1. The Ministry of Finance held a public consultation exercise from 6 to 19 August 2010 to obtain feedback on the draft Stamp Duties (Amendment No. 2) Bill 2010.
2. The draft Bill covers the following tax changes:
(a) Stamp duty relief for qualifying mergers and acquisitions (M&As). This tax incentive was announced in the 2010 Budget Statement along with the income tax allowance for qualifying M&As to support business restructuring.
(b) Stamp duty remission. The proposed amendments clarify that the Minister for Finance may impose conditions for any reduction or remission of stamp duty.
(c) Breach of Stamp Duty Relief. Under the proposed amendments, when qualifying conditions for stamp duty relief (e.g. for transfer of assets between associated entities) are breached, the stamp duty that was earlier granted relief will be required to be paid within a month of the notice of payment being issued by the Commissioner of Stamp Duties. Failure to do so will attract late payment penalties.
3. The summary table lists all the tax changes and explains the amendments to the Stamp Duties Act.
Public Participation in the Consultation Exercise
4. A total of 15 suggestions were received on the draft Stamp Duties (Amendment No. 2) Bill 2010. Of these, four suggestions pertained to the proposed changes for stamp duty under the draft Stamp Duties (Amendment No. 2) Bill 2010. None of the four suggestions were accepted for implementation, as they were either a query for clarification, or were inconsistent with policy and operational objectives. The remaining 11 suggestions pertained to the design of the general tax incentive for mergers and acquisitions (M&As). They are similar to the feedback received by IRAS during IRAS’ public consultation exercise on the M&A tax incentive held from 2 to 23 June 2010. The 11 suggestions will be reviewed together with those IRAS has received and IRAS will issue its response to the feedback by Dec 2010.
5. A summary of the four feedback received on the specific changes for stamp duties under the draft Stamp Duties (Amendment No. 2) Bill 2010 and MOF’s responses are as follows:
Stamp duty relief for qualifying mergers and acquisitions (M&As)
a) Query: The proposed section 15A(7) states that where shares are issued by the acquiring company as consideration, the value of the issued shares is to be determined by the Commissioner of Stamp Duties (the “Commissioner”) for the purpose of the relief.
It is not clear how the Commissioner will determine the value of the issued shares and it may be helpful to clarify this in the Rules.
MOF’s response: The Government assesses the value of the issued shares depending on whether they are listed or unlisted shares. Where the consideration shares are listed shares, the value of the consideration shares shall be the closing price on the Stock Exchange as at the date of the chargeable document. If there is no available closing price as at the date of the chargeable document, the previous closing price can be used.
Where the consideration shares are unlisted shares, the value of the consideration shares shall be the net asset value (NAV) of the consideration shares. For the purpose of determining the NAV, the statement of accounts of the acquiring company must be within 24 months from the date of the chargeable document. If the acquiring company owns property, the book value (reflected in the accounts) may be used to arrive at the NAV.
We appreciate the query. IRAS will clarify on this further in an e-tax-guide for the M&A incentives to be released by December 2010.
b) Suggestion: Where divestments and dilutions cause the acquirer's shareholding in the target company to fall below certain thresholds, stamp duty relief given can be clawed back. At times, such divestments and dilutions might be done for commercial reasons and should not be penalised.
MOF’s response: While we appreciate that there may be commercial merits for the divestment or dilution, M&A incentives are meant to apply only when the relevant shareholding thresholds are attained and maintained, such that the acquiring company can grow the acquired company into a globally competitive enterprise.
c) Suggestion: The requirement in the proposed amendment to Section 15(3)(i) of the Stamp Duties Act that the stamp duty becomes payable by the “transferee entity” is inconsistent with Section 34 of the Act, which provides that the parties can agree between themselves on who should be liable for stamp duty.
It could possibly be clarified that the Commissioner may recover at the first instance against the party that had agreed to bear the stamp duty liability, if any, and only in the absence of such agreement between the parties, that the Commissioner may recover only from the transferee entity.
MOF’s response: Section 34 of the Stamp Duties Act implies that the party liable for stamp duty may not always be the transferee entity. However, for certainty of the tax treatment in the event of a breach of the qualifying conditions for the stamp duty relief granted for facilitating the M&A, it is the policy intent that for cases of stamp duty “claw-back” under Section 15 and 15A of the Act, it is the transferee entity (i.e. acquirer) that is to pay the stamp duty earlier relieved.
d) Suggestion: The draft Section 15A(3) provides for an application to be made after ad valorem stamp duty has been paid, and it is only subject to the satisfaction of the Commissioner that such stamp duty might be refunded. This mechanism would be unhelpful from a cash-flow perspective for the acquiring entity.
It would be helpful if it can be clarified that entities seeking Section 15A relief are nevertheless able to seek in-principle adjudication approval prior to entering into a proposed acquisition transaction, and in such a case where approval is granted by the Commissioner, it would not be required to first pay the ad valorem stamp duty to only seek a refund subsequently.
MOF’s response: The suggestion is meant to address a cash-flow issue in companies. Cash-flow concerns could be minimised if an acquiring entity informs IRAS of the upcoming acquisition and stamp duty relief application (with supporting documents) before the actual execution.
6. MOF would like to thank all respondents for their suggestions.