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INDEX:

Point 1: Director's remuneration taxable globally;

Point 2: Share-based payments may not tax deductible;

Point 3: Value-add tax, withholding tax are directly tax-deductible without need to claim any tax credit if it's before gross profit/loss;

Point 4: Profit Tax Return filling skills: ART 11 - cell 11.3 - Purchases is for physical goods purchases only;

Point 5: PART 9 - cell 9.1 - offshore profit - this figure be after tax adjustment

Point 6: Why Profit Tax Return final page need to fill in the Company's name rather than print it on?

Point 7: Tax issues bounded by court cases need special attention;

Point 8: Caution to Section 16 (G) of IRO;

Point 9: Discussion for second-hand properties' commercial building allowance / industrial building allowance

Point 10: gain from sales of farmer land at New Territories has very high chance to be regards as trading gain rather than as gain of investment

Point 11: Any Hong Kong Import/Export tax?

Point 12: Criteria for exemption for Business Registration Payment

Point 13: When to use Advance Ruling?

Point 14: What exchange rate to be used when the company's financial statements is present in foreign currency?

Point 15: Hong Kong law case / tax law case search website

Point 16: assessor's power of making judgement, burden of proof on tax payer, the degree of proof required and IRD guidances for keeping business records

Point 17: flow chart for R&D expenditure

Point 18: Matter of fact shall be fixed in Board of Review while appeal to court is for question of law

Point 19: discussion on deductible of bad debt 

Point 20: notice Inland Revenue in writing within one month of the date of commencement of business (no matter the entity is company incorporated in Hong Kong or not or is natural person)

Point 21: application of Section 70A Correction of error or omission

Point 22: Stamp Duty  - its DIPN and others

Point 23: Tax sub-sequence of voluntary wounding up / cessation of business and wounding up company has no compulsory audit requirement

Point 24: some company's assets/resources in fact can be used for private [/domestic?] purpose, why their relevant expenses and capital allowances still can be fully claimed?

Point 25: Tax knowledge resources websites

Point 26: Definition of permanent establishment in Hong Kong tax

Point 27: extension to Section 14(1) that need your caution - Section 2(1)

Point 28: How to make available objection to IRD's tax estimated assessment

Point 29: In a year of assessment, a corporate made a actual loss but IRD assessor made an estimated profit assessment which is final and conclusive under Section 70 of IRO, can the actual loss carried forward or not?

Point 30: The three basic rules of interpretation of tax law

Point 31: who can enjoy exemption to get a Business Registration (self-employment need to apply B.R. except fulfill exemption)

Point 32: the person who signs the Company's Tax Return also personally obligate to the tax fair of the Company?

Footnote: HK tax glossary - http://www.hktax.net 

asked by (9.9k points)

31 Answers

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Point 1: Director's remuneration may be taxable under Hong Kong Salaries Tax event the director are non-HK resident, never visit to Hong Kong, as the power of director / office position of director is granted by Hong Kong Company Ordinance so that wherever the position is taken, taxable under Hong Kong Salaries Tax. But director's salary can be treated in the same way as usual staff's salary.

If director also be shareholder of the company, consider use dividend rather than director's remuneration.


Point 2: Share-based payments may not tax deductible

1.

Q:

Where an entity fulfills its stock option or share award granted to its employees by issuing new shares, if it recognizes the fair value of the option or new shares so granted as an expense, is that expense allowable for tax deduction?

A:

Not deductible. Regardless of whether the equity instruments granted vest immediately or not, the "expense" recognized for accounting purposes in an equity-settled share-based payment transaction is not an outgoing or expense incurred for the purpose of section 16 of the Inland Revenue Ordinance ("IRO"). The Department follows the authority of Lowry v Consolidated African Selection Trust Ltd. [1940] 23 TC 259 and takes the stance that when an entity fulfills its obligations by issuing its own new shares, the share issue merely involves a movement in the entity's equity reserve account, and not an "outgoing" or "expense" for the purpose of section 16(1) of the IRO.

Also, consider effect of vesting period as following:

7.

Q:

HKFRS2 requires an entity to recognize a liability under a cash-settled share-based payment transaction to pay the supplier of goods or services, although the supplier has not yet become unconditionally entitled to the payment. The entity is also required to re-measure that liability at each reporting date until that liability is settled by cash or debt instruments. Are the expenses thereby arising and the subsequent reversal respectively deductible and taxable for tax purpose?

A:

Any liability recognized under a cash-settled share-based payment transaction before the vesting conditions are satisfied is merely a contingent liability. Accordingly, it is not allowable for deduction. As a corollary, the "incurred" test under section 16 of the IRO is satisfied only when the supplier has become unconditionally entitled to the payment. The subsequent reversal of expenses previously recognized is taxable only to the extent of any amount already allowed for deduction.

Source: https://www.ird.gov.hk/eng/faq/sbpt.htm

answered by (9.9k points)
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Point 3:

Value-add tax, withholding tax are tax-deductible (in the way same as other general tax-deductible expenses rather than refer to any tax credit clauses of IRO) if the tax expenses are before gross profits in income statements.

Relevant Board of Review case: D43/91 [Link] 

Extra from case: 

Paragraph Held:

  • To the extent to which the overseas taxes were charged on gross receipts and not on net income, they were capable of being deducted when ascertaining the ‘total profits’ for the purposes of section 23B of the Inland Revenue Ordinance. The taxes on gross receipts in all three overseas countries were outgoings or expenses incurred in the production of profits within the meaning of section 16(1) and the same were not excluded by section 17(1B) of the Inland Revenue Ordinance. Accordingly, the taxes paid in Taiwan, the Philippines, and Australia were deductible but with regard to the Australian taxes in part only.
  • Appeal allowed in part. 

Paragraph 2.8

  • The actual outgoings and expenses incurred by the Taxpayer were not used in computing the profits to be brought into charge to tax in each of those jurisdictions.

Paragraph 2.10

  • The question for the Board of Review’s determination is whether the taxes paid by the Taxpayer in each of those jurisdictions should be deducted in arriving at the total profits as defined in section 23B of the Inland Revenue Ordinance.

