12 August 2011

In  Lai Ling Wan (alias Lai Lily) v Commissioner of Stamp Duties – [2011] SGHC 186, the Court was asked to determine the stamp duty payable arising from the purchase of 83 units by the Appellant in a Tower 1A of “Reflections at Keppel Bay” (“the Development”) from Keppel Bay Pte Ltd (“the Developer”).

83 sale and purchase agreements (“the 83 sale contracts”) were issued by the Developer and executed by the Appellant. The Appellant intended to stamp each of the 83 sale contracts as individual contracts, at the ad valorem rates set out in Article no 3(a) of the First Schedule of the Act. The Commissioner was of the view that the 83 sale contracts cannot be stamped individually and that stamp duty has to be paid on the basis that all 83 units were transferred to her under a single instrument of transfer at the aggregate price of $226,472,460. That meant that the Appellant had to pay a higher amount in stamp duty because stamp duty is calculated at a graduated rate, and the Appellant would have saved $5,400 for each instrument of transfer.

The Respondent’s lawyers, Foo Hui Min and Patrick Nai argued that correspondence between the Appellant and the Developers before the sale pointed to a single contract on which the stamp duty bill should be based. However the Appellant represented by lawyers Ong Sim Ho and Amolat Singh, said there was no understanding that there would be a single contract.

The Court ruled in favour of the Appellant and entitled her to a refund of $442,680. It was held that:

1. The Appellant had offered persuasive and bona fide commercial reasons for structuring the
arrangement in that manner.

A single agreement would have constrained her ability to obtain financing from more than one financial institution and she would also face difficulties in the event of the sub-sale of one or more of the units because the developer would have to cancel the sale and purchase agreement and re-issue her with fresh sale and purchase agreements.

2. A circular issued by IRAS on 13 March 2008 entitled “Stamp duty treatment for properties acquired
on an en bloc or block basis” (“the Circular”) referred to in this case was irrelevant as justification for the Commissioner’s position because it was published after the present case had arisen.

The second and third paragraphs of the Circular states:

“For properties acquired on enbloc or block basis, stamp duty should be calculated based on the total purchase price. This is because, based on the true nature of the transaction, there is only one single contract for the enbloc or block purchase of the properties. Thus the correct tax treatment would be to regard the purchase of the properties as one single transaction.

Even though individual documents may have been prepared for the disposition of the individual properties to the same purchaser, stamp duty should not be paid on the sale price of each individual property to take advantage of the graduated stamp duty tax rates.”

3. When justifying a particular interpretation of the Act’s provisions, the Commissioner cannot rely on its own administrative practice (Comptroller of Income Tax v GE Pacific Pte Ltd [1994] 2 SLR(R) 948 at [35]).

4. The attempt by both parties to this case to define the terms – “en bloc” and “block purchase” – does not involve the same considerations.

The Appellant relied on Ng Swee Lang and another v Sassoon Samuel Bernard and others [2008] 2 SLR(R) 597 at [42] to say that the distinct nature of an en bloc sale is that it is based on a single collective agreement, and not an aggregation of all the individual interests. She then sought to distinguish her case from an en bloc sale, but in the Judge’s view, the case of Ng Swee Lang did not involve the same considerations, and how it defined the term en bloc was irrelevant for present purposes.

5. There cannot be a uniform treatment of block purchases – the tax treatment must be applied with reference to the purpose behind the arrangement.

The Circular will be inconsistent with the Act if it is assumed that a sale on a block basis means what had been submitted on behalf of the Commissioner in this case. The Circular will deem all properties acquired on a block basis to be made under a single contract since that will always be “the true nature of the transaction”. It is contrary to s 33A(3)(b) of the Act which provides that the tax treatment must be applied with reference to the purpose behind the arrangement.

To read the full text judgement, please click here.

Source:  Supreme Court of Singapore