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Sample 1: tax query on Directors' Remuneration of Charitable Institutions & Trusts;

Sample 2: tax query on badges of trade for investment in other company's shares;

Sample 3: IRD helping other tax jurisdiction on collecting information from Hong Kong company;

Sample 4: Query sample for application of HK Certificate of Resident Status between Mainland China & HK;

Sample 5: Expenditure's capital or revenue;

Sample 6: Tax recovery;

Sample 7: Query for meal and entertainments;

Sample 8: Query for related parties transactions;

Sample 9: Query for exchange gain/loss;

Sample 10: Query for office expenses/professional fee/travelling expenses

Sample 11: Query for relief of stamp duty under sections 45 of the Stamp Duty Ordinance (Cap.117)

Sample 12: Query for interest income (location of provision of money determines taxable in Hong Kong or not)

Sample 13: what's the words that show the assessor rejected your tax claim (after rounds of reply)?

Sample 14:Query for bad debt


Sample 1: tax query on Directors' Remuneration of Charitable Institutions & Trusts

Normal following may be queried by IRD:

  1. Name and position/capacity of each recipient
  2. Amount received by each recipient
  3. Duties of each recipient

IRD also concern as following:

  • Your attention is drawn that all income and property of a charity shall be applied solely for furthering its charitable objects. It is thus important for charities to maintain reliable internal controls and accounting system so as to safeguard the assets from being exposed to risks.
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13 Answers

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Sample 2: tax query on badges of trade for investment in other company's shares

Gain on disposal of investment

(8) Particulars of shares purchased including name of share,date of purchase, unit cost, quantity and total purchase price paid.

(9) Date of sale, quantity, unit selling price, and sale proceeds realized and calculation of the resultant gain/loss.

(10) Basis of stock valuation.

(11) Original intention with regard to the shares acquired - whether to hold as long term investment for dividend income or for resale at a profit.

(12) Documentary evidence to support the professed intention.

(13) Financing of the acquisition - If it was financed by advances from shareholders/directors/related companies, and/or external borrowing was resorted to, apply the following additional information:

(a) the name(s), address(es), Hong Kong Identity Card Number/Business Registration Number (if known) of the lender(s), and the exact relationship between the lender(s) and the Company, if any;

(b) amount of loan;

(c) interest rate;

(d) term of repayment and how the loan is to be serviced; 

(e) details of security given; 

(f) a copy of loan agreement;

(g) the source of fund from which the shareholders/directors/related companies obtained for on-lending to the Company.

(14) Income yielded from shares as a percentage of total investment.

(15) The circumstances leading to the disposal together with documentary evidence in support.

(16) Application of the sale proceeds.

(17) Classification of the shares in the accounts of the Company - shown as fixed assets or current assets.

(18) Names, addresses, Hong Kong Identity Card Numbers/ Business Registration Numbers of the vendor and the purchaser. Also advise their exact relationship with the Company, its directors and shareholders, if any? apart from being vendor and purchaser.

(19) How the purchaser was being solicited? Forward documentary evidence in support.

(20) Your grounds for considering that the gain on disposal of investment is non-taxable.

answered by (9.5k points)

Section 2 of IRO give definition of "trade" including every trade and manufacture, and every adventure and concern in the nature of trade.

6 badges of trade by the UK Royal Commission in 1955 on Profits and income tax:

  • a. profit-seeking motive at the time of acquisition;
  • b. subject matter of the commodity disposed;
  • c. length of ownership;
  • d. frequency of similar transactions;
  • e. supplementary work done on the property;
  • f. circumstances leading to the disposal.

