A Complex Conundrum: The Practicalities of Stamp Duty Exemptions Under S.15 and 15A

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 in2022. However, approvals for exemption under these provisions may remain elusive to many.

Section15 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) and32(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 1949if 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. Citi tower and AMSB entered into a Sale and Business Agreement (SBA) in which Citi tower 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 Citi tower 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. Citi tower 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 SA1949, 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:

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 76drew a conclusion that a company satisfies the term ‘reconstruction’ if it is evident that:

• There must be a transfer of undertaking of an existing company to a new company;
• The members of the new company should substantially be the same persons who were members of the existing company; and
• 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:

1. 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
2. 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:

1. Either company (transferor or transferee) is the beneficial owner of not less than 90%of the issued share capital in the other company; or
2. 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 1949to calculate the shareholding percentage of the holding or parent company. Other conditions for this stamp duty exemption include:

• Companies owned by the same private person cannot be considered associated companies.
• The share-holding company must be the beneficial owner of the shares.
• The transferee company must be incorporated in Malaysia.
• The transfer must be for the purpose of achieving greater efficiency in the operation of both companies.
• Consideration must be proven to have been fully provided or received by both companies at the time of application for the exemption.
• The property must be completely transferred from the transferor to the transferee.

The SA1949 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).

Application for Exemption under S. 15 or 15A

As with most applications for stamp duty exemption, the reliefs under S.15 and S.15Amust be applied for by the transferee company through the online STAMPS system, followed by submission of the supporting documents to be served by hand at any HASiL office. Following the recent updated list of supporting documents required by HASiL, stipulated in the Garis Panduan Permohonan Pelepasan Duti Setem Di Bawah Seksyen 15, Akta Setem 1949 (Pindaan 2022) and the Garis Panduan Permohonan Pelepasan Duti Setem Di Bawah Seksyen 15A, Akta Setem 1949 (Pindaan2022) (“Guidelines”), a statutory declaration by an advocate and solicitor of the High Court of Malaya (“Statutory Declaration”) is one of the required documents to be submitted.

The requirement for the Statutory Declaration is statutorily provided under S.15A(7)of the SA 1949, which was only recently introduced following the amendment by S.67 of the Finance Act 2018 – perhaps to mirror the requirement for exemption under S.15 (i.e. S.15(4) of the SA 1949). Prior to that, a Statutory Declaration was not a requirement

The Statutory Declaration, in which the template is provided as annexures in the Guidelines, essentially requires a lawyer to affirm their personal knowledge of the companies’ transactions, whether involving a restructuring scheme or property transfers between associated entities. In addition to outlining the companies’ details, the relevant transactions and the instruments involved in such transactions, the Statutory Declaration also requires the lawyer to confirm that the statutory requirements under either S.15 or S.15A have been met, and that the companies shall continue to comply with the law.

Requiring an advocate and solicitor to make such a declaration in their personal capacity is considered onerous as it imposes a duty of care and exposes them to the risk of professional misconduct. The lawyer bears the legal responsibility for ensuring that the contents of the Statutory Declaration are accurate, truthful, and supported by evidence. If the Statutory Declaration is found to be false or misleading, the lawyer may face disciplinary action and potential civil liability for negligence or misrepresentation. In a much severe scenario, where the Statutory Declaration is made with knowledge that it contains false or misleading statements, the lawyer could be charged with professional misconduct.

Besides the above, for the stamp duty exemption under S.15A, the documentary requirements are mostly similar. However, documents evidencing corporate restructuring should be substituted with an application letter justifying the increase in business operation efficiency and an approved copy of Borang CKHT2A for the transfer of property.

Extended Requirements

Based on the Guidelines issued by HASiL in supplement to the SA 1949, duty payers must fulfil several requirements. Besides the conditions previously stated, companies must also ensure the correctness and accuracy of the Statutory Declaration and any statement or document in support of the company’s application for exemptions under S.15 and 15A. Moreover, specific requirements for either provisions must be fulfilled even after the approval, as listed below:

Exemption under S.15:

Exemption under S.15A:

Failure to adhere to the requirements stated above, as well as the previously outlined conditions, will result in the revocation of stamp duty exemptions under S.15 or S.15A.  Consequently, the stamp duty amount will be payable with 6% interest per annum from the date of the transfer instrument. In addition, a penalty for late payment of stamp duty may also be imposed in accordance with S. 47A of the SA 1949.

Additional challenges

Pursuant to the provisions of the SA 1949 and the guidelines issued by HASiL, the application for stamp duty exemptions under S.15 and S.15A are subject to a “post-payment refund” approach where the duty payers are required to pay the stamp duty upfront for the transfer instruments and claim for refund after the exemption application is approved.

This procedural step puts the duty payers at a disadvantage, requiring them to pay a potentially substantial ad valorem amount and wait for an uncertain period for their exemption application to be approved and the refund to be processed, which may take months. This process may impose significant financial strain on duty payers. Implementing a more practical approach could align with the spirit of S.15A, to “achieve greater efficiency” in handling exemption applications.

A procedure allowing a duty payer to simultaneously submit their transfer instruments for adjudication and apply for stamp duty exemption under S.15and/or S.15A can potentially be a better approach. In this situation, HASiL can immediately determine whether a duty payer is eligible for stamp duty exemption. Based on this assessment, HASiL may either issue the required stamp duty payment for unsuccessful applications or exempt the duty payer from the upfront payment.

The suggested approach aims for cost and time efficiency for both duty payers and HASiL. It can be assumed that the current requirement for duty payers to pay upfront is to prevent tax avoidance. However, the onus is on HASiL to further clarify its basis for this post-payment refund procedure for the exemption when stamp duty remission can be applied for before the instrument is stamped. If this complexity lies within the law itself, then it is suggested that tax legislation be examined and S.15 and S.15A of the SA 1949 be revisited with the consideration of these issues.

The provision of S.15A should also be revisited to address ambiguity and uncertainty. The requirement that the transfer of property must be for “achieving greater efficiency” to qualify for stamp duty exemption under S.15A is simply too abstract and open to many interpretations that may change overtime based on specific sector and industry practices.  

Conclusion

In summary, the exemptions under S.15 and 15A are appealing to many businesses due to the frequent occurrences of reconstructions, mergers and inter-party transactions both in Malaysia and worldwide.  For companies to fully enjoy the benefits of these exemptions, the law and procedures must be clear and effective.

If you have any questions or require any additional information, please contact  Kellie Allison Yap or the partner you usually deal with in Zaid Ibrahim & Co. This article was prepared with the assistance of Muhammad Alif Afifi Shohaimi, Associate at Zaid Ibrahim & Co.

This alert is for general information only and is not a substitute for legal advice.

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