Windfall Tax on IPP reversed

wedding in progress

On Friday's BT, I was duly surprised by the news that Malaysia's tax department has decided to scrap the windfall tax on its Indepedent Power Producers that it announced only a few months ago. [Click here for background - http://taxwithedgar.blogspot.com/2008/07/tax-on-your-windfall.html]

Don't pop the champagne yet. The windfall tax will however be replaced by a one-off payment.

Either way, the Government will still get the IPP's monies. Renaming it to "one-off" would satisfy the rating agencies.

Another "one-off payment" next year? We will wait and see.

UOLD case and S33A of Stamp Duties Act

Ion in the making

Who are the parties involved?
UOL Development (Novena) Pte Ltd vs Commissioner of Stamp Duties

What are the facts of the case?
In 2005, 53 owners at Minbu Road sold their respective properties on an enbloc basis to UOL Development after a tender. UOL Development's lawyers subsequently sent separate letters of acceptance to each owner. UOL Development was effectively trying to treat this as 53 separate purchases instead of as an en bloc purchase.

The intended outcome was to reduce the stamp duties payable by UOL Development as the rate of stamp duties is progressively structured.

To illustrate
I assume each property is $1 million and the en bloc price is $53 millions.
The stamp duties payable for $53 mio en bloc price would be $1,584,600.
The stamp duties payable for $1 mio x 53 transactions would be $1,303,800.
A saving of about $280,000!!!

Decision of the Court
The Court ruled against UOL Development for reason that the original intention and contract was for a Sale & Purchase on an en bloc basis.

The Court also said that there was NO "sound commercial basis" for 53 separate contracts and the arrangement was "so contrived that it was clearly intended to reduce or avoid tax liabilities".

Reference - Lim Gek Khim, "Tax Planning - When does it become tax avoidance?", Singapore Accountant, Sep/Oct 2008.

Tax Planning or Tax Avoidance?

F1 in Singapore soon but Look at the mess!

As we consult with our clients on structuring a business and its activities, we often have to check ourselves as to whether we are helping the client to manage its tax exposure efficiently as compared to facilitating the client in avoiding tax.

What is it that so difficult, you may ask. Just go and find out the definition of tax planning and tax avoidance and; just follow the letters of the law.

Dr Richard Hu, the then Minister of Finance back in 1999, attempted to give some meat to the meaning of tax avoidance in the second reading of the bill to adopt Section 33A of the Stamp Duties Act. He said,

• tax avoidance schemes are purely tax driven, with little or no commercial value or rationale.
• tax planning are activities/ schemes structured to be tax efficient in accordance with the relevant tax laws.

But am I any wiser after the reading that? I don't think so.

As we push the boundary of tax planning, are we edging closer to tax avoidance?

In my next posting, I will cite a real case for discussion.

Source - Lim Gek Khim, "Tax Planning - When does it become tax avoidance", Singapore Accountant, Sep/Oct 2008.