Later extent to idea of 9 badges of trade:

  • profit seeking motive
  • the number of transactions
  • the nature of the asset
  • existence of similar trading transactions or interests
  • changes to the asset
  • the way the sale was carried out
  • the source of finance
  • interval of time between purchase and sale
  • method of acquisition.
Ref link:

https://www.accaglobal.com/hk/en/technical-activities/technical-resources-search/2011/august/badges-of-trade.html

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Sample 3: IRD helping other tax jurisdiction on collecting information from Hong Kong company

Under authority of Section 51(4)(a), Section 51(4A) and Section 51(4AA) of the Inland Revenue Ordinance:

(PS: seems under foreign government's request, IRD requested the company to provide information in related to a specified foreign entity.)

answered by (9.5k points)

Relevant Inland Revenue Ordinance (Cap. 112) clauses (extra only):

Section: 51 

Heading: Returns and information to be furnished

(4) For the purposes of obtaining full information in regard to any matter which may affect any liability, responsibility or obligation of any person under this Ordinance—

(a) an assessor or an inspector may give notice in writing to such person, or to any other person whom he considers may be in possession or control of information or documents in regard to any such matter as aforesaid, requiring him within such reasonable time as is stated in the notice, and in the form and manner specified in it, to furnish all information in his possession or control respecting any such matter, and to produce for examination any deeds, plans, instruments, books, accounts, trade lists, stock lists, vouchers, bank statements or other documents which the assessor or inspector giving the notice considers are or may be relevant for the purpose aforesaid: 

(Amended 9 of 2013 s. 5; 22 of 2016 s. 5)

Provided that in the case of a notice under this paragraph requiring the production of any account kept by a solicitor and relating to the affairs of any client or clients of his, production of a copy of all relevant entries therein respecting any matter upon which information is sought shall be a sufficient compliance with the aforesaid requirement of the notice if the copy is certified by the solicitor as being a correct copy of all relevant entries in such account respecting the matter aforesaid;

(b) an assistant commissioner may give notice in writing to such person, or to such other person, requiring him, at a time and place to be named by the assistant commissioner, to attend and be examined, and upon such examination to answer truthfully all questions put to him, respecting any such matter as aforesaid. 

(Replaced 35 of 1965 s. 26. Amended 40 of 1972 s. 4)

(4AA)

Subsection (4) also applies for the purposes of obtaining full information in regard to any matter (referred to in this subsection as 

the matter concerned

) that may affect any liability, responsibility or obligation of any person (referred to in this subsection as 

the person concerned

) under the laws of a territory outside Hong Kong concerning any tax of that territory if—

(a)

arrangements having effect under section 49(1A) are made with the government of that territory; and

(b)

that tax is the subject of a provision of the arrangements that requires disclosure of information concerning tax of that territory,

and, for the purposes of the application of subsection (4) under this subsection, references to “any such matter” and “any such matter as aforesaid” in subsection (4)(a) and (b) are to be construed as references to the matter concerned, and references to “such person” in subsection (4)(a) and (b) are to be construed as references to the person concerned. 

(Added 1 of 2010 s. 5)

(4A)

For the avoidance of doubt it is hereby declared that the powers conferred by subsection (4) include the power to require information from, and to require the attendance for the purpose of being examined of,—

(a)

any person, or any employee of any person, who was a party to any particular land or property transaction;

(b) any person, or any employee of any person, who has acted for or is acting for any party to any particular land or property transaction;

(c) any person who either paid or received, directly or indirectly, any consideration, brokerage, commission or fee in respect of or in connection with any particular land or property transaction; and

(d) any person, or any employee of any person, who was concerned in the passing of any consideration, brokerage, commission or fee, or in the clearing or collection of any cheque or other instrument of exchange, respecting any particular land or property transaction,

as to any of the following matters, that is to say—

(i) the full names (including aliases) and addresses of any of the persons referred to in paragraphs (a) to (d) and any other information in his possession or control which may be helpful in identifying or locating any such persons;

(Amended 9 of 2013 s. 5)

(ii) any consideration, brokerage, commission or fee paid or received in respect of or in connection with any such land or property transaction; and

(iii) the terms and conditions of any such land or property transaction;

and the existence in respect of any communication, whether oral or written, of privilege from disclosure shall not constitute any excuse for the non-disclosure of information as to any of the matters specified in paragraphs (i) to (iii) where disclosure thereof is required from any of the persons referred to in paragraphs (a) to (d), but except as aforesaid nothing in subsection (4) shall require disclosure by counsel or solicitor of any privileged information or communication given or made to him in that capacity. 

