Taxpayer wins case over business sale agreements in Malaysian court
International Tax Review is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Taxpayer wins case over business sale agreements in Malaysian court

Sponsored by


S. Saravana Kumar and Nur Hanina Mohd Azham of Rosli Dahlan Saravana Partnership discuss a recent High Court ruling that a business sale agreement is subject to nominal, not ad valorem, stamp duty.

The Kuala Lumpur High Court allowed a taxpayer’s appeal in challenging the decision of the Collector of Stamp Duties to subject a business sale agreement to ad valorem stamp duty. The taxpayer, represented by the authors of this article, successfully argued that the agreement should be subjected to nominal stamp duty of RM 10 ($2.27).

Facts of the case

On February 6 2020, a business sale agreement was executed between Mercedes-Benz (MB) Malaysia and the taxpayer. Under this agreement, the taxpayer agreed to acquire the business assets and liabilities of MB Malaysia. The assets and liabilities acquired included MB Malaysia’s fixed assets such as computer software, computer hardware, fittings, and equipment, as well as liabilities under existing business contracts.

The list of assets excluded from the transaction was set out in Schedule 2 of the agreement. The assets excluded included the “goodwill of the Malaysian Business” of MB Malaysia.

The taxpayer submitted the agreement for stamp duty adjudication to the Collector on March 5 2020. Subsequently, on March 15 2020, the Collector ruled that the consideration paid by the taxpayer to MB Malaysia pursuant to the agreement was the consideration for the purchase of the goodwill of MB Malaysia.

The Collector therefore raised a stamp duty assessment based on the ad valorem rate under Item 32 of the First Schedule of the Stamp Act 1949 (hereafter referred to as the Act). However, the Collector did not state which sub-limb of Item 32 it had relied upon to determine the ad valorem rate.

The taxpayer disagreed with the Collector’s decision to raise the assessment based on the ad valorem rate. On April 11 2020, the taxpayer paid the stamp duty under protest and submitted a notice of objection against the assessment pursuant to Section 38A(1) of the Act.

However, on April 13 2020, the Collector rejected the taxpayer’s notice of objection and provided no reasons for the rejection. Being aggrieved by the assessment, the taxpayer filed an appeal to the High Court pursuant to Section 39(1) of the Act.

Legal arguments

The taxpayer submitted that the stamp duty assessment issued by the Collector should be set aside based on the following reasons:

  • The Collector failed to specify the sub-limb of Item 32 of the First Schedule of the Act that it was relying on;

  • The Collector failed to provide any reason as to why the agreement should be assessed under Item 32;

  • The failure to provide reasons leads to the inference that there are no good reasons for the decisions made by the Collector, especially when the taxpayer in their notice of objection provided detailed reasons for their objection;

  • The Malaysian superior courts have recognised that the failure of a public authority to give reasons for its decision is a sufficient ground in itself for a decision to be liable to be quashed as being bad in law;

  • The consideration paid by the taxpayer was for the list of assets stated in the agreement, which excluded the goodwill of MB Malaysia. Schedule 2 of the agreement clearly stipulates that the goodwill of MB Malaysia’s business in Malaysia was excluded from the transaction.

  • Section 21(1) of the Act was inapplicable as there was no interest in property in the present matter. There was no conveyance, assignment, transfer, or sale of property under the agreement that would warrant the application of Item 32 of the First Schedule of the Act.

Based on the above arguments, the taxpayer submitted that the agreement should be stamped at the nominal rate of RM 10 pursuant to Item 4 of the First Schedule of the Act.

Significance of the decision

Upon hearing both parties, the High Court allowed the taxpayer’s application that the agreement should be assessed for nominal stamp duty of RM 10 under Item 4 of the First Schedule of the Act. The stamp duty assessment by the Collector was ruled to be erroneous.

Another significant ruling in this case was the High Court’s order that the Collector pay interest at the rate of 8% to the taxpayer from the time the stamp duty was paid under protest.

The High Court’s decision serves as a reminder that a taxpayer aggrieved by a stamp duty assessment is not left without recourse. While the Collector has the power to collect stamp duty from taxpayers, the Collector should not exercise their authority arbitrarily. This decision reaffirms the position that a sale of business agreement is to be taxed at the nominal rate of RM 10.

more across site & bottom lb ros

More from across our site

KPMG has exclusive access to the tool for three years in the UK, giving it an edge over ‘big four’ rivals
But the US tax agency’s advice is consistent with OECD guidance and shouldn’t surprise anyone, other experts tell ITR
A survey of more than 25,000 in-house counsel reveals that diversity initiatives are a high priority when choosing external counsel
The report is aimed at helping 'low-capacity countries', the OECD has claimed
The UK tax agency appears to be going after easier, lower value targets, one lawyer has claimed
Criminal experts have told ITR that the case of Ulf Johannemann emphasises the fine line between tax avoidance and tax evasion
The ATO workers were among nearly 57,000 people who were duped into claiming fake GST refunds, while Kuwait signed a double taxation treaty with the UAE
However, ICAP may not provide the legal certainty of an APA and tax authorities will have limited capacity, experts argue
ITR+ has launched the Talent Tracker, an interactive database that collates reported partner moves across the legal tax market
The tool is available to more than 2,000 PwC tax professionals and is designed to boost client service
Gift this article