In Malaysia, a written agreement or legal instrument must be submitted to the Inland Revenue Board (“LHDN”) for stamping pursuant to the Stamp Act 1949 (“Stamp Act”). Failure to do so will attract repercussions to the parties to the agreement or impact the legal instrument itself, including attracting late stamping penalty, penalty for evasion of stamp duty, and may even result in an unstamped agreement or legal instrument being inadmissible in court.
Lawyers would often advise their clients to submit their instruments, i.e., agreements for stamping. The issue, more importantly, here is the amount of stamp duty which will be imposed for a particular instrument under the First Schedule of the Stamp Act.
In the recent case of Havi Logistic (M) Sdn Bhd v Pemungut Duti Setem [2022] MLJU 2801 the Court had to deal with the question of the stamp duty payable on an asset purchase agreement. Here, the plaintiff had executed an asset purchase agreement with a company to acquire the company’s assets and liabilities, which included computer software, computer hardware, fittings, renovation, plant, machinery, equipment and liabilities under the business contracts (“Agreement”). Notably, the goodwill of the Malaysia business of the said company was expressly excluded from the Agreement. Upon signing the Agreement, the plaintiff’s solicitors proceeded to submit the Agreement for adjudication of stamp duty and had received a stamp duty assessment notice with an ad valorem amount of stamp duty under Section 21 read together with Item 32 of the First Schedule of the Stamp Act (“Notice of Assessment”). Dissatisfied with the Notice of Assessment, the plaintiff appealed to the Malaysian Courts for recourse.
The Court, in reaching the decision of Havi Logistic, held that the stamp duty of the Agreement shall be the sum of RM10.00 under Item 4 of First Schedule of the Stamp Act as there was neither landed property nor goodwill of the business involved in the Agreement. Therefore, there was no conveyance or transfer of properties or interest, legally or equitably, between the parties to the Agreement.
On the other hand, the respondent contended that the Agreement indicated that not only assets are to be transferred via the arrangement, but that liabilities of the company will also be assumed by the plaintiff and therefore the Agreement falls under Section 21 of the Stamp Act, which deals with the sale of equitable estate or interest in any property. Nevertheless, the court rejected LDHN’s argument as Section 21 does not include liabilities and there are no authorities supporting the extension of Section 21 to cover the acquisition of liabilities. The Court reaffirmed the position that the words of the legislation shall be construed in accordance with its literal meaning where the language of the legislation is clear and explicit.
Additionally, the respondent also failed to specify which sub-item of Item 32, First Schedule of the Stamp Act applied to the Agreement for determining the amount of stamp duty. The Court emphasised that LHDN bears the burden of proving which specific sub-item under First Schedule of Stamp Act regulates the stamp duty payable for a particular agreement or legal instrument, and that LHDN must provide reasoning for imposing ad valorem stamp duty in deciding the stamp duty payable. Failing to do so amounts to a breach of natural justice as a public decision-making body, which includes LHDN, is required by law to give reasoning for their decisions.
The Court’s decision in the case of Havi Logistic serves as a significant reminder of the importance of well-crafted asset purchase agreements prepared by experienced corporate lawyers. It highlights the need for legal professionals to exercise utmost vigilance and mindfulness in dealing with the intricacies of such agreements, that could potentially save clients a significant amount of cost in similar transactions.
By Miw Zhong Heng & Danny Khoo
2023