Paragraph 17

  • In the present case, we are satisfied that the Taxpayer could not have gone on earning income without paying the foreign taxes and that the foreign taxes must be paid whether or not profits were earned, and we conclude that the taxes were paid with a view to producing profits and were outgoings incurred in the production of profits within the meaning of section 16(1) of the Ordinance and that the payment of the taxes was not prohibited by section 17(1)(b) of the Ordinance.
answered by (9.9k points)
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Point 4:

Profit Tax Return filling skills:

PART 11 - cell 11.3 - Purchases is for physical goods purchases. If the direct cost of sales be subcontracting fee, direct service fee, no need to fill any figures in Purchases of PART 11. But if the Company's detailed income statements has gross profit/loss, even the Purchases cell is "0", you still need to fill the Gross profit/loss cells in PART 11 of Profit Tax Return.

answered by (9.9k points)
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Point 5:

Profit Tax Return filling skills:

PART 9 - cell 9.1 - offshore profit - this figure be after tax adjustment (the adjustment to do on accounting profit to arrive at tax profit). So that in offshore claim tax computation, we still need to include all tax adjustment first as if the Company is onshore.

answered by (9.9k points)
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Point 6:

Question: Why Profit Tax Return final page need to fill in the Company's name rather than print it on?

Answer: It's a double confirmation procedures to confirm the financial data filled in is for the Company. Seems in a court case, a tax payer successfully defended himself by stating that he didn't know he was filling in financial data for his company.

answered by (9.9k points)
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Point 7:

Tax issues bounded by court cases need special attention:

4.       Interest Income's assessablity

(E)       Client’s trust accounts

4.15     Interest income received by a solicitors firm on the deposit held on clients’ accounts was held assessable in CIR v Messrs. Lau, Wong & Chan Solicitors 2 HKTC 470. Although the funds on deposit did not at the material time belong to the solicitors firm, the interest was retained by the firm in consideration for its services to the clients, and was therefore derived from the profession. Thus, the interest income is subject to profits tax.

8.       Exchange Profits' assessability

(B)       Exchange profits on repayment of loans

8.5       It is incorrect merely to look at the use of the loan. If the loan is long term in nature, it is capital even though it may be used for acquisition of current assets (Beauchamp v FW Wooloworth plc (1989) 61 TC 542).

(C)       Temporary credit facilities

8.8       Temporary credit facilities may be regarded as increasing the capital base of a taxpayer if the facilities keep being extended. In D 77/88, a trading company borrowed a US dollar loan from a bank. The borrowing was by means of the taxpayer accepting short-term bills. The bills were rolled over on a monthly basis for three-and-a-half years. The fund derived from the borrowing was placed with its parent company, partly to discharge the cost of goods purchased from the parent company and partly for other purposes. The exchange loss arising on the borrowing was held to be capital in nature.

8.11     Cash at bank of a trading company has been held to be a capital asset. Thus, exchange gains or losses arising from the translation of bank balances are capital in nature, even though the cash may have been derived from trading receipts (CIR v Li & Fung (1980) HKTC 1193).

8.12     However, the cash of a bank is analogous to the trading stock of a trading business, and exchange profits or losses arising therefrom are revenue in nature (CIR v Hang Seng Bank (1972) HKTC 583).

9.       Miscellaneous Income's assesablity

(C)       Sale of patent

9.6       The assessability depends on whether the whole or part of the cost on the purchase of the patent has been previously allowed under Section 16E(1). The whole sales proceeds received on the disposal of the previously allowed patent is treated as a trading receipt, notwithstanding that it is the receipt from the sale of a capital asset. If only part of the cost of the patent was allowed previously, the sales proceeds will be apportioned and such apportionment depends on the facts of each case.

Source: https://hkiaatevening.yolasite.com/resources/P5Notes/Chapter9-ProfitTaxReceipts.doc

 

answered by (9.9k points)
edited by
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Point 8:

Careful point for Section 16 (G) of IRO:

"Prescribed fixed asset" can claim allowances on capital expenditures but DOES NOT INCLUDE ANY ASSET IN WHICH ANY PERSON HOLDS RIGHTS AS LESSEE. The definition does not extend to an asset which is leased to any person.

For instant, Hong Kong tax payer provides plant and machinery to Mainland P.R.C. manufacturer free of charge under CONTRACT PROCESSING AGREEMENT. These plant and machinery may can not be classified as "Prescribed fixed asset" but concession given by IRD on 50%:50% on assessable profit.

P.S. discussion: Hong Kong tax payer in recent years may have slim company structure and lots of works subcontracted / seconded to contractors. But the Hong Kong tax payer still holds huge volume of fixed assets, some even be intangible, hard to ground how it's used. It may be questioned that these fixed assets is under right of LESSEE.

Definition of the lease:

Under Section 2 of the I.R.O., lease in relation to any machinery or plant includes:

  • any arrangement under which a right to use it is granted by owner to another person; and 
  • any arrangement under which a right to use the machinery or plant, being a right derived directly or indirectly from a right referred to in paragraph (a), is granted by a person to another person,
  • but does not include a hire-purchase agreement or a conditional sale agreement unless, in the opinion of the Commissioner, the right under the agreement to purchase or obtain the property in the goods would reasonably be expected not to be exercised; (Added 32 of 1998 s. 3)

answered by (9.9k points)

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)

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."

0 votes

Point 9:

Discussion for second-hand properties' commercial building allowance / industrial building allowance:

The tax payer acquired a second-hand properties, the tax written down value brought forward used to start the CBA / IBA's claim can come from 2 ways:

1, last property owner's tax computation. If the last property owner also claim CBA / IBA in his tax computation, use his last year's TWDV C/F as the TWDV B/F;

2, if last property owner didn't claim any CBA / IBA, or the tax payer can't get his tax computation, then the tax payer should deem himself be the first-hand buyer of the property, and already start to claim CBA / IBA from the year that occupation permit was granted to the property.

TWDV B/F = building cost at the year that occupation Permit was granted to the property  - year's notional CBA / IBA claimed from the year that occupation Permit was granted to current year

A simply way to calculate building cost at the year that occupation permit was granted is 50% of first-hand property price.

P.S.: as HK property price surge fast, some tax payer use the latest property acquisition price to replace the first-hand price at the calculation. Hope assessor-in-charge will agree with you in your case.

answered by (9.9k points)
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Point 10: sales of assets that hold for a long-term but no improvement on it may be regarded as trading rather than investment.

