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Stamp Duty Appeals
Inland Revenue Board’s collection target
The Inland Revenue Board of Malaysia (“IRB”) has announced that it aims to
collect RM140 billion in taxes for 2014 following its success in collecting
RM129 billion last year.
In 2011 (pursuant to IRB’s Annual Report for 2012), the IRB’s collection was
approximately RM109 billion and the stamp duty collection accounted for
RM4.9 billion of that collection. Corporate tax was the biggest collection
component, followed by petroleum tax, individual tax, cooperatives and stamp
duty. In 2012, the stamp duty collected was RM5.6 billion out of the total tax
revenue collection of RM125 billion.
Stamp duty accounts for approximately 5% of the IRB’s collection target, and
remains an important component of revenue collection to the IRB. IRB has
been seen to be taking a fairly aggressive approach to stamp duty
assessment on various dutiable instruments.
Stamp duty in Malaysia
In Malaysia, stamp duty is imposed on various instruments in writing. As such,
any transaction which requires an instrument to effect the transaction will be
subject to Malaysian stamp duty and the rate of stamp duty will depend on the
nature of the instrument. The Malaysian Stamp Act 1949 (“MSA”) sets out the
provisions relating to stamp duty liability and in particular, the First Schedule
sets out various instruments and the rate of stamp duty chargeable on each
Appeal against stamp duty assessments
The MSA also contains provisions setting out stamp duty appeal avenues. As
a first step, any person dissatisfied with an assessment issued by the
Collector of Stamp Duties (“Collector”) may object to the assessment and
apply to the Collector to review the assessment. On a determination of the
objection, the Collector is obliged to issue a written decision. If the taxpayer
continues to be dissatisfied, under the MSA, the taxpayer can appeal against
the Collector’s decision by filing a judicial review to the High Court on
questions of law.
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In the past six months, we have assisted on two different stamp duty appeal matters with successful outcomes on both instances. We are pleased to share in brief the details of the appeals:
(a) Stamp Duty Appeal Against An Assessment For Transfer of Preference Shares in Loss-Making Company
We represented a client on an acquisition involving a Malaysian target entity which made substantial losses since its incorporation. As part of the acquisition, all ordinary and preference shares of the target entity were to be transferred to the new acquirer. The consideration for the transfer of the preference shares was nominal in value. The Stamp Office disregarded the consideration and assessed the stamp duty payable on the preference share transfer instrument using the quantum of premium paid on the preference shares.
We objected to the notice of assessment on the basis that the Stamp Office has no authority under the MSA or its subsidiary legislations or guidelines to use the value of premium as a basis of stamp duty assessment. In our appeal, we also relied upon Malaysian case-law and methods adopted by the revenue authorities in other Commonwealth jurisdictions such as Singapore, United Kingdom and Australia in the computation of stamp duty payable on the transfer of preference shares.
We asserted that the stamp duty payable computed using the amount of premium is incorrect as premium represents capital that was paid on the shares at the point of subscription of the shares. It does not reflect the true value of the shares at the date of the transfer. Moreover, the target entity had been making substantial losses since its date of incorporation and at the date of the share transfer, the accumulated losses were at a high quantum. Therefore, the calculation of stamp duty payable based on the premium value was grossly incorrect in law as it is not representative of the true worth of the shares at the point of the share transfer.
After reviewing our grounds of objection, the Collector agreed with our submission and issued a revised notice of assessment. We were successful in reducing the client’s stamp duty liability by 99%.
(b) Stamp Duty Appeal Against An Assessment for Lease Agreement
We represented a client on the matter of stamp duty payable on its land lease agreement. A lease agreement is stampable under the MSA and the quantum of stamp duty payable depends on the nature of the lease. The Stamp Office assessed the stamp duty payable on the basis that there was a lease in consideration of a fine or premium and without rent.
We objected to the notice of assessment on the basis that the land lease in question was a lease in the ordinary sense and it was a lease without a fine or premium but with an average rent and other considerations calculated for a whole year.
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After reviewing our grounds of objection, the Collector agreed with our submission and issued a revised notice of assessment. Our success in the appeal resulted in the stamp duty payable being reduced by 99%.
In summation, there is an increasing trend for aggressive stamp duty assessment notices to be issued by the Stamp Office. However, taxpayers need to ensure that the stamp duty assessment notices that are issued contain the correct charging provisions and appropriate legal basis before making stamp duty payment. There may be instances where a taxpayer may be able to appeal against an incorrect assessment and to seek an appropriate reconsideration upon an appeal. Taxpayers should consider making an appeal if there is an appropriate legal basis for such an appeal.
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