WONG WING WAH v. COLLECTOR OF STAMP REVENUE

DCSA 97/2016

[2020] HKDC 41

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

STAMP APPEAL NO. 97 OF 2016

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DECISION

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Introduction

1.  By Notice of Appeal dated 6 July 2016, Madam Wong brought this appeal against a stamp duty assessment dated 7 June 2016 (“the Assessment”) made by the Collector of Stamp Revenue (“the Collector”). The Assessment was made in respect of a provisional agreement for sale and purchase dated 18 January 2013 (“the Agreement”) for a property known as Apartment No.12 on 2^nd Floor, No.55A Kwun Tong Road, Kowloon (“the Property”) pursuant to section 14 of the Stamp Duty Ordinance, Cap.117 (“the Ordinance”).

Background facts

2.  This appeal is essentially concerned about a legal question, namely, the constitutionality of section 29CB(1) of the Ordinance and is not about any factual disputes. The Case Stated filed by the Collector pursuant to section 14(1) of the Ordinance provides a concise summary of the background facts and Mr Lam, for Madam Wong, does not raise any objection to its accuracy. I should adopt the same below.

3.  On 18 January 2013, Madam Wong signed the Agreement to purchase the Property at a consideration of HK$7,181,585.  The Property is a residential property within the meaning of section29A(1) of the Ordinance.

4.  The Agreement was stamped with ad valorem stamp duty of $269,310 under the then prevailing head 1(1A)(i) in the First Schedule to the Ordinance on 6 February 2013. Madam Wong raised no issue with the amount of ad valorem stamp duty payable on the Agreement.

5.  On 29 January 2013, Madam Wong executed a trust deed (“the Deed”) in which she declared, among other matters, that the Property did belong to one Mr Wong. She merely held the Property for Mr Wong, who had paid and would pay all monies relating to the purchase and maintenance of the Property.

6.  On 21 February 2013, Madam Wong entered into a formal agreement for sale and purchase of the Property by incorporating the terms of the Agreement. The sale was completed on 30 April 2013.

7.  The HKSAR Government announced on 26 October 2012 proposed measures to address the overheated residential property market and sought to introduce, among other things, the Buyer’s Stamp Duty (“BSD”) by amending the Ordinance through Stamp Duty (Amendment) Bill 2012 (“the Bill”) which was subsequently published in the Gazette on 28 December 2012.

8.  In or about June 2016, Messrs Philip T.F. Wong & Co., the former solicitors for Madam Wong, supplied documentary evidence to prove the financial contribution of Mr Wong to the acquisition of the Property. The Collector, as a result, adjudicated that the Deed should not be chargeable with any stamp duty by virtue of section 27(5) of the Ordinance due to the lack of any beneficial interest thereby transferred.

9.  However, the Collector concluded that the Agreement was chargeable with BSD by virtue of section 29CB(1) of the Ordinance and the exemption under section29CB(2)(a) of the Ordinance was not applicable because Madam Wong was not acting on her own behalf under the Agreement, but as trustee for and on behalf of Mr Wong.

10.  Section 29CB(1) of the Ordinance provides,

“(1)Subject to the other provisions of this section, head 1(1C) in the First Schedule applies to a chargeable agreement for sale of any residential property executed on or after 27 October 2012.

  (2) A chargeable agreement for sale is not chargeable with buyer’s stamp duty under head 1(1C) in the First Schedule if it is shown to the satisfaction of the Collector—

  (a) that the purchaser, or each of the purchasers, under the agreement is a Hong Kong permanent resident acting on his or her own behalf;”

11.  On 7 June 2016, under section 13(3)(b) of the Ordinance, the Collector raised the Assessment in respect of the Agreement to HK$1,077,238 ($7,181,585 x 15%) with BSD being chargeable. Madam Wong has paid the said amount in full pending her appeal.

12.  Madam Wong has filed an affirmation of Peter Fu to support her appeal. There, it is deposed to that Mr Wong is in fact a Hong Kong permanent resident (“HKPR”). The Collector takes no issue with this assertion and this appeal is to be argued on that basis.

