Background
Ann Joo Integrated Steel Sdn Bhd ("Ann Joo") had been granted credit facilities amounting to RM105,000,000 by a bank pursuant to a letter of offer issued by the bank ("impugned instrument"). Ann Joo sought a remission of stamp duty under the Remission Order in relation to the impugned instrument. The Collector of Stamp Duties disagreed, insisting that the impugned instrument did not qualify for remission under the Remission Order and should be subject to stamp duty calculated under Item 22(1)(a) of the First Schedule of the Stamp Act, which was 0.5% of the facility limit. The High Court ruled in favour of Ann Joo and determined that the impugned instrument fell within Item 22(1)(b) of the First Schedule of the Stamp Act, and thus qualified for remission of stamp duty under the Remission Order. The stamp duty payable was 0.1% of the facility limit, i.e., RM 105,000. Ann Joo had paid RM 525,000 based on the Collector's stamp duty assessment under Item 22(1)(a) of the First Schedule of the Stamp Act, and the High Court ordered a refund of stamp duty paid based on the Remission Order, with accrued interest, to Ann Joo. The Collector then filed an appeal with the Court of Appeal.
For context:
- Paragraph 2 of the Remission Order reads as follows:
"The amount of stamp duty that is chargeable under subsubitem 22(1)(b) of the First Schedule to the [Stamp Act] upon a loan agreement or loan instrument without security for any sum or sums of money repayable on demand or in single bullet repayment under that subsubitem which is in excess of zero point one per cent (0.1%) is remitted."
- Item 22(1) of the First Schedule of the Stamp Act, as amended by the Finance Act 2018, reads as follows:
"Being the only or principal or primary security for any annuity (except upon the original creation thereof by way of sale or security, and except a superannuation annuity), or for any sum or sums of money at stated periods, not being interest for any sum secured by a duly stamped instrument, nor rent reserved by a lease or tack:
| (a) |
for a definite and certain period so that the total amount to be ultimately payable can be ascertained. |
The same ad valorem duty as a charge or mortgage for such total amount. |
| (b) |
for the term of life or any other indefinite period:
for every RM 100 and also for any fractional part of RM 100 of the annuity or sum periodically payable.
|
RM 1.00" |
Court of Appeal's decision
The Court of Appeal examined whether the four conditions required to qualify for a remission of stamp duty under the Remission Order were met.
Firstly, the Court of Appeal ruled that the impugned instrument met the criteria to be considered an instrument under Item 22(1)(b) of the First Schedule of the Stamp Act, as it was for an indefinite period. Secondly, the Court of Appeal emphasized that the substance of an instrument, rather than its title, is what matters. Although the impugned instrument was a "Letter of Offer", it was essentially a loan agreement. Thirdly, the credit facility was unsecured, i.e., it was granted by the bank to Ann Joo on a clean basis.
Lastly, the Court of Appeal ruled that the condition related to "for any sum or sums of money repayable on demand" under the Remission Order had been satisfied, entitling the respondent to the benefits of the Remission Order.
In relation to the calculation of stamp duty payable under Item 22(1)(b) of the First Schedule of the Stamp Act and the Remission Order, the Court of Appeal clarified that the terms "amount chargeable for duty" and "amount of stamp duty that is chargeable" are distinct. The Remission Order states, "The amount of stamp duty that is chargeable… which is in excess of zero point one per cent (0.1%) is remitted". The Court of Appeal interpreted this to mean that any stamp duty exceeding 0.1% of the otherwise chargeable stamp duty under Item 22(1)(b) of the First Schedule of the Stamp Act is remitted. Therefore, the correct stamp duty payable based on Item 22(1)(b) of the First Schedule of the Stamp Act and the Remission Order was RM 1,050 (RM 1,050,000 (i.e., RM 105,000,000 x 1%) with 99.9% remitted). Ann Joo had paid RM 525,000 based on the Collector's assessment, so the correct refund amount should be RM 523,950. However, the Court of Appeal upheld the High Court's Order for a refund of RM 420,000, as there was no cross appeal filed by Ann Joo regarding the refund amount.
A welcome decision for the banking industry
The Court of Appeal's decision in Ann Joo provides clarity on how the Remission Order should be read, which differs from typical industry practice adopted for the past decade. Apart from having a significant impact on the quantum of the stamp duty payable (which is essentially a cost of doing business for borrowers), the other equally important point that the Ann Joo decision provided is that the substance of an instrument, rather than its title, is what matters. From a law practice perspective, unless the Federal Court rules otherwise, it sets a clear precedent for lawyers and bankers to advise their respective clients on the quantum of stamp duty chargeable for similar types of trade financing. In today's challenging economic environment, borrowers in the market will see this decision as a welcome boost in managing transaction costs when sourcing for similar types of trade financing that is critical for their business.
Potential implications to service agreements
The Court of Appeal's decision in Ann Joo could have significant implications on the interpretation of other remission orders, e.g., the Stamp Duty (Remission) Order 2021 in relation to service agreements. Adopting a consistent interpretation of the Court of Appeal's decision in Ann Joo could change the stamp duty assessment for the instruments applicable to similar remission orders. Parties submitting their service agreements for stamp duty adjudication should consider the potential impact of this decision, as it may lead to a reassessment of how stamp duty is calculated and remitted under such remission order.
Conclusion
This case marks a major advancement in stamp duty remissions. Considering the broader implications beyond banking instruments, it is important for interested parties to keep a close watch on these developments.
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Anlynn Ng, Senior Associate, contributed to this alert.
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