A Bill to amend the Stamp Duties Act has been proposed by the Ministry of Finance (MOF) on 6 August 2018 in Parliament to introduce the stamping of electronic records that effect certain real estate and company shares transaction.
Despite being a legislation of moderate length, the Stamp Duties Act has wide-reaching implications, and often times require complex technical analyses that interact with other branches of law. If the Parliament passes the law to stamp electronic records, the already sprawling effect of the Stamp Duties Act is likely to be felt further and will need to be considered even more carefully than before.
In Singapore, stamp duty emanates from the Stamp Ordinance 1929, a piece of tax legislation that pre-dates even income tax. Almost 90 years later, 2 key concepts are still the cornerstone of stamp duty:
1) Duty on instruments
Firstly, stamp duty is a duty on instruments, and not a duty on the transaction, subject matter nor individual. The Act defines 'instrument' to include every written document, though not all instruments are dutiable; only those instruments that are listed in the First Schedule of the Act. Commonly, instruments such as transfer of stock or shares and real estate, are dutiable instruments, but there are also others. The head of charges in the First Schedule in turn determines the applicable stamp duty rate, and the party that bears the duty.
The established principle is for lawyers, laymen and the Commissioner of Stamp Duties alike to ascertain "the substance of the transaction as expressed by the instrument" to determine whether the instrument falls within one of the head of charges of the First Schedule.
2) Time of stamping is tied to when documents are executed in or received in Singapore
Secondly, instruments that are executed in Singapore needs to be stamped within 14 days. If the instruments are executed outside Singapore, they need to be stamped within 30 days of being received in Singapore.
In introducing the Bill, the MOF says that "To ensure that our laws keep pace with digitalisation, the key amendments provide for stamp duty to be levied on electronic records that effect a transfer of interest in immovable properties and shares. This move safeguards Singapore’s revenue base, and ensures that we continue to raise revenue from a variety of sources, including from asset transfers."
The digital world operates very differently from paper; perhaps an entirely new framework of taxation might be more suitable to tax digital transactions. But if electronic records are to be stamped like written documents under the existing stamp duty framework, that would require a re-conceptualisation of long-held technical concepts of 'instrument', whether they are 'executed in Singapore' or outside Singapore and when they are 'received in Singapore'.
What the Bill proposes to introduce and the implications
The Bill proposes that an electronic record that, by itself or together with a physical document or a verbal communication, effects a transaction or evidences or signifies a matter, be effectively treated as an instrument – called 'electronic instrument' – that is capable of being dutiable. While the Bill does not seek to amend the heads of charges or the stamp duty rates, if passed, the law would effectively expand what constitutes an instrument for stamp duty purposes.
Take for example, contracts for sale and purchase of real estate that are concluded via exchange of emails, are currently not regarded as instruments capable of being stamped. If the Bill is passed, they would be. The next question is, when is such a contract treated to be executed? In this example, the Bill contemplates that one would have to first determine how and when a contract is formed under principles of contract law, i.e. where there has been acceptance of an offer. Then, you would have to determine when an electronic signature has been applied to the electronic record to signify the formation of a contract. The further question is, where is the contract 'executed' which in turns determine the deadline for stamping? In this example, the Bill contemplates that it is executed in the place and at the time where the signing party or the person authorised by the signing party (other than, say, an online intermediary that merely provides any facility for the application of the electronic signature) accepting the offer does the act that results in the application of the electronic signature to the electronic record.
The example above illustrates the multiple-steps analytical process in considering the stamp duty implications of real estate transactions that are effected by electronic records. The Electronic Transactions Act currently excludes contract for the sale or other disposition of immovable property or any interest in such property though this may be amended when the digitalisation of real estate transactions take flight. Whether transacting parties will be comfortable transacting high value real estate property purchases digitally remains to be seen. But it is anticipated that smaller value transactions such as tenancies could be concluded electronically. In which case it is not inconceivable that a seamless transaction and stamping platform could be made possible.
The above is just an example where the electronic instrument consist of only electronic record. Bear in mind that the Bill anticipates that an electronic instrument can be a combination of an electronic record and a physical document, in which case, the time when the transaction is concluded depends on whether the transaction is concluded by the electronic record, or by the physical document.
The analysis potentially gets more complicated.
Say the electronic instrument – consisting of both the electronic record and the physical document – were signed (electronically or physically as the case may be) outside Singapore. The electronic instrument is treated as received in Singapore – meaning the 30-day clock for stamping starts ticking – when:
a) the electronic instrument is retrieved or accessed by a person in Singapore;
b) an electronic copy of the electronic instrument is stored on a device (including a computer) and brought into Singapore; or
c) an electronic copy of the electronic instrument is stored on a computer in Singapore.
Unlike in the determination of where an electronic instrument is executed, the proposed rule on when an electronic instrument is treated as received does not disregard the 'receipt' by an intermediary.
Different organisations manage their email systems differently. It is also possible that an internet email may travel and be stored on a network or a computer in Singapore without the recipient's or the sender's control. An email could also go into a junk mailbox but nonetheless could potentially render an electronic copy of the electronic instrument as being brought into Singapore. Such an email that goes unnoticed but triggers any of the rules of receipt could have unintended late-stamping consequences.
Notably, the Bill contemplates giving retrospective legitimacy to any sum purportedly paid, collected or recovered as stamp duty (on a transaction that is wholly or partly effected or evidenced by an electronic record) for transactions effected by electronic means without instrument, even prior to the law of the stamping of electronic instruments coming into effect.