THE NEW ADDITIONAL CONVEYANCE DUTIES REGIME IN THE STAMP DUTIES ACT
| Citation | (2018) 30 SAcLJ 119 |
| Published date | 01 December 2018 |
| Author | Vincent OOI BA (Oxon); Research Assistant, EW Barker Centre for Law & Business, National University of Singapore. |
| Date | 01 December 2018 |
The new additional conveyance duties regime has gone beyond attempting to achieve tax neutrality between direct transfers of residential property and indirect transfers through the use of property-holding entities. It taxes an entirely new tax base and raises issues such as: the extremely broad concept of an “associate” relationship; definition of “unit in a property trust”; anti-avoidance provisions; liability for providing false information; tax neutrality; and the considerable flexibility that the section 23 Order provides the Government. This article analyses the regime in detail and considers the implications of various changes to the prescribed values in the section 23 Order.
1 The Stamp Duties (Amendment) Bill1 (“the Bill”) was passed on 10 March 2017 as an urgent bill. The Bill introduced a new additional conveyance duties (“ACD”) regime, designed to levy stamp duties on transfers of interests in property-holding entities (“PHEs”) and equalise the treatment between direct transfers of real property and indirect transfers through the use of PHEs. While the ACD regime was introduced partly in response to tax-avoidance measures, its effect is not so confined. The ACD regime levies a tax on an entirely new tax base, catching numerous situations that would not have fallen within the pre-amendment stamp duties regime.2
2 This article seeks to explain the highly complex mechanism of the ACD regime, first by considering the context in which the Bill was passed3 and laying out the key concepts.4 This will provide the necessary clarity to proceed on to the next Part of the article, which will go through the various components of the ACD regime in detail,5 including the supporting provisions like anti-avoidance measures and liability for providing false information.6 The article will then comment on various parts of the framework that may be of particular interest to the reader.7 In particular, the extremely broad concept of an “associate”, the definition of “unit in a property trust”, and tax neutrality will be considered. The article will then address the potential implications of changes to the section 23 Order,8 a piece of subsidiary legislation that provides considerable flexibility to the ACD regime.9
3 Stamp duty is a tax on particular instruments that are specified in the First Schedule to the Stamp Duties Act10 (“SDA”).11 It is a tax levied on instruments and not transactions; thus, transactions that can be conducted without writing will not be subject to stamp duties.12 In the context of residential property transactions, the transfer of proprietary interests must be in writing if the agreement is to be enforceable by the parties.13 The relevant stamp duties in residential property transactions include: (a) buyer's stamp duty (“BSD”);14 (b) additional buyer's stamp duty (“ABSD”);15 and (c) seller's stamp duty (“SSD”).16
4 There have been numerous tax-planning attempts to reduce the amount of stamp duties payable in residential property transactions. In UOL Development (Novena) Pte Ltd v Commissioner of Stamp Duties17 (“UOL Development”) the taxpayer attempted to argue that the en bloc sale of 53 properties involved 53 separate contracts. This would have resulted in savings in stamp duties if successful.18 In Lai Ling Wan v Commissioner of Stamp Duties19 (“Lai Lily”), the taxpayer attempted a similar approach to that in UOL Development in the en bloc purchase of 83 strata units. In both cases, the Commissioner of Stamp Duties (“the Commissioner”) applied s 33A of the SDA, a general anti-avoidance rule that empowered the Commissioner to counteract any reduction of duty payable where the purpose of an arrangement had the reduction of duty as one of its main purposes. The High Court came to two different conclusions, holding the taxpayer's arrangement in UOL Development had no sound commercial basis but finding bona fide commercial reasons for the arrangement in Lai Lily.
