Introduction
Sections 15 and 15A of the Stamp Act 1949 (SA 1949) are well-known to corporate lawyers and tax practitioners. The stamp duty reliefs provided under these provisions were originally part of the SA 1949's framework when it was enacted in 1949 and have been updated through subsequent amendments to meet Malaysia’s evolving policy goals. Guidelines for the enforcement of these exemptions were formally issued by the Inland Revenue Board (HASiL) in 2019 with further amendments in 2022. However, approvals for exemption under these provisions may remain elusive to many.
Section 15 of the SA 1949 exempts stamp duty for instruments used in corporate reconstructions or amalgamations, as specified in items 32(a) and 32(b) of the First Sch, under certain conditions. Similarly, S. 15A of the SA 1949 provides stamp duty exemption for instruments used in transfers of property between associated companies, which also covers the same instruments specified in items 32(a) and 32(b). The key difference between these 2 exemptions is outlined in S. 15A of the SA 1949, which requires that the transfer between associated companies must be for the purpose of achieving greater efficiency in operation.
Ad valorem stamp duty, as prescribed in item 32 of the First Sch of the SA 1949, applies to essential legal documents, including Sale and Purchase Agreements (SPAs) and Memorandums of Transfer (MOTs). For instruments involving sales or transfers of assets during corporate restructuring or amalgamation schemes, taxpayers may apply for stamp duty relief under S.15(1) of the SA 1949 if the scheme meets the prescribed conditions. On the other hand, for instruments that pertain to property transfers between associated companies, taxpayers may seek stamp duty relief under S.15A of the SA 1949 provided the arrangement complies with the stipulated conditions.
Exemptions under S.15 and S.15A are rarely granted, and seldom reach the Court. A landmark case for the applicability of stamp duty exemption under S.15 of the SA 1949 is Cititower Sdn Bhd v Pemungut Duti Setem [2017] 8 CLJ 710. Cititower and AMSB entered into a Sale and Business Agreement (SBA) in which Cititower sought to acquire AMSB’s business, encompassing both its assets and liabilities, including a plot of land. To transfer the land, a Form 14A was executed, prompting Cititower to apply for relief under S.15 of the SA 1949.
The Collector denied the application and issued an ad valorem stamp duty assessment under item 32 of the First Sch. Cititower appealed to the High Court, which ruled in its favour. Contrary to the Collector’s argument that only the SBA qualified for exemption, the Court held that the MOT was also exempt from the ad valorem rate on multiple grounds.
The Court, addressing the Collector’s argument, noted that under S. 4(3) of the SA 1949, the MOT qualifies as a subsidiary document and is therefore exempt from ad valorem duty, with only a nominal RM10 charge applicable. Emphasising the plain-meaning interpretation in tax law, the Court observed that S.15 imposes no restriction limiting exemptions to a single instrument, provided the relevant conditions are met. Moreover, the use of the term “any instrument” in S. 15 suggests applicability to multiple documents. If Parliament had intended otherwise, it would have stated so explicitly.
The High Court decision, was unanimously upheld by the Court of Appeal, dismissing the Collector’s appeal.
Let us now delve deeper into the specific conditions outlined in S.15 and S.15A below.
Exemption under S.15 of the SA 1949
The conditions under S.15 of the SA 1949 are as follows:
(a) The transferee company must increase its capital to acquire an existing company or at least 90% of its issued share capital.
(b) The consideration for the acquisition shall not be less than 90% of the shares, either;
(i) through the issuance of shares in the transferee company to the existing company or its shareholders (for company acquisitions); or
(ii) through the issuance of shares in the transferee company to the existing company’s shareholders in exchange for their shares (for share acquisitions).
(c) The shares in the transferee company must be registered in the shareholders’ names and not in the names of representatives.
(d) The instruments subject to the stamp duty exemption application must be executed within 12 months from either the transferee company’s registration date, the date of resolution for the increase of issued share capital in the transferee company, or the date the agreement is filed with Suruhanjaya Syarikat Malaysia (SSM).
The SA 1949 further clarifies that the above conditions must occur within the framework of a reconstruction or amalgamation scheme. However, the SA 1949 does not define ‘reconstruction’ and ‘amalgamation’ – nor indicate what amounts to reconstructions or amalgamation. In this regard, we draw guidance from case laws that has been decided before the Courts. In the case of Cold Storage (Malaysia) Bhd v Pemungut Duti [1988] 2 MLJ 93 the Supreme Court agreeing with the judgment of an English case in Brooklands Selangor Holdings Ltd v Inland Revenue Commissioners [1970] 2 All ER 76 drew a conclusion that a company satisfies the term ‘reconstruction’ if it is evident that:
(a) There must be a transfer of undertaking of an existing company to a new company;
(b) The members of the new company should substantially be the same persons who were members of the existing company; and
(c) The new company must carry on substantially the same business as the business transferred to it.