Ground of appeal

13.  The sole ground advanced is, as characterised by Mr Lam, whether section 29CB(2)(a) of the Ordinance is against the Basic Law and hence unconstitutional in that it allows BSD to be levied on agreements even executed by a HKPR buyer as a nominee/trustee for a genuine HKPR

buyer. Mr Lam argues that this provision infringes the constitutional rights to acquire property under Articles 6 and 105 of the Basic Law. The gravamen of his complaint is that the provision contravenes the stated objectives of the BSD and unjustifiably and disproportionally imposes a restriction on a HKPR buyer’s right to acquire property through a conventional and legitimate asset protection arrangement by way of trust.

14.  Article 6 of the Basic Law provides,

“The Hong Kong Special Administrative Region shall protect the right of private ownership of property in accordance with law.”

15.  Article 105 of the Basic Law provides,

“The Hong Kong Special Administrative Region shall, in accordance with law, protect the right of individuals and legal persons to the acquisition, use, disposal and inheritance of property and their right to compensation for unlawful deprivation of the property.”

16.  Article 105 actually covers Article 6 and as observed by Stock JA in Fine Tower Associates Ltd v Town Planning Board [2008] 1 HKLRD 553 (CA), any argument relating to Article 6 adds nothing to that of Article 105.

17.  Before I go any further, it is necessary to point out that Mr Lam submits that the fundamental issue in this appeal is whether Article 105 is engaged in this appeal. If so, the proportionality test should be applied. If not, he accepts that the appeal must fail.

18.  On this critical issue, Judge Andrew Li in Wong Chak Sin v Collector of Stamp Revenue [2016] 1 HKLRD 981 dealt with a similar appeal concerning the constitutionality of the same provision in the Ordinance. The judge followed the decision of the Court of Appeal in Weson Investment Ltd v Commissioner of Inland Revenue [2007] 2 HKLRD 567 and concluded that Articles 6 and 105 have no application to tax legislation allowed by Article 108. Mr Lam reminds this court that Wong Chak Sin is not binding on me and submits that the judge was clearly wrong and this court should depart from his conclusion.

19.  I should first study these two decisions in detail. In Wong Chak Sin, the appellant there entered into a sale and purchase agreement in respect of a residential property in July 2013 as trustee for and on behalf of his daughter Ms Wong, who was then a minor. The sale was completed on 18 September 2013, about two weeks after Ms Wong reached the age of 18. The vendor assigned the property to Ms Wong directly by an assignment of the same date in accordance with the direction of the appellant as confirmor.

20.  Subsequently, BSD was charged on the agreement by the retrospective effect of the Bill. The appellant applied for exemption with the statutory declaration of Ms Wong to the effect that she was a HKPR and the true purchaser and beneficial owner of the property. His application was rejected on the ground that in the agreement, Mr Wong was still not a purchaser acting on his own behalf (neither was Madam Wong in the present case).

21.  Before the judge, the appellant argued, among other matters, that section 29CB(2)(b) of the Ordinance should contain a minor exemption (it was originally included in the Bill). Without the minor exemption, it was argued that a HKPR minor’s right to acquire private ownership of property is unduly restricted and compromised and thus Articles 6 and 105 are infringed.

22.  On this issue, the judge first highlighted the conclusion of Weson Investment Ltd to the effect that Article 105 (and Article 6) has no application to tax legislation because of Article 108.

23.  Article 108 provides,

“The Hong Kong Special Administrative Region shall practise an independent taxation system. The Hong Kong Special Administrative Region shall, taking the low tax policy previously pursued in Hong Kong as reference, and enact laws on its own concerning types of taxes, tax rates, tax reductions, allowances and exemptions, and other matters of taxation.”

24.  Mr Lam submits that the judge erroneously considered that Weson Investment Ltd was equally applicable to the BSD matters when it actually dealt with altogether a different right under Article 105. Mr Lam submits that Weson Investment Ltd is a judgment only on the right to compensation upon deprivation or expropriation of property whereas Wong Chak Sin (and the present case) concerned the right to acquire property.  