Good sample: farmer land in New Territories hold for over 20 years and sold, the gain has very high chance to be regards as gain from trading.

answered by (9.9k points)

As idea of "Supplementary work done on the property" in the 6 badges of trade, and farmer land (seems) can't be developed under Hong Kong's law.

0 votes

Point 11: Any Hong Kong Import/Export tax?

In general, imports into HKSAR are tax-free except:

  1. motor vehicles for use on the road which are subject to a First Registration Tax administered by the Transport Department; and

  2. the four types of dutiable commodities which are subject to excise duties, irrespective of whether they are imported or locally manufactured. These goods are liquors, tobacco, hydrocarbon oil and methyl alcohol.
    There is no tax or excise duty on exports from HKSAR.

answered by (9.9k points)

For Re-export certificate of origin, see:

0 votes

Point 12: Criteria for exemption for Business Registration or Payment

Refer to: https://www.ird.gov.hk/eng/tax/bre_erp.htm

Extra: Eligible person for exemption from payment:

Exemption from payment of Business Registration fee and levy 

    Eligible persons

  • You can apply for exemption from payment of business registration fee and levy if the average monthly sales or receipts of your business do not exceed the following limit:-
  • For businesses mainly deriving profits
    from the sale of services
    $10,000
    For other businesses$30,000
  • For existing businesses, the above average monthly sales or receipts shall be the monthly average over the 6 months preceding the application. For new businesses, it shall be the estimated average over the first 6 months of business.
  • Exemption cannot be granted to companies incorporated or required to be registered in Hong Kong under the Companies Ordinance.
  • If 2 or more businesses are carried on by the same proprietor or partners, none of those businesses is entitled to the exemption. See examples below :
    (a)If Mr A carries on two sole proprietorship businesses X and Y at the same time, neither X nor Y is entitled to the exemption.
    (b)If Mr A and Mr B carry on two partnership businesses C and D at the same time, neither C nor D is entitled to the exemption.
    (c)If Mr A and Mr B carry on a partnership business E and at the same time, Mr A and Mr C carry on another partnership business F, E and F are not considered to be carried on by the same person.
    (d)If Mr A carries on a sole proprietorship business G and at the same time, Mr A and Mr B carry on a partnership business H, G and H are not considered to be carried on by the same person.
answered by (9.9k points)
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Point 13: When to use Advance Ruling?

Advance Rulings is for address questions of uncertainty regarding the application of provisions of the Inland Revenue Ordinance.

Answer: Advance Ruling is useful for: 

  • Transfer pricing (IRD will ask a fee for site visit and assure the pricing is proper);
  • Accumulated tax loss can be carried forward or not for business or part thereof transferred or carried on by anther person. Or amalgamation; and
  •  Accumulated tax loss can be carried forward or not when a business changing its business mode.

For ordinary transaction's tax issue, you may not get a better result from Advance Ruling compared with ordinary way, i.e., submitting tax computation after the transaction happened.

For Transfer pricing, Accumulated tax loss' advance ruling, all fact mattering tax already be there currently when executing advance ruling.

Advance ruling may also for cases with circumstances that not cover by previous tax cases.

It's not easy to prepare enough information/documents for Advance Ruling, and the fact in the application should be clear. Most clients' request for Advance Ruling is try to let assessor help on judge "under my contract, it's not royalty income, right?" Assessor will reject such kind of application in fact. Please see the extract from DIPN 31 below.

[Above is personal opinion]

[Below is public resources and rules]

IRD's website for Advance ruling cases (more kinds of business involved other than Transfer pricing and sales of business, etc.):

https://www.ird.gov.hk/eng/ppr/arc.htm

Procedure and guidance for Advance Ruling (DIPN 31):

https://www.ird.gov.hk/eng/pdf/e_dipn31.pdf

Hereby requirement paragraph extracted from DIPN 31:

11. Pursuant to section 2 of Part I of Schedule 10, the Commissioner may decline to make a ruling if:

  • (a) the application seeking the ruling would require him to determine or establish any question of fact. In this regard a ruling will not be available on matters that are a pure question of fact, for example, whether or not the gain arising from the disposal of property is chargeable to tax;
  • (b) he considers that the correctness of the ruling would depend on the making of assumptions, whether in respect of a future event or any other matter; 
  • (c) the matter on which the ruling is sought is subject to an objection or appeal, whether in relation to the applicant or any other person; or 
  • (d) the matter on which a ruling is sought is the subject of a return which has been or is due to be lodged.

answered by (9.9k points)
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Point 14: What exchange rate to be used when the company's financial statements is present in foreign currency?

Please calculate period average exchange rate by referring to IRD's exchange rate table:

https://www.ird.gov.hk/eng/tax/bus_aer.htm

answered by (9.9k points)
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Point 15: Hong Kong law case / tax law case search website

Website 1 (for Hong Kong law case): https://www.hongkongcaselaw.com/

Website 2: http://www.hklii.hk/eng/

Website 3: (with UK tax case): https://library.croneri.co.uk/

Website 4: https://legalref.judiciary.hk/lrs/common/ju/judgment.jsp

Website 5 (for Mainland PRC cases): http://www.110.com/panli/

Website 6: http://login.westlaw.com.hk/maf/wlhk/app/authentication/formLogin (need login and payment)

answered by (9.9k points)
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Point 16: assessor's power of making judgement, burden of proof on tax payer, the degree of proof required and IRD guidances for keeping business records

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

Section: 68 (4)

The onus of proving that the assessment appealed against is excessive or incorrect shall be on the appellant. 

(Replace35 of 1965 s. 34)

Decision D1/12, (2012-13) IRBRD, vol 27, 131 as follows:

  • ‘ 83. At the outset of our decision on source, we remind ourselves that, as the Appellant bears the burden of proof, it is not in a position to benefit from sparsity in evidence.’

the degree of proof required is on "a balance of probabilities" under civil law, rather than in criminal proceeding, the degree of proof required is on namely “beyond reasonable doubt”.

A prosecution of tax evasion is a criminal proceeding.

