Recently, the High Court in CIMB Bank Bhd v Pemungut Duti Setem [2023] MLJU 1011 held that a settlement agreement entered into by the parties was not a subsidiary instrument and liable to ad valorem stamp duty under Item 22(1)(a) of First Schedule to the Stamp Act 1949 (“Stamp Act”).

The brief facts are as follows: 

• a. On 9.1.2007, CIMB Bank Bhd (“Taxpayer”) and AirAsia Berhad (“AirAsia”) entered into an International Swaps and Derivatives Association (ISDA) Master Agreement (“ISDA Master Agreement”) which was assessed to a nominal duty of RM10 as it did not include any sums which can be determined.

• b. AirAsia and the Taxpayer restructured the payment for various amounts by entering into a settlement agreement dated 18.12.2020 (“Settlement Agreement”) consisting of repayment sum, terms and period.

• c. The Taxpayer then submitted the Settlement Agreement for adjudication and the Collector issued a notice of assessment which imposed ad valorem stamp duty (“Assessment”). Subsequently, the Taxpayer filed a notice of objection to appeal against the Assessment.

• d. However, the Collector had maintained the Assessment. Being dissatisfied, the Taxpayer appealed against the Collector’s decision in maintaining the Assessment to the High Court.

The High Court decided in favour of the Collect and held that, amongst others:

• a. The ISDA Master Agreement is a single and general agreement entered between the financial institution and other parties for the purposes of allowing Airasia to enter transactions with the Taxpayer.
• b. The Settlement Agreement shall stand on its own and is the only agreement in respect of the repayment sum by virtue of the entire agreement clause therein.
• c. Both the ISDA Master Agreement and the Settlement Agreement stand as a single and principal document as they were executed for different purposes and intentions.
• d. Section 4(3) of the Stamp Act cannot be applied here as the provision is only applicable in the circumstance where several instruments are employed for completing a transaction.
• e. Here, the Settlement Agreement is not a subsidiary to the ISDA Master Agreement as it is a separate, single and principal instrument.
• f. The Settlement Agreement is therefore liable to ad valorem stamp duty under Item 22(1)(a) of First Schedule to the Stamp Act given that it contains the mode of payment for a definite and certain period where the total amount to be paid can be ascertained.

COMMENTS

This case probably is the first local case that discussed and examined (a) what amount to a principal instrument, (b) what would be regarded as a subsidiary instrument, and (c) the interpretation and application of Section 4(3) of the Stamp Act. Do feel free to reach out to Desmond Liew, our Tax Partner, should you have any concerns in relation to the tax treatment of your settlement agreement. 

This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice.

About the author

Desmond Liew Zhi Hong
Partner
Tax
Halim Hong & Quek
desmond.liew@hhq.com.my