Chong Barbara v Commissioner of Estate Duties: Valuation of Shares in Private Companies for Estate Duty
In Chong Barbara v Commissioner of Estate Duties, the High Court of Singapore, on 16 September 2005, addressed a petition by Barbara Chong, the administratrix of the estate of the late Tan Keng Siong, concerning the valuation of shares in Siong Lim Pte Ltd and Chulin Pte Ltd for estate duty purposes. The court considered whether the dividend yield method or the net asset value method was appropriate for valuing the shares and what discount should be applied to minority shareholdings. The court dismissed the petition in part, upholding the Commissioner's valuation method but applying a higher discount of 50% to the net asset value of the companies. The court ordered each party to bear its own costs.
1. Case Overview
1.1 Court
High Court1.2 Outcome
Petition dismissed in part. The court allowed the respondent's method of valuation to stand but applied a higher discount of 50% to the net asset value of the companies.
1.3 Case Type
Tax
1.4 Judgment Type
Judgment
1.5 Jurisdiction
Singapore
1.6 Description
The High Court addressed the valuation of shares in private companies for estate duty, focusing on the appropriate valuation method and applicable discounts.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| Chong Barbara | Petitioner | Individual | Petition dismissed in part | Partial | K Shanmugam SC, Stanley Lai, Kevin O'Shea, Nicholas Lum |
| Commissioner of Estate Duties | Respondent | Government Agency | Respondent's method of valuation allowed to stand | Partial | Andre Yeap SC, Lai Yew Fei |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Lai Siu Chiu | Judge | Yes |
4. Counsels
| Counsel Name | Organization |
|---|---|
| K Shanmugam SC | Allen and Gledhill |
| Stanley Lai | Allen and Gledhill |
| Kevin O'Shea | Allen and Gledhill |
| Nicholas Lum | Allen and Gledhill |
| Andre Yeap SC | Rajah and Tann |
| Lai Yew Fei | Rajah and Tann |
4. Facts
- The petitioner, Barbara Chong, is the administratrix of the estate of the late Tan Keng Siong.
- The dispute relates to the valuation of 200,000 shares in Siong Lim Pte Ltd and 20,000 shares in Chulin Pte Ltd as at 29 March 2001.
- The deceased, Tan Keng Siong, owned the shares in Siong Lim and Chulin.
- Siong Lim and Chulin are private limited companies registered in Singapore, with their principal activity being the holding of investments.
- The deceased’s shareholdings in Siong Lim and Chulin formed only 14.7% and 4% of the issued capital and only 3.5% and 4% of the voting rights respectively.
- The Commissioner of Estate Duties valued the Estate’s shareholdings in Siong Lim and Chulin at $177.74 and $6.49 per share respectively, based on the net asset value method with a 30% discount for non-marketability.
- Siong Lim and Chulin have not paid dividends since their respective dates of incorporation.
5. Formal Citations
- Chong Barbara v Commissioner of Estate Duties, OP 5/2004, [2005] SGHC 172
6. Timeline
| Date | Event |
|---|---|
| Siong Lim Pte Ltd incorporated | |
| Chulin Pte Ltd incorporated | |
| Estate of Helene Tan disposed of shares in Siong Lim to Tiong Cheng | |
| Estate of Helene Tan disposed of shares in Chulin to Tiong Cheng | |
| Tan Keng Siong died intestate | |
| Letters of Administration granted to Barbara Chong and Kenneth Boon Beng Tan | |
| Commissioner valued the Estate’s shareholdings in Siong Lim and Chulin | |
| Estate sold the Deceased’s shares to Amberlight Pte Ltd | |
| Kenneth Boon Beng Tan withdrew as the administrator of the Estate | |
| Siong Lim’s auditors produced the audited accounts | |
| Judgment reserved |
7. Legal Issues
- Valuation of shares in private companies
- Outcome: The court held that the net asset value method was the appropriate method for valuing the shares, but applied a higher discount of 50% to the net asset value of the companies.
- Category: Substantive
- Related Cases:
- [1975] HKLR 696
- [2004] 4 SLR 365
- [1975] HKLR 81
- Appropriateness of dividend yield method versus net asset value method
- Outcome: The court determined that the net asset value method was more appropriate than the dividend yield method for valuing the shares in this case.
- Category: Substantive
- Applicability of discounts to minority shareholdings
- Outcome: The court determined that a discount should be applied to the net asset value of the companies, and fixed the discount at 50%.
- Category: Substantive
- Consideration of deferred income taxation liability
- Outcome: The court held that deferred income taxation liability should be considered in the calculation of the net asset value of the company.
- Category: Substantive
8. Remedies Sought
- Declaration that the estate duty payable assessed for the Estate’s shareholding in Siong Lim and Chulin was incorrect
- Declaration that the Commissioner should give a discount of between 31% to 50% in his valuation of the Estate’s shareholding in Siong Lim and Chulin
9. Cause of Actions
- Recovery of estate duty
10. Practice Areas
- Tax Law
- Estate Planning
11. Industries
- Finance
- Investment Holding
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Hong Kong and Shanghai Bank Hong Kong (Trustee) Ltd v Commissioner of Estate Duty | High Court of Hong Kong | Yes | [1975] HKLR 696 | Hong Kong | Cited to support the position that section 22 of the Estate Duty Act does not exclude the valuation of shares by reference to the value of the total assets of a company under section 24 of the Act. |
| Wong Ser Wan v Ng Bok Eng Holdings Pte Ltd | High Court of Singapore | Yes | [2004] 4 SLR 365 | Singapore | Cited by the respondent to support its position that the net asset value basis ought to be used for the valuation of the Estate’s shareholdings in the Companies. |
| In re Harry Charrington, deceased | High Court of Hong Kong | Yes | [1975] HKLR 81 | Hong Kong | Cited for the proposition that the net asset value method should be used for the valuation of shares and to focus attention on the fact that when unquoted shares in private companies are to be valued what is to be ascertained is what would be the price which a hypothetical willing purchaser would pay to a hypothetical willing seller for the right to stand in the shoes of the deceased. |
13. Applicable Rules
| Rule Name |
|---|
| No applicable rules |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Estate Duty Act (Cap 96, 2001 Rev Ed) | Singapore |
| Section 47(1) of the Estate Duty Act (Cap 96, 2001 Rev Ed) | Singapore |
| Section 22(1) of the Estate Duty Act (Cap 96, 2001 Rev Ed) | Singapore |
| Section 24(1) of the Estate Duty Act (Cap 96, 2001 Rev Ed) | Singapore |
15. Key Terms and Keywords
15.1 Key Terms
- Estate duty
- Valuation of shares
- Private companies
- Dividend yield method
- Net asset value method
- Minority shareholdings
- Discount for non-marketability
- Deferred income taxation liability
15.2 Keywords
- Estate duty
- Share valuation
- Private companies
- Singapore
- Tax
- Net asset value
- Dividend yield
- Minority shareholding
16. Subjects
- Estate Duty
- Valuation of Shares
- Taxation
17. Areas of Law
- Revenue Law
- Estate Duty