Introduction

This time, I would like to explain the Malaysian case " Havi Logistics vs Pemungut Duti Setem " (Federal Court Case No.: [2025] 3 MLRA 1, Court of Appeal Case No.: CA No. W1(A)-488-07/2022) as an issue related to M&A.

This case sets a precedent by indicating a shift in the scope and valuation method of stamp duty in M&A transactions in Malaysia from the traditional formalism to an assessment of substantial economic benefits.

To put it very simply, even in the case of an asset transfer that does not involve the physical transfer of the asset (which would be considered an asset transfer based on a change of possession as defined by Japanese Civil Code), the buyer is required to pay tax stamps corresponding to the value of the asset when concluding the asset transfer contract.

Below is a summary of the main issues and the legal history.

Summary of the case and the issues at stake

Summary of the incident

Havi Logistics (M) Sdn Bhd ("Havi") entered into an Asset Purchase Agreement ("APA") with Martin-Brower Malaysia Co Sdn Bhd ("MB Malaysia") in 2020 to purchase business assets (note: these are not shares in MB Malaysia) such as computer equipment, fixtures, plant, machinery and inventory.
Under the agreement, title and risk to the assets will automatically transfer to Havi upon closing.
The consideration for the assets under the APA was US$2,491,491.55, equivalent to RM10,378,806.35 at the exchange rate at that time.

The Stamp Office assessed ad valorem stamp duty on the APA of 399,196 Malaysian ringgits (approximately JPY 13 million).
Havi paid the stamp duty assessed but protested by filing a notice of objection.

Havi appealed to the Collector of Stamp Duty against the stamp duty assessment on the ground that it should have been assessed under Item 4 of the First Schedule to the Stamp Act 1949 , which results in a stamp duty assessment of only RM10.

Item 4 of the First Schedule of the Stamp Duty Act provides that a stamp duty of 10 ringgits is levied on "an agreement or memorandum executed solely in handwriting and not specifically binding..."
On appeal, the Collector upheld his earlier decision to levy stamp duty on the agreement under Section 21(1) of the Stamp Duties Act.

For your reference, below is a machine translation of Article 21, Paragraph 1 of the Stamp Act.
21. (1)
In Malaysia, where any contract or agreement is made under seal or merely by signature and is for the sale of an equitable interest or interest in any property of any kind, or for the sale of any interest or interest in any property other than land, buildings, inheritances, estates or property situated outside Malaysia, goods, manufactured goods or stock of goods, shares, marketable securities, any ship or part interest or share in a ship or property in a ship, such contract or agreement shall be subject to the same ad valorem tax payable by the purchaser as if it were a contract to convey the interest, interest or property actually to be sold.

Issues at issue

The main issues at issue in this trial were:

• Applicability of "sale and purchase transfer"

In this case, Havi argued that the APA was not a "conveyance on sale" and was merely a nominal transfer of assets, which should be subject to a fixed stamp duty of RM10.
On the other hand, the tax authority (Pemungut Duti Setem) argued that the APA effectively transfers ownership of the assets and is therefore subject to ad valorem duty as a "sale and purchase transfer".
The Federal Court ultimately supported the tax authorities' arguments and held that any contract involving the transfer of ownership is assessed as a "sale and purchase transfer", regardless of whether the actual delivery of the asset is physical or formal.
Specifically, "any contract or agreement for the sale of any real property, interest or property...except for any goods, manufactured goods or merchandise...concluded in Malaysia shall be subject to ad valorem stamp duty as if it were a contract of sale", and because the APA provides for the sale of an interest in property, the Federal Court concluded that "whether or not there is a contractual 'deeming provision', it falls fully within section 21(1) and shall be deemed to be an actual 'transfer by sale'".

• Impact of "deemed delivery" provisions

Section 2.3(c)(i) of the APA provided that title to and risk in the Acquired Assets would automatically pass to the purchaser, Havi, at closing and would result in a "deemed delivery" wherever the Acquired Assets were located.
The High Court (equivalent to a District Court in Japan) has held that this "deemed delivery" clause does not constitute a "sale transfer" because there is no actual physical delivery of assets, but the Court of Appeal and the Federal Court have concluded that, regardless of the existence of the "deemed delivery" clause, the APA itself is a "sale transfer" that transfers ownership and is therefore subject to ad valorem tax.

• Whether an asset is a "goods"

The assets acquired as the subject of the APA included computer hardware, machinery, equipment and inventory, but one issue in dispute was whether fixed assets such as plant and equipment could be considered "goods."
Havi argued that these fixed assets were not "goods" and therefore should be exempt from stamp duty.
The Federal Court held that the meaning of "goods" is limited to items intended for commercial trade or sale, and that "non-trading moveable properties" such as machinery and office equipment are subject to ad valorem tax.

Specific impact of the ruling on M&A practice

This ruling is likely to bring about major changes in practice regarding documentation and tax risk management for future M&A transactions.
In particular, stamp duty charges in M&A transactions may increase.
For this reason, you will need to plan your finances in advance, taking into account the possibility of having to pay stamp duty.

Furthermore, the question arises as to whether it is possible to consider a way to avoid the burden of stamp duty by adjusting the content of the contract, but this judgment can be said to have shifted in the direction of making a substantive judgment on tax burden, and so as long as the content is deemed to be substantially subject to the Stamp Act, such what are in some sense superficial measures are likely to be meaningless.

summary

This ruling is a groundbreaking precedent in that it has changed the scope of stamp duty and its assessment method from a formal description to a judgment based on actual economic effects.
In relation to deemed delivery, which was the subject of discussion in this judgment, Section 52 of the Stamp Duty Act was reinterpreted to clarify that emphasis is placed on actual rights and obligations and the transfer of substantial control, not just on the formality of the contract.
Although not covered in this article, the Control Premium, which was one of the points of contention, will no longer be treated as tax-exempt, but will be reassessed as an independent taxable item using a calculation method based on "acquisition price - market value of net assets x equity ratio."
Also, although this is not discussed here, there has been a shift from the traditional formal valuation of transaction amounts to an emphasis on asset valuation by an independent third party.

Personally, I believe that in the field of taxation, decisions should be as formal as possible.
This is because if a substantive judgment were to be made, it would be less foreseeable.
For example, whether or not tax will be imposed when performing a legal act, such as entering into a contract, can be determined at a glance, which may have a bearing on the decision of whether or not to perform such legal act in the first place.
For this reason, the dictionary interpretation of whether something constitutes a "good" can be considered to protect foreseeability.