5 When the taxpayers in UOL Development and Lai Lily were attempting their schemes, there was no ABSD or SSD. When these new duties were introduced, there were considerable incentives for taxpayers to attempt to circumvent the payment of stamp duties. While the maximum rate of BSD was 3%, ABSD could reach a maximum of 15% and SSD could reach 16%. Naturally, new tax-planning schemes evolved. One widely discussed tax-planning arrangement involved the transfer of the shares of a property-holding company rather than the property itself. While the transfer of a property could potentially attract BSD, ABSD and SSD, the transfer of the shares in a property-holding company would only attract stamp duties on share transfers, payable at the rate of 0.2%.20
6 Stamp duties are not only used for revenue collection in Singapore but also as a tool for socio-economic policy,21 in particular to curb speculation in residential properties. If properties could be transferred indirectly through property-holding companies, the effectiveness of stamp duties in regulating the residential property
market would be seriously compromised. In January 2013, The Business Times published an article noting that estate agents were promoting the use of property special purpose vehicle as a means to circumvent ABSD.22 The Inland Revenue Authority of Singapore promptly responded to the article, making it clear that it intended to use the s 33A SDA general anti-avoidance rule to counteract such schemes.23 It was in this context that the Bill was drafted.7 The Explanatory Statement to the Bill states that its purpose is “primarily to introduce new ad valorem duties for conveyances of equity interests in property-holding entities (PHE) that are computed on the basis of their underlying immovable properties”.24 While the Bill may have been inspired by the desire to counteract the tax-planning measures referred to above, the Explanatory Statement makes it clear that the ACD regime is not so confined. In light of the Inland Revenue Authority of Singapore's recent successes in applying general anti-avoidance rules in Comptroller of Income Tax v AQQ25 (“AQQ”) and GBF v The Comptroller of Income Tax26 (“GBF”), there is good reason to think that the s 33A of the SDA would have sufficed to quash such blatant tax avoidance schemes without the need to introduce a new (and highly complicated) ACD framework.
8 The aim of the new ACD framework seems to be to ensure tax neutrality between direct transfers of real property and indirect transfers through the use of PHEs. This goes beyond preventing the abuse of a tax loophole; it attempts to tap into an entirely new tax base that has hitherto not been touched by the direct stamp duties regime.
9 Understanding this aim of tax neutrality is essential to deciphering the ACD framework. Numerous provisions in the statute
have been drafted to express a simple concept: if the effort of a transaction or event is that one has or will gain substantial ownership of a residential property, even indirectly through layers of holding entities or through one's family, the transaction will be subjected to stamp duty as though it is a transfer of the residential property. The bulk of the legislative provisions relate to transforming this concept into a feasible system and attempting to pre-empt any potential tax avoidance schemes.10 Legislation for the ACD regime is extremely comprehensive, with care taken to close any potential loopholes in the statute. As stamp duty is a tax that is very focused on the form of the transaction, the parliamentary draftsmen chose to expressly lay out the exact mechanism of the ACD regime rather than provide general principles and risk creating loopholes. The result is a particularly voluminous statutory framework that is by no means easy to decipher.
11 The ACD regime is designed for flexibility. At its core lies ss 23–23D and Art 3A of the First Schedule to the SDA. This primary legislation is supplemented by subsidiary legislation in the form of a “section 23 Order”27 which allows quick variation of certain crucial values in the ACD regime. These values relate, inter alia, to factors such as holding-periods and the threshold percentages of ownership that would render one liable for ACD. The use of subsidiary legislation allows the Government considerable flexibility in operating the ACD regime, since the values prescribed by the section 23 Order can be swiftly varied to achieve different tax effects without the need to seek prospective parliamentary approval for each change.
12 PHEs are the focus of the ACD regime. As direct transfers of real property are already caught by the direct stamp duties framework, the ACD regime attempts to tax transfers of interests in entities which hold real property directly or indirectly. To understand the concept of a PHE, the phrase “property-holding entities” can be broken down into its constituent terms: (a) property, (b) holding, and (c) entity.
13 “Property”, in this context, refers to prescribed immovable properties (“PIPs”),28 which correspond with the residential properties
defined under the direct stamp duties regime. “Entities”, subject to the ACD regime, are companies, partnerships and property trusts.29 “Holding” is a more complex concept. An entity is not a PHE simply because it holds residential property; there are requirements on how much it must hold. At least 50%30 of the market value of an entity must be made up of PIPs before an entity may be classified as a PHE31 under the ACD regime. This will be referred to as the “property-heavy” condition hereinafter.14 The property-heavy condition may be met directly, where the entity in question directly owns one or more PIPs. Such entities are classified as Type 1 PHEs under the ACD regime.32
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