(PS: at IRO, we saw some "to the satisfaction of the assessor", I think when should satisfaction of the assessor be reached is bound by "a balance of probabilities")

IRD guidances for keeping business records:

  • A Guide to Keeping Business Records [English version] / [Chinese version]
  • Admissibility of Business Records Kept in Electronic Form for Tax Purposes [English version] / [Chinese version]
  • Highlights:
    • A concession therefore exists for those taxpayers engaged in retail trades, professions and businesses which are normally conducted in cash. They are not required to keep the specified details records of all goods sold. If the concession applies to you, you must nevertheless keep full records of your purchases and full details, recorded on a day by day basis, of all sums of money received and expended by your business. (Page 4 of A Guide to Keeping Business Records)
    • Requirements on Business Records Kept in Electronic Form for Tax Purposes: (Pages 2 & 3 of Admissibility of Business Records Kept in Electronic Form for Tax Purposes)
      • the relevant electronic record is retained in the format in which it was originally generated, sent or received, or in a format which can be demonstrated to present accurately the information originally generated, sent or received; and 
      • the information which enables the identification of the original destination of the electronic record and the date and time when it was sent or received, is retained.

answered by (9.9k points)

Assessor has power to make assessment according to his judgement.

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

Section: 59 

Heading: Assessor to make assessments

(2) Where a person has furnished a return in accordance with the provisions of section 51 the assessor may either—  

(Amended 49 of 1956 s. 43)

(a) accept the return and make an assessment accordingly; or

(b) if he does not accept the return, estimate the sum in respect of which such person is chargeable to tax and make an assessment accordingly.

(Amended 49 of 1956 s. 43; 19 of 1996 s. 11)

(c) (Repealed 56 of 1993 s. 24)

(3) Where a person has not furnished a return and the assessor is of the opinion that such person is chargeable with tax, he may estimate the sum in respect of which such person is chargeable to tax and make an assessment accordingly, but such assessment shall not affect the liability of such person to a penalty by reason of his failure or neglect to deliver a return.

(Amended 49 of 1956 s. 43)

(4) In the case of profits from a trade or business, if accounts of such trade or business have not been kept in a satisfactory form, the assessor may assess the profits or income of such trade or business on the basis of the usual rate of net profit on the turnover of such trade or business, and the Board of Inland Revenue may prescribe the amounts of such usual rates of profits in particular classes of trade or business.

(Amended E.R. 1 of 2012)

0 votes

Point 17: flow chart for R&D expenditure

Source: HKICPA Aplus Volume October 2018 page 45 (Link: http://app1.hkicpa.org.hk/APLUS/2018/10/pdf/44_large_source.pdf)

answered by (9.9k points)
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Point 18: Matter of fact shall be fixed in Board of Review while appeal to court is for Question of law

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

Section: 69 

Heading: Appeal against Board of Review’s decision: leave to appeal

Extract: 

(e) leave to appeal must not be granted unless the Court of First Instance is satisfied—

  • (i) that a question of law is involved in the proposed appeal; and
  • (ii) that—
    • (A) the proposed appeal has a reasonable prospect of success; or
    • (B) there is some other reason in the interests of justice why the proposed appeal should be heard;

Example of Matter of fact: the debt is bad or not? 

answered by (9.9k points)
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Point 19: discussion on deductible of bad debt 

For Ordinance's aspect:

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

Section: 16(d)

Heading: Ascertainment of chargeable profits

(d) bad debts incurred in any trade, business or profession, proved to the satisfaction of the assessor to have become bad during the basis period for the year of assessment, and doubtful debts to the extent that they are respectively estimated to the satisfaction of the assessor to have become bad during the said basis period notwithstanding that such bad or doubtful debts were due and payable prior to the commencement of the said basis period:

Provided that—

  • (i) deductions under this paragraph shall be limited to debts which were included as a trading receipt in ascertaining the profits, in respect of which the person claiming the deduction is chargeable to tax under this Part, of the period within which they arose, and debts in respect of money lent, in the ordinary course of the business of the lending of money within Hong Kong, by a person who carries on that business; (Amended 7 of 1986 s. 12)
  • (ii) all sums recovered during the said basis period on account of amounts previously allowed in respect of bad or doubtful debts shall for the purposes of this Ordinance be treated as part of the profits of the trade, business or profession for that basis period;

 For Board of Review / Court case's aspect:

  • The Commissioner of Inland Revenue (Applicant) and Right Margin Limited (Respondent)

Court of First Instance(Inland Revenue Appeal No. 4 of 2016) 

The case indicates that when considering whether a debt is bad or irrecoverable, the applicable test is what a reasonable and prudent businessperson would have concluded, based on the facts and circumstances of a case and on the balance of probabilities. 

Source / Reference:

Board of Review's Published Decisions: https://www.info.gov.hk/bor/en/docs/v32f_HCIA_4_2016.pdf

HKICPA's introduction article for this case: http://app1.hkicpa.org.hk/APLUS/2018/02/pdf/48_large%20source.pdf

IRD's introduction article for this case: https://www.ird.gov.hk/eng/pdf/2018/HCIA4_2016.pdf

EY's introduction article for this case: https://www.ey.com/Publication/vwLUAssets/EY-hong-kong-tax-alert-9-jan-2018-fs/$FILE/EY-hk-tax-alert-issue-2-2018-fs.pdf at page 3

(additional points in EY's article: Legal recovery actions may not necessarily have to be taken before a provision for bad debt is admissible)

  • (2017-18) VOLUME 32 INLAND REVENUE BOARD OF REVIEW DECISIONS - Case No. D15/16

Source: https://www.info.gov.hk/bor/en/docs/D1516.pdf

answered by (9.9k points)
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Point 20: notice Inland Revenue in writing within one month of the date of commencement of business (no matter the entity is company incorporated in Hong Kong or not or is natural person)

If a company commences to carry on business, no matter the company is incorporated in Hong Kong or not, it is required under the Business Registration Ordinance to notify the Commissioner of Inland Revenue in writing within one month of the date of such commencement, according to section 8(1A) of the Business Registration Ordinance and Regulation 3A(2) of the Business Regulations. Failure to comply with the above requirements may lead to prosecution. The maximum penalty is $5,000 and imprisonment for one year.

For company incorporated in Hong Kong, please fill in the form in following link and submit to Inland revenue:

https://www.ird.gov.hk/chi/pdf/irbr200.pdf

For non-Hong Kong company, please see Point 14: Registration of Non-Hong Kong Company in Hong Kong CR in link:

http://www.hkaudit.net/?qa=144/company-secretary-practical-miscellaneous-points-summary

answered by (9.9k points)
0 votes

Point 21: application of Section 70A Correction of error or omission

BASIC: 

Section 70 extract: Where no valid objection or appeal has been lodged within the time limited ... the assessment ... shall be final and conclusive ...