(Added 35 of 1965 s. 26)

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Sample 4: Query sample for application of HK Certificate of Resident Status between Mainland China & HK

Application for Certificate of Resident Status under the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiseal Evasion with respect to Taxes on Income("the Arrangement")

RE: the Company's application for Certificate of Resident Status for the calendar year 20XX.

Please provide the following information and documents:

  1. The Company claimed that its business address is at [Hong Kong] ("the premises"). In respect of this Premises, please provide/state:
    • a copy of the tenancy agreement
    • if the Company is not a tenant of the Premises, state the name of the party which allowed the Company to use the Premises and its relationship with the Company. its director or shareholder, Please also provide a copy of the agreement entered between the Company and the party for use of the Premises; and 
    • precisely the activities of the Company that are carried out at the Premises and provide documentary evidence in support.
  2. The Company stated in Item(5) of the application form that it had 1 director with fixed place of residence in Hong Kong. In this regard, provide the following information:
    • name, nationality, Hong Kong Identity Card number (if any) and residential adrress;
    • his/her key responsibilities and the place where he/she performed the duties;
    • a copy of his/her Statement of Travel Records (i.e. arrival and departure record) covering the period from I January to 31 December 20XX issued by the Hong Kong Immigration Department. State the purpose of each stay in Hong Kong/visit outside Hong Kong; and
    • a copy of tenancy agreement and the utility bills (e.g. electricity, water, etc) to show that he/she resided in Hong Kong during the calendar year 20XX.
  3. Provide full details of how, where and by whom the following activities of the Company were carried out:
    • formulation of strategic policies;
    • determination of business directions;
    • setting work plans;
    • decision on mode of business financing;
    • implementation of management policies /directions/ work plans; and
    • evaluation of business performance
  4.  If it is claimed that the Company carried out the above activities in Hong Kong during the calendar year 20XX, provide documentary evidence in support (e.g. minutes of meetings, email correspondence etc.)
  5. The Company stated in Items 3 and 4 of Part I of the Appendix to the application form IR1313A that GHJ Company ("GHJ") provided the service and managed the Company in Hong Kong. In this regard, elaborate how services and managed the Company in Hong Kong during the calendar year 20XX with documentary evidence in support and provide the following information:
    • nationality, Hong Kong Identity Card number (if any) and residential address;
    • post title and his relationship with the Company, its director or shareholder;
    • detailed description of duties and place of work remuneration package, and
    • a copy of his employment contract
  6. For each of the director's meeting held during the calendar year 20XX, provide:
    • date of the meeting
    • names of the directors who attended the meeting;
    • place where the meeting was held;
    • description of the subject matters discussed and resolutions passed; and
    • a copy of the minutes of meeting
  7. Identify the principal bankers of the Company in Hong Kong and state the total number of bank accounts maintained in Hong Kong.
  8. Provide a copy of the Company's audited financial statements and the relevant tax computation for the year of assessment 20##/XX (i.e. for the year ended 31 December 20XX).
Reference:
IRD's interpretation booklet: https://www.ird.gov.hk/eng/pdf/pam68e.pdf
answered by (9.5k points)

IRD website for application form:

https://www.ird.gov.hk/chi/tax/dta_cor.htm

Please mind that different form for Mainland of PRC and other tax jurisdiction.

Possible usage of the certificate:

  • Mainland of PRC has capital gain tax. So that capital gain on sales of Mainland of PRC corporation will be taxable;
  • Someones may use Hong Kong company to hold Mainland of PRC corporation and sell Hong Kong company's shares to avoid Mainland of PRC's capital gain tax;
  • To against tax avoidance, Mainland of PRC's tax authority may ask Hong Kong tax resident certificate of Hong Kong parent company to demonstrate that sales of Hong Kong parent company has business substance rather than purely be a tax avoidance. 

Also Mainland PRC tax department has similar certificate to be issued. Its requirement may as following:

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Sample 5: Expenditure's capital or revenue 

根據《稅務條例》第17(l)(c)條規定,資本性質的任何開支均不得容許扣除。就稅務而言,在決定有關開支是否屬於資本性質,其中所考慮因素包括有關開支是否為了帶來資產或對產生未來效益帶來優勢。(British Insulate and Helsby Cables Ltd v Atherton 10 TC 155.) 未來效益不必是永久的。Henriksen v Grafton Hotel Ltd [1942] KB 184)

answered by (9.5k points)

Rule introduced by British Insulate and Helsby Cables Ltd v Atherton 10 TC 155:

"But when an expenditure is made, not only once and for all but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion ) for treating such an expenditure as properly attributable, not to revenue, but to capital."

