Hong Kong Court Rules that Buyer’s Stamp Duty is Constitutional

In a recent decision handed down on 6 January 2021 Wong Wing Wah v. Collector of Stamp Duty [2021] HKCFI 11, [2021] HKEC 14, Hong Kong’s Court of First Instance ruled that the Government's introduction of buyer's stamp duty (BSD) on residential property transactions was constitutional.

Background

This case was an application for leave to apply for judicial review of the Collector of Stamp Revenue’s assessment in respect of a provisional agreement for sale and purchase dated 18 January 2013 (Agreement) for a residential property. The applicant Wong Wing Wah, who was a Hong Kong permanent resident (HKPR), was the purchaser acting as a trustee for another HKPR, Wong Tak Hung. In fact, as the court noted in the judgment, there were 11 other similar applications for judicial review in which (except for one case) numerous HKPR trustees purchased residential properties for Wong Tak Hung.

On 26 October 2012, the Government announced the introduction of BSD to address the overheated residential property market. The aims of BSD were (as set out in the Legislative Council Brief on Stamp Duty (Amendment) Bill 2012):-

1. "to prevent even further exuberance in the housing market which may pose significant risks to our macro economic and financial sector stability”;
2. “to ensure the healthy and stable development of the residential property market which is crucial to the sustainable development of Hong Kong as a whole”; and
3. “to accord priority to HKPR buyers over non-HKPR buyers under the current market situation”.

The Agreement was chargeable with BSD unless exempted. One of the exemptions is provided under section 29CB(2) of the Stamp Duty Ordinance (Cap. 117), which provides that a purchaser who is a HKPR and acting on his or her own behalf will be exempted from BSD.

As the applicant was acting in the capacity of a trustee but not acting on her own behalf under the Agreement, the Collector of Stamp Revenue assessed the Agreement to be chargeable for BSD.

Judgment

Wong Wing Wah’s application was heard before Chow J and was dismissed primarily on the ground of delay in the application but his lordship also considered that the merits of the case were not strong.

The applicant sought to argue that Articles 6 and 105 of the Basic Law protected her right to the acquisition of property and the levying of BSD disproportionately interferes with or restricts her right to do so. The relevant Articles of the Basic Law are:-

1. Article 6: "The Hong Kong Special Administrative Region shall protect the right of private ownership of property in accordance with law."
2. Article 105: "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 lawful deprivation of their property…"

If Articles 6 and 105 of the Basic Law were engaged, then the court would have had to apply the four-step proportionality test as set out in Hysan Development Co Ltd v Town Planning Board (2016) 19 HKCFAR 372, [2016] HKEC 2081, [2016] 6 HKC 58 to examine whether the restriction or interference of her right to acquire property was proportional.

On the first question, Chow J held that Articles 6 and 105 of the Basic Law were not engaged for the following reasons:-

1. In Weson Investment Ltd v Commissioner of Inland Revenue [2007] 2 HKLRD 567, the Court of Appeal held that the right to compensation for lawful deprivation of property under Article 105 had no application to legitimate taxation imposed by the Government under Article 108 of the Basic Law. 
2. As an extension to the decision in Weson, the right of ownership and the use of property protected by Articles 6 and 105 were also not engaged when the Government exercised the power to levy tax under Article 108 of the Basic Law.
3. Therefore, it was held that "the Government’s exercise of the power to levy tax under BL 108 ought generally to be regarded as being outside the scope of BL 6 and BL 105 unless the taxation scheme is not genuine, because taxation, by its very nature, operates in an opposite direction to the protection of private property rights."

On the second question, his lordship held that, even if Articles 6 and 105 of the Basic Law were engaged to protect the applicant's right, the first and second steps of the proportionality test were satisfied. In other words, the court considered that the levying of BSD pursued legitimate aims (as set out in the Legislative Council Brief) and it was rationally connected with advancing at least the first and probably the second aims. The applicant's counsel conceded the third and fourth steps of the proportionality test.

Commentary

Section 29CB(2) of the Stamp Duty Ordinance clearly stipulates that, in order to be exempted from BSD, the purchaser must be a HKPR acting on his/her own behalf. This is to prevent a loophole which the applicant in Wong Wing Wah purported to take advantage of by adopting a trust arrangement to avoid the payment of BSD.