25.  In Weson Investment Ltd., the appellant company was successful in its appeal to the Board of Review regarding an assessment of profit tax. As a result, it was entitled to a refund of the assessed tax together with a late payment surcharge previously paid to the Commissioner. However, the Commissioner refused to pay the appellant company any interest on the refunded amount for the period when it was deprived of the use of the same pending the outcome of the appeal. The appellant appealed to the Court of Appeal.   

26.  Rogers VP (concurred by Le Pichon JA), after setting out Articles 105 and 108, said this at §18 (cited by Judge Andrew Li in Wong Chak Sin at §37),

“When the Government imposes tax on the individual, of necessity it deprives the individual of his property without any right to compensation. The two articles are, as Mr Ismail, who appeared on behalf of the Commissioner, argued, mutually exclusive.”

27.  Tang VP (as he then was), first refused to apply the proportionality test and opined that unless the taxation scheme cannot be regarded as genuine, but was in fact a disguised expropriation of property, Article 105 has no application.  This dictum was quoted in Wong Chak Sin at §38.

28.  Tang VP also, relying on the decision of High Court in Australia in Australian Tape Manufacturers Association and Ors. v The Commonwealth of Australia [1993] 176 CLR 480 at 509, came to the conclusion that there was no expropriation of the property at all when the Commissioner asked for tax payment in the first place. The Commissioner merely recovered that which was due to him (§§86-87).  

29.  The distinction observed by Mr Lam is, in my view, a valid one.  The right to compensation for lawful deprivation of property under Article 105, and not the right to acquire property, was at the fore in Weson Investment Ltd. However, this distinction is without a difference and the holding that Article 105 has no application to legitimate taxation is of general application. Of course, it is binding on this court too.

30.  If the right of the HKSAR Government to impose profit tax permissible under Article 108 is not in any way restricted or circumscribed by the right to compensation for lawful deprivation of property under Article 105, I fail to see how the imposition of stamp duty and BSD can be so by the right to acquisition of property under the same provision. It is not and cannot be argued that the HKSAR Government is not entitled to impose any stamp duty and BSD under Article 108.

31.  I also agree with Ms Chan, for the Collector, that the imposition of BSD, which is just a kind of stamp duty, cannot be equated with a restriction on or an interference with individuals’ right to acquire property protected under Article 105. With BSD in place, all individuals still enjoy the equal right to acquisition of of properties. Section 29CB(2)(a) of the Ordinance merely exempts HKPR purchasers from BSD if they enter into such sale agreements under their own names.  

32.  As an illustration, it is absurd to say that the demand for income tax on chargeable income imposes a restriction on earning such income. Other similar examples abound. Increased chargeable tax in the form of BSD only means an increase on the costs of acquisition of properties but it per se cannot be seen as a restriction on the right to do so.

33.  It is not argued that the BSD scheme is not genuine, but was in fact a disguised restriction of right to acquire properties. In any event, such an argument cannot succeed.  The BSD scheme obviously has legitimate purposes to serve and exemptions are duly provided for all HKPR purchasers under section 29CB(2) of the Ordinance.

34.  In the premises, I would conclude that I should follow Weson Investment Ltd, as Judge Andrew Li rightly did so in Wong Chak Sin, and hold that Article 105 (and also Article 6) is not engaged at all in the present appeal.

35.  Mr Lam submits that this court should consider that Weson Investment Ltd was wrong decided if this court holds that its broad interpretation applies to this appeal. I am unable to accept this submission and refuse to further discuss the correctness of Weson Investment Ltd here.

36.  This being the conclusion, the proportionality test does not require discussion and I do not think I need to deal with Mr Lam’s submission on this issue.

Conclusion and order

37.  By reason of the foregoing matters, I cannot agree to the submission of Mr Lam that the BSD as applied to a HKPR trustee for a HKPR true owner is an illegal restriction on the right to acquire property and therefore unconstitutional. Articles 6 and 105 are not engaged. The constitutional challenge has no merit.

38.  To conclude, this appeal, manfully argued by Mr Lam, falls to be dismissed. Costs should follow the event and Madam Wong should pay the costs of the Collector of this appeal, to be taxed if not agreed. This is a costs order nisi.

39.  Lastly, I thank both Mr Lam and Ms Chan for their assistance rendered to this court.