HENRIKSEN (H.M. INSPECTOR OF TAXES) v GRAFTON HOTEL, LTD.(1) (1940-1942) 24 TC 45

The Respondent Company was the tenant of a fully-licensed hotel, the lease providing that the tenant should pay all charges imposed in respect of the licences by virtue of the Licensing (Consolidation) Act, 1910. On the renewal of the licence in March, 1934, and in March, 1937, sums in respect of monopoly value were imposed, payable in instalments. The Company appealed against assessments under Schedule D for the years 1938-39 and 1939-40, claiming that the instalments of monopoly value should be deducted in computing the assessments. The Commissioners allowed the appeal.

Held, that the instalments were capital sums, that they did not lose their capital nature because the Company had undertaken to pay them under its lease, and that they were not admissible deductions for Income Tax purposes.

Reference: https://library.croneri.co.uk/cch_uk/btc/24-tc-453

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Sample 6: Tax recovery

I understand that you are/were the tax representative/auditor of the above named company/person.

By the virtue of the authority under section 51(4)(a )of the inland Revenue ordinance and the exemption clauses provided under sections 5&(1(c)and 58(2)of the Personal Data(Privacy) Ordinance, you are required to furnish me within 21 days from the date of this letter with the following information :-

  • (a) the full name and address of all the bankers in respect of the above named company/person;
  • (b) a list showing the debtors' position (including amount due from directors/shareholders) showing the name, address and the amount due from each as at the latest date possible;
  • (c) a list of properties as at the latest date possible still owned by the company/person (including trading stock and properties under development) with details of encumbrances, if any;
  • (d) details of investments;
  • (e) the last known Registered Office Address and business address of the company,
  • (f) the last known address of each of the directors/partners/proprietor.
answered by (9.5k points)
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Sample 7: Query for meal and entertainments

Meal and entertainment for each year, a breakdown showing nature and the circumstances and locations under which the amount was expended with respective amounts.

answered by (9.5k points)
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Sample 8: Query for related parties transactions

If the Company has derived fee income from related companies, provide the following additional information:

  • (a) the type of goods being purchased/ sold;
  • (b) whether the level of fee charged to the unrelated parties of similar line of business is different from that charged to the related companies.If this is the case, specify the basis of calculation and the reasons for the differentiation.
  • (c) the relative volume/ amount of transactions with the related companies during the respective year/period ended DD MMMM YYYY and DD MMMM YYYY as compared to those with unrelated parties, if any.
answered by (9.5k points)
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Sample 9: Query for exchange gain/loss

Loss on Exchange USD XX,XXX

  1. An analysis showing how the amount of each year of assessment was arrived at
  2. Details of the transactions giving rise to the losses on exchange, in particular how they were incurred in relation to the turnover generated or trading activities of the Company;
  3. The accounting entries involved to record such transactions in the Company's books of accounts.
  4. Your reasons for considering that the amounts are deductible under Profits Tax.
answered by (9.5k points)
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Sample 10: Query for office expenses/professional fee/travelling expenses

Office expense for each year, an analysis showing:

  • (i) the location of the office concerned;
  • (ii) the usage of the office and the names and posts of the individuals working in the office;
  • (iii) the nature of the expenses and the respective amounts.

Professional fees for each year and each recipient:

  • (i) his name, address;
  • (ii) his relationship with the Company, its directors and shareholders, if any;
  • (iii) details of services rendered;
  • (iv) the amount paid/payable and the basis of calculation;
  • (v) date, amount and mode of each payment made with supporting documents;
  • (vi) copies of the relevant service agreement and minutes of 
  • directors’ meetings authorizing such payment.

