Second Reading Speech By Mr Chew Heng Ching; The Acting Second Minister for Finance (Mr Raymond Lim Siang Keat), on Stamp Duties (Amendment) Bill at The Parliament, 26 Jan 2005

Introduction

Mr Speaker, Sir, I beg to move that the Stamp Duties (Amendment) Bill be now read a second time.

2. The Bill seeks to amend the Stamp Duties Act to give legislative authority to the tax changes governing the stamp duty treatment of limited liability partnerships, or "LLP" in short.

Rationale

3. With the LLP available from this year, amendments must be made to the Stamp Duties Act to prescribe the stamp duty treatment governing this new business form.

Stamp Duty Charge on Transfer of Properties on Conversion to LLP

4. Sir, the first amendment is to charge stamp duty when chargeable properties are transferred to LLPs when partnerships or companies convert to LLPs. Stamp duty should be charged on such transfers, because the LLP is a legal person that is separate from the transferor. Clause 4 introduces a new section to treat the notice of registration issued by the Registrar of LLPs as a chargeable instrument for the transfer of properties to the LLP on conversion.

5. However, as a concession, I have decided to provide full relief from stamp duty for partnerships converting into LLPs under the LLP Act. To qualify, partners of the LLP must be the same persons in the partnership before conversion. Clause 3 amends the Act to effect this.

6. The concession would not be extended to companies converting to LLPs. This maintains the existing position that a company is a different person from its shareholders and stamp duty should be duly imposed if any properties are transferred.

Stamp Duty Charge on Transfer of Partner's Interest in LLP

7. Sir, the second amendment is to impose stamp duty when a significant change in partners takes place in an LLP that owns properties. This anti-avoidance measure is needed to prevent partners in an LLP from avoiding duty by selling their partnership interest instead of the properties directly.

8. As the intention is not to penalise LLPs which experience gradual changes in partners in the normal course of business, a 'significant change' shall be deemed to have occurred only if 50% of the partners have changed in the previous two years; or where 50% of partnership interest has been transferred to different persons in the previous two years. Clause 4 introduces a new section to provide for this anti-avoidance mechanism. Clause 5 makes consequential amendments to section 62 to stipulate offences for non-compliance.

Relief from Stamp Duty

9. Sir, the third amendment is to introduce a new section 32B to grant relief from stamp duty in instances where double duty may arise. This will ensure that only one set of stamp duties would be imposed in the following three situations:

• Where an LLP acquires chargeable properties with admission of a new partner;

• Where an LLP sells chargeable properties to an existing partner; and

• When a significant change in partners takes place.

10. The Inland Revenue Authority of Singapore will issue a circular detailing these changes before March 2005.

Conclusion

11. Mr Speaker, Sir, I beg to move.