03:58 AM Justin Tan (Sheridan Fellow, Faculty of Law, National University of Singapore)

    Policy considerations when interpreting tax statutes: Zhao Hui Fang v Commissioner of Stamp Duties [2017] SGHC 105



    What weight should judges give to tax policy considerations when interpreting a tax statute? In Zhao Hui Fang and others v Commissioner of Stamp Duties [2017] SGHC 105 (“Zhao”), the High Court answered, almost in a whisper, “not very much”. In this comment, I summarise the case, demonstrate how the court gave little weight to tax policy considerations and argue for more weight to be given to tax policy considerations when interpreting tax statutes.

    Brief facts, holding and analysis

    The trustee of a charitable purpose trust (the Chew How Teck Foundation) bought residential property. Subject to certain rights and conditions, the property could be leased or sold and the proceeds paid to the charitable purpose trust.

    What were these rights and conditions? First, the settlor’s wife could use the property as her personal residence until death, unless she remarried.  Second, if the wife chose not to use the property as her personal residence, it would be given to the settlor’s daughter for use as a personal residence by her and her children. The daughter could renovate the property at her own cost. Only after a certain time, and provided neither the daughter nor her children wished to use the property as their personal residence, could the trustee lease or sell the property and pay the proceeds to the charitable purpose trust.  

    The High Court in Zhao held that the purchase of the residential property did not attract additional buyer’s stamp duty (“ABSD”) under the Stamp Duties Act (Cap 312, 2002 Rev Ed) (“SDA”).

    Where residential property is transferred to a trustee, ABSD is chargeable on a “look through” basis: ie ABSD applies if the beneficial owner of the property is a “foreigner” or “entity” (Arts 3(2)(d) and 3(bf)(viii) of the First Schedule of the SDA). Here, the court held that after the transfer, there was no beneficial owner of the property; instead, the beneficial interest in the property was suspended. Thus, ABSD was not chargeable.

    The court reasoned as follows:

    • On the facts, the wife was not the beneficial owner of the property; she had only a personal license to reside in it (at [43] – [54]). 
    • The wife was a Singaporean. Thus, if she was the beneficial owner, there would be no ABSD. However, since the wife was not the beneficial owner, the court had to consider if the beneficial interest in the property remained elsewhere (at [55]).
    • Here, neither a person who factually benefitted from the charitable objects of the charitable purpose trust, nor the trustee, nor the public, was the beneficial owner of the property (at [56] – [87]).
    • Thus, beneficial ownership in the property was “suspended” (ie, there was no beneficial owner) when the trustee bought the property, and so no ABSD was chargeable (at [87]).

    Zhao did not give weight to tax policy considerations

    Zhao is interesting to property and trust lawyers, as it discusses who held the beneficial interest in the property: the wife, trustee, those who benefitted under the trust, or the public.

    What is less obvious, however, is that the court did not give weight to the tax policy considerations that actually underlie the entire case. For the court, it was enough that (i) for ABSD to apply, a foreigner or entity must be a “beneficial owner” at general law; and (ii) here, there was none. The entire case rests on whether “beneficial owner” could be given an expanded meaning (ie, one broader than under general law), to further the policy objectives of ABSD (whatever those might be). On this key question, the court answered “no, because it’s not defined in the SDA, we fall back on the general law definition”.

    Why it is probably unwise to ignore tax policy considerations

    It is probably unwise to ignore tax policy considerations when interpreting a tax statute.

    First, as the court in Zhao recognised numerous times, courts must interpret statutes purposively. Surely, a purposive interpretation of tax statutes involves a consideration of tax policy, since the statute essentially puts that policy into words. Indeed, the purposive approach is contrasted with the literal approach, which is arguably what one is embracing by relying exclusively on the meaning of “beneficial owner” at general law.

    In Zhao, purposive interpretation was not invoked to answer the key question: whether “beneficial owner” could be given an expanded meaning. Instead, purposive interpretation was deployed only in dicta, to determine if the trustee was an “entity” under art 3(1) of the First Schedule of the SDA (see, eg, [89] and [107]).

    A hypothetical illustrates why an expansive reading of “beneficial owner” should be considered. Suppose the property was bought by a trustee, and under the trust, a foreigner X gets to use the property as his personal residence for 30 years. Now, the case turns on whether X is a “beneficial owner”: if yes, ABSD is chargeable on the purchase; if no, it is not. Relying on the general law analysis on beneficial ownership (discussed at [43] – [54]), X will not be a beneficial owner if he did not have (i) rights of possession, exclusion or alienation (“Requirement 1”); and (ii) rights to income and proceeds from the property (“Requirement 2”). In fact, one may even rely on Zhao to take the position that X would not be a beneficial owner if he fulfilled either one of Requirement 1 or Requirement 2 (although it is unclear the decision goes that far).

    In short, a foreign buyer who wanted to buy a residential property for his family members could rely on Zhao to structure an ABSD-free purchase. Since the court relies primarily on the trust instrument to identify the beneficial owner, the foreign buyer could slice up the rights to the property on paper to achieve that result, while the family members effect a completely different arrangement informally. The policy objective of ABSD, ie to reduce residential property purchases and particularly from foreigners, would be defeated.