Section 70A extract: 

(1)  Notwithstanding the provisions of section 70, if, upon application made within 6 years after the end of a year of assessment or within 6 months after the date on which the relative notice of assessment was served, whichever is the later, it is established to the satisfaction of an assessor that the tax charged for that year of assessment is excessive by reason of an error or omission in any return or statement submitted in respect thereof, or by reason of any arithmetical error or omission in the calculation of the amount of the net assessable value (within the meaning of section 5(1A)), assessable income or profits assessed or in the amount of the tax charged, the assessor shall correct such assessment: (Amended 56 of 1993 s. 29)

Provided that under this section no correction shall be made to any assessment in respect of an error or omission in any return or statement submitted in respect thereof as to the basis on which the liability to tax ought to have been computed where the return or statement was in fact made on the basis of or in accordance with the practice generally prevailing at the time when the return or statement was made.

ADVANCE:

[Case No. D6/91] Section 70A can be applied when tax payer subsequently has different view / opinion on tax matter. The different view / opinion can be either on matter of fact or on matter of law. (My understanding is a wrong view /opinion is a kind of error or omissions defined in Section 70A. Application: offshore entitle to claim but not claim in previous year can be re-claimed by applying Section 70A)

[Case No. D52/99] Change of intention (e.g., on properties is held for rental or investment) where a deliberate choice had been made is disallowed.

[Case No. D82/95] errors should be happened inadvertently and did not extend to a deliberate act. (My understanding is if a tax payer intentional falsely overstate a company's profit for some kind of purpose, no restatement on the overstatement subsequently.)

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Point 22: Stamp Duty  - its DIPN and others

DIPN for Stamp Duty (source: https://www.ird.gov.hk/eng/ppr/dip.htm#cedoipn):

  1. Stamping of agreements for sale and purchase of immovable property [issed in November 2018]
  2. Relief for stock borrowing and lending transactions [issued in February 2011]
  3. Deemed consideration under section 24 of the Stamp Duty Ordinance, Cap.117 [issued in September 1998]
  4. Deemed sale and purchase under section 19(1E) of the Stamp Duty Ordinance, Cap.117  [issued in 25 January 2000]
  5. Special Stamp Duty  [issued in July 2014]
  6. Alternative Bond Schemes  [issued in August 2014]
  7. Buyer's Stamp Duty  [issued in July 2014]
  8. Ad Valorem Stamp Duty  [issued in November 2018]

IRD's interpretation for 印花稅條例第 29/29G 條 一系列交易: https://www.ird.gov.hk/chi/pdf/soa_pn04b.pdf?tdsourcetag=s_pcqq_aiomsg

PS 1: for Company that 

  • not yet take any business activities, 
  • having huge share capital amount, say 100 million Hong Kong dollars, which wasn't paid up, i.e., 100 million Hong Kong dollars still due from shareholder.

to prevent Stamp duty officer stamp the share transfer of the Company based on share capital amount HKD 100 million, should submit management accounts shown that the net asset value of the Company is zero and an agreement that the HKD 100 million loan was shifted to new shareholder. Without that management account and agreement, the Stamp Duty may be calculated based on HKD 100 million. 

May first time submit, assessor assessed on HKD 100 million, you can try to submit 2nd time, another assessor may assess on zero net asset of the Company.

(Reference: In the case of unquoted shares, the value of the stock has to be ascertained from the latest accounts of the company in respect of which share(s) therein is/are to be transferred. Link: https://www.ird.gov.hk/eng/pdf/pn04a.pdf

PS 2: IRD Stamp Duty department doesn't keep copies of documents stamped. You can't recover the documents from them, don't miss the original.

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Point 23: Tax sub-sequence of voluntary wounding up / cessation of business and wounding up company has no compulsory audit requirement

After all company members past resolution for wounding up, all capital-in-nature's assets of the company will deem to be sold as at resolution date and become "cost of sales" in subsequent trading to sold these assets. Even the company still earning passive income (rental income, etc.) caused from deals before resolution date, these income shall not be taxable as the company wasn't carrying on business anymore.

Tax sub-sequence of cessation of business should be the same as wounding up. [Each case has its own special circumstance, tax effect is case-sensitive, above said is only an overall guidance.]

Reference: Board of Review Case

BR 6/76 [LINK] - Board of Review Case Volume 1 Fourth Supplement

  • Company in liquidation—whether properties on hand were trading assets and if so whether trading ceased when liquidator was appointed or when properties were disposed of—Inland Revenue Ordinance, section 15C

wounding up company has no compulsory audit requirement - IRD accept liquidator's account for tax clearance

Companies (Winding Up and Miscellaneous Provisions) Ordinance

Section 203 Audit of liquidator’s accounts (extracted)

  • (3A) The Official Receiver may at any time cause the account to be audited. (Added 38 of 1987 s. 2)

Section 255A Audit of liquidator’s accounts in voluntary winding up (extracted)

  • (2) An audit under this section is not required if— 
    • (a)for a members’ voluntary winding up, the company by ordinary resolution so determines; and 
    • (b)for a creditors’ voluntary winding up— (i)the committee of inspection so determines; or (ii)if there is no such committee, the creditors by resolution so determine. (Replaced 14 of 2016 s. 84)
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Point 24: some company's assets/resources in fact can be used for private [/domestic?] purpose, why their relevant expenses and capital allowances still can be fully claimed?

For Profits Tax, in S16(1) of IRO, "... shall be deducted all outgoings and expenses to the extent to which they are incurred during the basis period for that year of assessment by such person in the production of profits in respect of which he is chargeable to tax ..."

The key wordings are: to the extent.

For Salaries Tax, in S12(1)(a) of IRO, "... All outgoing and expenses, other than expenses of a domestic or private nature and capital expenditure, wholly, exclusively and necessarily incurred in the production of assessable income. ..."

The key wordings are: wholly, exclusively and necessarily incurred.

So that the deduction of Profits Tax is wider. Also, following BOR case shows that it's possible to fully claim all capital allowances and expenditures on assets that partially used/possible to be used for private purpose.

