the section on the grounds that:

  • the merger was by way of court-approved schemes of arrangement pursuant to Section 210 of the Companies Act;

  • the existing shareholders of the scheme companies were not disposing of their shares by sale, but rather exchanging their existing shares for shares in a new holding company;

  • no cash consideration was payable as part of the exchange of shares; and

  • the shares of both companies are listed on the Singapore Exchange Securities Trading Limited (SGX-ST), and normal transfers of shares traded on the SGX-ST (which is by way of book entry) would not attract stamp duty. Accordingly, there was no intention to avoid stamp duty through the proposed cancellation of shares.

While the IRAS did agree with the scheme solicitors that the Comfort/DelGro merger did not fall within the scope of Section 33, and the proposed cancellation and reissue would not attract stamp duty, the precedent value of the IRAS's interpretation of Section 33 may be limited. Since the merger the IRAS has made a public statement to the effect that its agreement with the interpretation of the scheme solicitors was based on the fact that the merger agreement entered into by Comfort and DelGro pre-dated the coming into force of the new Section 33.

For further information on this topic please contact Yap Lian Seng, Paul Fitzgerald or Shawn Desker at Stamford Law Corporation by telephone (+65 6389 3000) or by fax (+65 6389 3099) or by email ([email protected] or [email protected] or [email protected]).