International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

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

Taxpayer wins case over business sale agreements in Malaysian court

Sponsored by

sponsored-firm-rosli-dahlan-saravana-partnership.png
buildings-7109918.jpg

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

Sandy Markwick, head of the Tax Director Network (TDN) at Winmark, looks at the challenges of global mobility for tax management.
Taxpayers should look beyond the headline criteria of the simplification regime to ensure that their arrangements meet the arm’s-length standard, say Alejandro Ces and Mark Seddon of the EY New Zealand transfer pricing team.
In a recent webinar hosted by law firms Greenberg Traurig and Clayton Utz, officials at the IRS and ATO outlined their visions for 2023.
The Asia-Pacific awards research cycle has now begun – don’t miss on this opportunity be recognised in 2023
An intense period of lobbying and persuasion is under way as the UN secretary-general’s report on the future of international tax cooperation begins to take shape. Ralph Cunningham reports.
Fresh details of the European Commission’s state aid case against Amazon emerge, while a pension fund is suing Amgen over its tax dispute with the Internal Revenue Service.
The OECD’s rules may be impossible for businesses to manage, according to tax experts from companies including Shell.
Sanjay Sangvhi and Sahil Sheth of Khaitan & Co explore this legal concept and its implications for companies doing business in India.
The UK government is now committed to replacing the ‘super-deduction’ with a 100% capital allowances regime to offset the impact of the corporate tax rise to 25%.
Corporate tax is set to rise in the UK for the first time in decades, but the headline rate remains historically low despite what many observers think.