Reference: BR3/72 [LINK]Board of Review Case Volume 1 First Supplement

  • Assessment of chargeable profits—Inland Revenue Ordinance, s. 16(1)—initial and annual allowances in respect of capital expenditure—on provision of plant or machinery—Inland Revenue Ordinance, s. 37(1)— car purchased by company for use of Managing Director—question whether company entitled to full allowance in respect of the car as deduction from its chargeable profits
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Point 25: Tax knowledge resources websites

  1. PwC Hong Kong Tax News Flash: https://www.pwchk.com/en/publications/taxlibrary-hktax.html
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Point 26: Definition of permanent establishment in Hong Kong tax

The term “permanent establishment” is defined in Rule 5 of the Inland Revenue Rules to mean “a branch, management or other place of business, but does not include an agency unless the agent has, and habitually exercises, a general authority to negotiate and conclude contracts on behalf of his principal or has a stock of merchandise from which he regularly fills orders on his behalf.”

- Registered office itself should not be regarded as “permanent establishment”.

- some other jurisdiction's function departments, like Mainland PRC, will ask Hong Kong's definition on "permanent establishment" for their functional purpose.

- Newly enacted IRO on "transfer pricing rules" need to refer to the idea of "permanent establishment". 

  • The fundamental transfer pricing rule ("Rule 1") in the Bill has the effect of requiring a tax adjustment when connected parties have entered into transactions where the pricing of those transactions differs from an arm's length price and that difference results in a potential Hong Kong tax advantage.
  • Rule 2 has a similar effect to Rule 1, Rule 2 applies the attribution of profits to a permanent establishment of a non-Hong Kong resident using the separate enterprise principle; however, Rule 2 does not apply to foreign PEs of a Hong Kong resident company. 
  • Reference:Asia-Pacific Journal of Taxation, Volume 22, Number 1, 2018

- OECD, BEPC etc. will look at "permanent establishment" also.

P.S. discussion of transfer pricing rules on Hong Kong offshore tax: Hong Kong offshore goes on existing, but the portion of profits of a group / a production/service chains allocated to Hong Kong offshore company need to be at "arm-length priced" and welled supported by evidences. So that, non-welly-supported offshore profit allocated to Hong Kong company, i.e., tax evasion by shifting profit to Hong Kong offshore, may be abolished. 

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Also, in Double Tax Arrangement signed between Mainland and Hong Kong:

Article 5

PERMANENT ESTABLISHMENT

1. In this Arrangement, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

2. The term “permanent establishment” includes especially:

(1) a place of management;

(2) a branch;

(3) an office;

(4) a factory;

(5) a workshop;

(6) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources.

3. The term “permanent establishment” also encompasses:

(1) a building site, a construction, assembly or installation project or supervisory activities in connection therewith, but only if such site, project or activities last more than 6 months;

(2) the furnishing of services, including consultancy services, by an enterprise of One Side directly or through employees or other personnel engaged by the enterprise for such purpose, but only if activities of that nature continue (for the same or a connected project) in the Other Side for a period or periods aggregating more than 6 months within any 12-month period.

4. Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include:

(1) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

(2) the maintenance of a stock of goods or merchandise belonging to the

enterprise solely for the purpose of storage, display or delivery;

(3) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

(4) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise;

(5) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character;

(6) the maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs (1) to (5) of this paragraph, provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.

5. Notwithstanding the provisions of paragraphs 1 and 2 of this Article, where a person, other than an agent of an independent status to whom paragraph 6 applies, is acting in One Side on behalf of an enterprise of the Other Side, and the person has, and habitually exercises, an authority to conclude contracts in the name of the enterprise, that enterprise shall be deemed to have a permanent establishment in the first-mentioned Side in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provision of that paragraph.

6. An enterprise of One Side shall not be deemed to have a permanent establishment in the Other Side only because it carries on business in that Other Side through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph.

7. The fact that a company which is a resident of One Side controls or is controlled by a company which is a resident of the Other Side, or which carries on business in that Other Side (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

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Point 27: extension to Section 14(1) that need your caution - Section 2(1)

Section 14(1) of Inland Revenue Ordinance (IRO):

"Subject to the provisions of this Ordinance, profits tax shall be charged for each year of assessment at the standard rate on every person carrying on a trade, profession or business in Hong Kong in respect of his assessable profits arising in or derived from Hong Kong for that year from such trade, profession or business (excluding profits arising from the sale of capital assets) as ascertained in accordance with this Part."

Extended by Section 2(1):

"profits arising in or derived from Hong Kong for the purposes of Part IV shall, without in any way limiting the meaning of the term, include all profits from business transacted in Hong Kong, whether directly or through an agent."

(Part IV from IRO Section 14 to Section 26)

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Point 28: How to make available objection to IRD's tax estimated assessment

Relevant IRO clauses: 

1. Section 59 Assessor to make assessments* 

(3) Where a person has not furnished a return and the assessor is of the opinion that such person is chargeable with tax, he may estimate the sum in respect of which such person is chargeable to tax and make an assessment accordingly, but such assessment shall not affect the liability of such person to a penalty by reason of his failure or neglect to deliver a return. (Amended 49 of 1956 s. 43)

2. Section 64 Objections

(1) Any person aggrieved by an assessment made under this Ordinance may, by notice in writing to the Commissioner, object to the assessment; but no such notice shall be valid unless it states precisely the grounds of objection to the assessment and is received by the Commissioner within 1 month after the date of the notice of assessment: (Amended 2 of 1971 s. 41; 52 of 1993 s. 10; 24 of 2003 s. 8)

  • (a) if the Commissioner is satisfied that owing to absence from Hong Kong, sickness or other reasonable cause, the person objecting to the assessment was prevented from giving such notice within such period, the Commissioner shall extend the period as may be reasonable in the circumstances; (Amended 7 of 1986 s. 12)
  • (b)where any assessment objected to has been made under section 59(3) in the absence of any return required under section 51, no notice of objection against such assessment shall be valid unless, in addition to such notice being valid in accordance with the foregoing provisions of this subsection, the return required as aforesaid has been made within the period provided by this subsection for objecting to the assessment or within such further period as the Commissioner may approve for the making of such return;

3. Section 70 Assessments or amended assessments to be final

Where no valid objection or appeal has been lodged within the time limited by this Part against an assessment as regards the [... ...], the assessment as made or agreed to or determined on objection or appeal, as the case may be, shall be final and conclusive for all purposes of this Ordinance as regards the amount of such assessable income or profits or net assessable value: (Amended 49 of 1956 s. 51; 35 of 1965 s. 35; 40 of 1972 s. 9; 7 of 1979 s. 4; 12 of 2004 s. 16)

Case 1: [LAM YING BOR INVESTMENT CO v. COMMISSIONER OF INLAND REVENUE [1979] HKCA 171; [1977-1979] HKC 46; CACV 51/1978 (30 October 1979)]

Key words: The Full Bench drew a distinction between circumstances which "prevented" a taxpayer from lodging an objection in time and circumstances which would excuse him from not lodging an objection in time. Mr. Barlow did argue (though perhaps not very strongly) for this very strict interpretation of the word "prevent", but I think that the nature of the legislation and the provisions of s. 19 of the Interpretation and General Glauses Ordinance require us to give a more liberal interpretation.