    Second, while it would be difficult to interpret the SDA in a way that promotes ABSD’s underlying policy objective when that interpretation is explicitly contradicted by the SDA’s wording, Zhao did not present this difficulty. The court in Zhao had room, if it so chose, to interpret “beneficial owner” expansively, without contradicting the express wording of the SDA, for the reasons below.

    • Art 3(2)(d) states that “where there is more than one beneficial owner…all the beneficial owners shall be treated as joint grantees, transferees or lessees”. It is entirely possible that the legislation’s contemplation of multiple beneficial owners directly addresses the situation where rights to the property are sliced up. Its response was to adopt a bright-line rule and treat all beneficial owners jointly.
    • It should be appreciated that slicing up rights is a common strategy employed by taxpayers around the world to minimize their tax liability, and so the potential for employing such a strategy in this case to defeat the objective of ABSD cannot be ignored. For example, taxpayers when issuing a financial instrument slice and dice the rights contained in it, then say it’s either debt or equity to obtain the most favourable income tax treatment. Another example involves reducing US gift tax: intended beneficiaries are given non-managing interests in tax partnerships holding (and deriving income from) appreciated assets contributed by the original owner; the non-managing interests are ascribed a low value as minority illiquid rights.
    • It is entirely possible for “beneficial owner” to mean one thing under general law, and another thing under art 3(2)(d). The law is replete with examples of words having different meanings in different contexts. For example, a company can be vicariously liable for the tortious acts of its “employee”. It is hardly controversial when English and Australian courts say that an employee in the context of vicarious liability is not the same as an employee for tax purposes (see Cox v Ministry of Justice [2016] 2 WLR 806 and Hollis v Varbu [2001] HCA 44 respectively), because the policy considerations underlying the vicarious liability regime and the tax regime are different. The same applies to statutes and regulations: an instrument can be debt under tax rules and equity under banking rules. Indeed, this was precisely the outcome US banks achieved leading up to the 2008 financial crisis, when they issued instruments popularly known as “deductible equity”.
    • Interpreting the words “beneficial owner” expansively is a smaller step than constructing entire judicial doctrines without an express authorization to do so in the statute. Yet, courts have been comfortable developing judicial doctrines that form part of tax law, alongside the statutes and regulations. For example, before general anti-avoidance rules were codified in our tax statutes, we could have adopted anti-avoidance judicial doctrines developed by foreign Commonwealth courts like “sham”, or the business purpose test.    

    It should be noted that, when the Commissioner of Stamp Duties tried to rely on Australian land tax cases for an expanded definition of “beneficial owner”, the court in Zhao cautioned against using foreign tax cases to interpret the SDA. The court did acknowledge that those cases interpreted “owner” to include a recipient and possessor of rents and profits from the land. But this did not open the door for a more expansive reading of “beneficial owner” for ABSD purposes, and rightly so, because as the court noted, the Australian statute was worded differently, and had different aims for a different society (at [77] and [78]). But the real lesson from those Australian cases was missed. The real lesson is that words in a tax statute may take on a special meaning only for purposes of that statute, to advance the tax policy objectives. With respect, the court in Zhao, by relying solely on general law in defining “beneficial owner”, precluded any sensitivity to tax policy considerations.

    Third, it is no objection to say that it is impossible to determine exactly how the definition of “beneficial owner” should be expanded to best meet the policy objectives of ABSD. This is exactly the court’s (albeit unenviable) task. In this regard, I believe that press statements and e-tax guides published by the Inland Revenue Authority of Singapore are useful sources for determining the policy objectives of ABSD. The court rightly noted in dicta [110] – [113] that these sources are not law (although there are exceptions: the Ministry of Finance’s 1977 press statement, that exempted from withholding tax fees on management services performed outside Singapore, was treated by taxpayers as de facto law, and only codified more than three decades later; see also Chen Jianlin, “Tools for immediate regulatory tax implementation: Subsidiary Legislation vs Legislation by press release” [2015] Sing JLS 1). However, in practice, press statements (eg annual Budget speeches and publications) and e-tax guides are often the best sources for determining the policy underlying any tax law, and taxpayers frequently rely on them.

    The final argument for giving weight to tax policy considerations when interpreting tax statutes is that not doing so compels the legislative drafter to anticipate everything, which would hardly be efficient were it even possible (see Andrew Morrison Stumpff, “The Law is a Fractal: The Attempt to Anticipate Everything” [2013] Loyola U Chicago LJ 44). Indeed, it is often necessary and desirable for courts to “fill the gaps” in legislation (see the speech by New Zealand’s Justice Susan Glazebrook, to be retrieved at, particularly in Singapore’s context, which uses legislative speed to take maximum advantage of (and react nimbly to) economic trends and opportunities.

    For the reasons above, it is hoped that tax policy considerations will be given more weight in future tax cases.

    * This blog entry may be cited as Justin Tan, “Policy considerations when interpreting tax statutes” (19 May 2017) (

    ** A PDF version of this entry may be downloaded here

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