Travelling expenses by breakdown showing

  • (i) how the amount was expended;
  • (ii) the names and positions of the persons travelling.
  • (iii) the itinerary, nature and purpose of each journey.
  • (iv) the effects on the Company's business as a result of the visits.
answered by (9.5k points)
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Sample 11: Query for relief of stamp duty under sections 45 of the Stamp Duty Ordinance (Cap.117)

I refer to the applications for relief of stamp duty under sections 45 of the Stamp Duty Ordinance (Cap.117) regarding the Memorandum of Agreement for Sale and Purchase executed by the Transferor Company and the Transferee Company in respect of the Property.

To substantiate your clients' relief claim, please provide further evidence / information in respect of each of the property transaction involved as follows:-

  • 1. Provide a certified copy of the latest Register of Directors of the Parent Company showing that the deponent, #$% &*()%@ is its director (if available).
  • 2. In Clause # of the Statutory Declaration, it disclosed that the reason for the transaction is to promote business efficacy.In this regard,
    • (a) State how the transfer can promote business efficacy;
    • (b) Advise the principal activity of Transferor Company and Transferee Company respectively;
    • (c) Provide a list showing the details of all properties held by the Transferor Company after the transaction (if any). If the Transferor Company still holds other landed property(ies) after the transaction, explain why such property(ies) are not required to the Transferee; and
    • (d) Advise the usage of the Property before and after the transaction.
  • 3. Advise whether there is any arrangement for disposing of the shares in the Transferee by the group.
  • 4. A certified copy of the latest certified management account i audited accounts of Transferor Company and the Transferee Company reflecting the transaction of the Property.
  • 5. A certified copy of the journal vouchers or accounting entries made by the Transferor Company and the Transferee Company in respect of the transaction of the Property.
answered by (9.5k points)

Relevant Stamp Duty Ordinance (Cap. 117) clauses (extra only):

Section: 45 

Heading: Relief in case of conveyance from one associated body corporate to another

  • (1) Stamp duty under head 1(1), (1AA) or (1AAB) or 2(1) or (3) in the First Schedule shall not be chargeable on an instrument to which this section applies. (Amended 14 of 2011 s. 13; 2 of 2014 s. 16)
  • (2) Subject to subsections (4), (5), (5A) and (6), this section applies to any instrument as respects which it is shown to the satisfaction of the Collector that the effect thereof is to convey a beneficial interest in immovable property, or to transfer a beneficial interest in Hong Kong stock, from one associated body corporate to another, and also applies to any instrument that is a contract note in respect of a sale or purchase of Hong Kong stock made between one associated body corporate and another, where in each case the bodies are associated, that is to say, one is beneficial owner of not less than 90 per cent of the issued share capital of the other, or a third such body is beneficial owner of not less than 90 per cent of the issued share capital of each.
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Sample 12: Query for interest income (Location of provision of money determines taxable in Hong Kong or not)

An analysis of the interest received setting out in respect of each payer:

  • a) the name, address and place of incorporation, if known;
  • b) the relationship with the Company, its directors and shareholders, if any;
  • c) the amount of principal, interest received/receivable and the basis of calculation;
  • d) Copy of the loan agreement entered into with the payer.
  • e) how the money was made available to the payer with documentary evidence in support.
  • f) copy of the bank statement for the years of assessment showing the details in (a) and (c).
  • g) your reasons for considering that the interest income is not subject to tax in Hong Kong.

answered by (9.5k points)
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Sample 13: what's the words that show the assessor rejected your tax claim (after rounds of reply)?

[Paragraphs of reasons in front]

Based on the above reasons and reasons put forth in previous letter, I do not accept [tax payer's claim]. Notice of additional assessment for year of assessment 20XX/20NN will be issue.

answered by (9.5k points)

If the assessor's words be:

In your case, [state assessor's points]. Hence, as aforementioned in [reasons/Board case/Court case], I am of the view that the [tax payer's claim not accepted]. Please Comment.

You still have chance.

0 votes

Sample 14:Query for bad debt

  • the name, BR and address of the customer;
  • what is the approved credit limit to them;
  • any legal action or any other course of action taken against them; and
  • is it a bad debt provision or specific bad debt.
For tax law issue of bad debt, also see Point 19 of:
answered by (9.5k points)
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