Case 2: Chun Yuet Bun trading as Chong Hing Electrical Co v CIR 2 HKTC 325 (ref to: D48/12)

Key words: ‘ … It is not for the Court to decide the degrees of negligence which might disentitle a taxpayer to submit a late objection, nor to substitute its view of the facts for that of the Commissioner. Further, although this is an Ordinance which should be construed liberally, the word “prevent” is a simple English word and I see no reason for trying to substitute another. The Commissioner’s duty is to consider the reasons put forward by the taxpayer for the late objection and then ask himself this question. Is it owing to (a) absence from Hong Kong, or (b) sickness, or (c) some other reasonable cause that the taxpayer was prevented from giving the prescribed notice?

(P.S. discussion on case 2: I refer to "Point 18: Matter of fact shall be fixed in Board of Review while appeal to court is for question of law" of this post, all matter of fact should be fixed at Board of Review while court only handles matter of law. Seems case 2's decision is: the reason of late filing is proper or not is a matter of fact rather than a matter of law.

Case 3: Chow Kwong Fai v CIR [2005] 4 HKLRD 687 [D9/15]

Key words: ‘ 20. In my opinion, while a liberal interpretation must be given to the word “prevented”…, it should be best understood to bear the meaning of the term 「未能」 in the Chinese language version of the subsection. … The term means “unable to”. The choice of this meaning not only has the advantage of reconciling the version in the two languages, if any reconciliation is needed, but also provides a less stringent test than the word “prevent”. On the other hand, “unable to” imposes a higher threshold than a mere excuse and would appear to give proper effect to the rigour of time limit imposed by a taxation statute…’

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Point 29: In a year of assessment, a corporate made a actual loss but IRD assessor made an estimated profit assessment which is final and conclusive under Section 70 of IRO, can the actual loss carried forward or not?

Answer: the loss can't be carried forward to set off subsequent years' profit.

(PS: this is truly double loss. Fist, loss the tax paid. Second, loss the loss brought forward to next years.)

Relevant IRO clauses: 

Secion 19C(4): Subject to section 19CB, where in any year of assessment a corporation or a person, who is not an individual, a partnership or a corporation, carrying on a trade, profession or business sustains a loss in that trade, profession or business, the amount of that loss shall be set off against the assessable profits of the corporation or person (including its share of the assessable profits of a partnership in which it is a partner) for that year of assessment and to the extent not so set off, shall be carried forward and set off against the corporation’s or the person’s assessable profits and its share of assessable profits of such a partnership for subsequent years of assessment.

Relevant case: Corpora Enterprises Limited v CIR 2 HKTC 656 (ref: pages 24 - 25 of [D48/12 Board of Review case] )

Extra of the case: ‘ … It is not enough merely to come armed with an actual loss, but Corpora must also be able to bring itself within sub-section (4) of section 19C of the Ordinance … to show that … the $1.8 million loss for 1981/82 … is still being recognized as a loss for the purpose of that sub-section.

...

The estimated assessment in respect to the year of assessment 1981/82 for Corpora has now become final and conclusive under section 70 of the Inland Revenue Ordinance. It is not merely the estimated assessment which is to be regarded as final and conclusive, but in the words of section 70, the amount of the assessable profits assessed by the assessment shall be “final and conclusive for all purposes” of the Ordinance. Conversely, the factual premise of there being no loss shall likewise be final and conclusive.

As a corollary to the fact that Corpora’s assessable profits for 1981/82 are final and conclusive, it must be also final and conclusive that Corpora had incurred no losses in the same year of assessment. Hence, for the purposes of the Ordinance, there is no loss capable of being set off or carried forward for setting off in subsequent years under section 19C(4). Corpora’s 1981/82 $1.8m. loss could not, therefore, be resorted to for the purpose of section 19C(4) in the instant appeal.’

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Point 30: The three basic rules of interpretation of tax law

Judges have traditionally recognised three different rules of statutory interpretation: the mischief rule, the literal rule and the golden rule. [22] Recent developments see a fusion of the several traditional rules, bringing about the interpretation of both the letter and the spirit of the law, i.e. the statutory context and the object of the legislation are to be considered altogether so that anomalous decisions will be avoided.

[22] See generally Glanville Williams, Learning the Law (London : Stevens 11th edn) and Wesley-Smith (note 18 above). 

The Mischief Rule refers to the legal position before the statute was passed and the mischief that the statute was intended to cure. The statute is then construed in such a way as to suppress the mischief and to advance the remedy. 

The Literal Rule applies words of a statute in their natural and ordinary sense with nothing added and nothing taken away, even if an inexpedient, unjust or immoral outcome occurs, i.e. the court can neither extend the statute to a casus omissus [an omitted case which should have been, but has not been, provided for in the statute] nor curtail it by leaving out a casus male inclusus [a case that the statute literally includes, though it should not have]. 

The Golden Rule so construes a statute as to avoid absurdity or anomalies by adopting a secondary (or less usual) meaning which is also linguistically possible in order to produce a reasonable result. Sometimes, a judge may read in words which he considers to be necessarily implied by words already in the statute. He may even, to a limited extent, alter or ignore statutory words for reconciling an unintelligible provision with the rest of the text (for example, judges have occasionally corrected an "and" in a statute when it meant "or").