Interestingly, in the case of Crane Fruehauf v IRC [1975] 1 ALL ER 429 the court interpreted the phrase “scheme for the amalgamation of any companies” by identifying the following 2 circumstances:
(i) A transaction where the existing company’s business is acquired by a transferee company in return for an issue of shares in the transferee company to the existing company or to its shareholders; and
(ii) An acquisition of shares of the existing company in exchange for shares in the transferee company issued to the shareholders of the existing company.
Exemption under S.15A
Section 15A of the SA 1949 provides an exemption for transfers of property between associated companies if:
(i) Either company (transferor or transferee) is the beneficial owner of not less than 90% of the issued share capital in the other company; or
(ii) Both companies are owned by one holding/parent company with not less than 90% shareholding of the issued share capital.
There are also several factors to consider regarding the characterisation of associated companies, such as the applicability of the Sixth Sch of the SA 1949 to calculate the shareholding percentage of the holding or parent company. Other conditions for this stamp duty exemption include:
(i) Companies owned by the same private person cannot be considered associated companies.
(ii) The share-holding company must be the beneficial owner of the shares.
(iii) The transferee company must be incorporated in Malaysia.
(iv) The transfer must be for the purpose of achieving greater efficiency in the operation of both companies.
(v) Consideration must be proven to have been fully provided or received by both companies at the time of application for the exemption.
(vi) The property must be completely transferred from the transferor to the transferee.
The SA 1949 does not define “to achieve greater efficiency” nor provides further guidance on this condition for stamp duty exemption under S.15A. However, some insights into HASiL’s stance can be gleaned from the Garis Panduan Permohonan Pelepasan Duti Setem Di Bawah Seksyen 15A, Akta Setem 1949 (Pindaan 2022), which states that companies must demonstrate increased efficiency and a clear operational plan for their business within 3 years after the property transfer.
In the absence of specific guidelines on what constitutes a ‘justification’ or evidence of increased efficiency, logical assumptions suggest that relevant documents or information must be provided to HASiL when applying for this exemption. This includes a written explanation, either in narrative form or visually presented through graphs, charts, or schedules, to demonstrate the expected increase in profit, business output, or resource input. Additionally, the companies must provide their objectives and plans to enhance operational efficiency over the next 3 years following the property transfer. Supporting documents, such as approval letters from monitoring agencies like Ministry of Investment, Trade and Industry (MITI), Securities Commission, or Bank Negara Malaysia (BNM), may also be submitted to further substantiate the anticipated annual increase in efficiency.
“To achieve greater efficiency in operation”
So what really is “greater efficiency” in business operations? Theoretically speaking, it could be ‘measured’ through practical observation across various aspects of the company’s activities. It may be practical to assess indicators such as cost reductions from streamlining resources and lowering operational expenses, improved productivity by optimising resource use for higher output, and the integration of resources to minimise production overlap and eliminate redundancies. Additionally, the strategic alignment of property transfers with the companies’ business strategies and operational plans is key, as is the sustainability of long-term benefits that enhance the companies’ market position without a proportional rise in costs.
It is still worth noting that despite the deductions made above on the most practical and logical ways to evaluate the increase in efficiency, further clarification on this condition remains direly necessary. Additional stipulations through legislation or HASiL guidelines would greatly assist duty payers in navigating the application process for stamp duty exemption under S.15A.
Emphasis is given on the fact that S.15A does not apply to instances involving general transfer of business as HASiL does not consider transfer of business as a means of achieving greater efficiency. Guidelines issued by HASiL in 2019, which was further amended in 2022 provides very clearly that S.15A is only available specifically for the transfer of real estate, shares and/or company assets within the related transferee and transferor.
It is clear that S.15A stamp duty relief is intended for transfer of property within a group of companies, however HASiL appears to take the position that in order to qualify for the relief, the transfer needs to meet the objective of achieving greater operational efficiency in both the transferee and the transferor. Perhaps a more conclusive practice should be looking at the ‘greater efficiency’ outside just the transferee and transferor and at the operation of group of companies as a whole. The commerciality of group restructuring generally benefits the group of company as whole, but not necessarily achieve greater efficiency in the continued operations of both the transferee and the transferor (for example, transferring certain assets from one subsidiary to another subsidiary with the intention to liquidate the first subsidiary to reduce operational costs should arguably achieve greater efficiency for the group as a whole).
To read the whole article, go to the original article [here].