1st, The Literal Rule - 

  • Literal rule of interpretation is the primary rule. Under this rule of interpretation the Courts interpret the statutes in a literal and ordinary sense. They interpret the words of the statute in a way that is used commonly by all. It is incumbent on the court to use the grammatical meaning. The statutes should be construed in such a manner as though there is no other meaning except the literal meaning. [ref link]
  • Reference case: Chow Kwong Fai v CIR [2005] 4 HKLRD 687 [D9/15]

    Key words: ‘ 20. In my opinion, while a liberal interpretation must be given to the word “prevented”…, it should be best understood to bear the meaning of the term 「未能」 in the Chinese language version of the subsection. … The term means “unable to”.  (P.S.: prevent here is referring to Section 64 Objections, see Point 28 of this post for more details)

2nd, The Golden Rule - Words should be construed in their grammatical and ordinary sense.

3rd, The Mischief Rule - look at the true intent of the legislation

Reference: https://www.elegislation.gov.hk/interpretbileg

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Point 31: who can enjoy exemption to get a Business Registration (self-employment need to apply B.R. except fulfill exemption)

Answer: in accordance with: Cap. 310 Business Registration Ordinance
Section 5. Application for registration

(1) Every person carrying on any business not registered under the provisions of the Business Regulation Ordinance 1952 (14 of 1952), or commencing to carry on any business, or carrying on any business to which this Ordinance is made to apply shall make application to the Commissioner in the manner prescribed for the registration of that business. (Amended L.N. 88 of 1975; 32 of 1975 s. 3; 79 of 1992 s. 2)

Section 16. Exemptions

(1) The provisions of this Ordinance shall not apply to—  

(Amended 13 of 2010 s. 14)

  • (a) any charitable, ecclesiastical, or educational institution of a public character where—
    • (i) any profits derived from any trade or business of such institution are applied solely for its charitable, ecclesiastical or educational purposes and not expended substantially outside Hong Kong; and (Amended 56 of 1984 s. 14)
    • (ii) either such trade or business is exercised in the course of the actual carrying out of the expressed object of such institution, or the work in connexion with such trade or business is mainly carried out by persons for whose benefit such institution is established;
  • (b) (Repealed L.N. 88 of 1975; 32 of 1975 s. 4)
  • (c) the business of—
    • (i) agriculture including market gardening;
    • (ii) breeding or rearing livestock including dairy farming, poultry including the production of eggs, bees including the production of honey, or fish including crustaceans and oysters;
    • (iii) fishing:
    • Provided that this paragraph shall not apply to—  
    • (AddedL.N. 95 of 1976; 27 of 1976 s. 4. Amended 28 of 2012 ss. 912 & 920)
      • (a) any company which is incorporated in Hong Kong under—
        • (i) the Companies Ordinance (Cap. 622); or
        • (ii) a former Companies Ordinance as defined by section 2(1) of the Companies Ordinance (Cap. 622);
      • (b) any non-Hong Kong company as defined by section 2(1) of the Companies Ordinance (Cap. 622); or
      • (c) any company incorporated outside Hong Kong that has established a place of business in Hong Kong, but has ceased to have any such place of business before the repeal of Part XI of the Companies Ordinance (Cap. 32) as in force from time to time before the commencement date* of section 2 of Schedule 9 to the Companies Ordinance (Cap. 622); (Amended 28 of 2012 ss. 912 & 920)
  • (d) such other businesses as the Secretary may from time to time exempt by regulation made under section 14. (Amended 3 of 1999 s. 11; L.N. 106 of 2002; 13 of 2010 s. 14)

For a Society (社團) registered under under Cap. 151 Societies Ordinance, no Business Registration Certificate for this Society also.

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Point 32: the person who signs the Company's Tax Return also personally obligate to the tax fair of the Company?

Answer: may not but it's mistaken to think that no personal liability could attach to delinquent officer.

Relevant case: Koo Ming Kown and Another v Commissioner of Inland Revenue (the Commissioner) (the Case)

Background of the Case: As directors, Mr. Koo and Mr Murakami signed the tax returns of Nam Tai Trading Company Ltd ("the Company") in which the Company claimed deductions of management fees paid to its parent company. Upon a tax audit, the management fees were disallowed as failing to fulfill s.16 and s.17. The CIR also applied s.61 and s.61A to disallow the expenses. The Company failed to pay the tax and was wound up. The CIR assessed Mr. Koo and Mr. Murakami to additional tax under s.82A. (from TIHK's tax update)

The question of law: 

  • It was the company, as the taxpayer, which was the only person statutorily obliged to make a tax return. Officers of a company were, under section 57, required to take such administrative or other steps as were required to enable the company to comply with its obligation, but they could not, thereby be held liable for filing an incorrect return. That default was, within the schema of the IRO, the company’s default, and not that of its officers. It followed that the taxpayer’s officers could not be liable for a pecuniary penalty levied with respect to a default that was not, technically, their own. To argue otherwise would be inconsistent with the presumption against doubtful penalisation, since penalties under section 82A, it was common ground, were criminal in nature for human rights purposes (from Journal "Hong Kong Lawyer"). The judgments of the CFI, to a certain extent, reinstated the Doctrine in the reading of the punitive provisions and denied the application of section 82A(1)(a) to ccorporate officers who signed the returns of a corporation (for PwC News Flash Hong Kong Tax)
  • The Court further held that the finality provisions in section 70, by which an assessment to which no objection had been duly and timeously lodged became final and conclusive, could not be invoked by the Commissioner to prevent a person he alleged should be sanctioned under section 82A from arguing in his own defence that the return furnished was not incorrect. (from Journal "Hong Kong Lawyer")
  • Caution need to be draw to: it's mistaken to think that no personal liability could attach to delinquent officer. In the Case, the directors have reasonable excuse. 
    • On the question of reasonable excuse, both directors alleged that they relied on professionals in the Company and the external auditors for accuracy of the returns. The Board found that there was no evidence that at any time Mr Koo took any steps to check, confirm or ensure that the tax department of the external auditor had all the necessary instructions, information or documents to form a view as to the true nature of the fees in question. Without ensuring that for those working for him in the implementation and in the preparation of the tax computation, as well as for those external advisors involved in the tax return preparation, they all knew what actually took place and agreed that the structure as implemented actually works, there was no reasonable excuse to make the returns in question in the way they were made. The High Court judge did not overturn the view of the Board on this question (from TIHK tax update)

The judgement is in the Court of First Instance and The Commissioner has lodged an appeal to CA. The appeal will be heard on 11 October 2019. (IRD link: https://www.ird.gov.hk/eng/tax/stc.htm)

Link for refereed documents as stated above:

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