Column: HK Technical Column(s)

The Second and Third Supplements of Volume 37 of Inland Revenue Board of Review Decisions were published in December 2023 and March 2024, respectively. Seven cases were reported in these two publications: five salaries tax cases and two profits tax cases. Of the five salaries tax cases, one relates to the taxability of a share option, one concerns the timing of the taxability of awards under incentive plans, one relates to the deduction of dependent brother or sister allowance, and two concern late appeal. The two profits tax cases concern the taxability of profits derived from the sale of properties....

Money laundering is the process of converting illegally acquired proceeds from crime into seemingly legitimate sources of income. It typically goes through three stages: placement, layering, and integration. Tax crimes are tax offences committed to reduce or avoid one’s tax obligations by hiding or providing false information to the tax authorities. Tax crimes are indictable offences and constitute predicate offences for money laundering. Tax professionals can be used for money laundering in several ways as they process the financial information of individuals and entities. Hence, it is imperative that tax professionals understand their exposure to tax crimes and money laundering risks so that they do not indirectly facilitate the propagation of such crimes. To mitigate the risks, tax professionals should implement robust internal policies, procedures, and controls (“IPPCs”), which should minimally cover risk assessment, customer due diligence, ongoing monitoring, and suspicious transaction reporting....

Departmental Interpretation and Guidance Note No. 38[1] (“DIPN 38”) is dead and Mr Forlee has killed it. Or has he? In historical circles, it is now fashionable to speak of sweeping changes as ‘transitions’; in this historiographical tradition that is wary of bright lines of demarcations from one period to another, the Roman Empire never ‘fell’ but rather underwent a process of ‘transformation’ that produced the early modern period. Howsoever we regard the impact of the Forlee case on DIPN 38 and the salaries tax landscape as a whole, these will never be the same again. Practitioners often seem less interested in salaries tax cases than they are in profits tax appeals, but the last decade has arguably been more eventful for the development of jurisprudence in the salaries tax field than it has for profits tax. [1] Accessible on the Inland Revenue Department’s Internet site at https://www.ird.gov.hk/eng/pdf/dipn38.pdf....

Volume 37 and Volume 37 First Supplement of the Inland Revenue Board of Review Decisions were published in June 2023 and September 2023, respectively. Seven cases are reported in these two publications: one salaries tax case, one penalty tax case, and five profits tax cases. The salaries tax case concerns late appeal. One of the five profits tax cases concerns appeal out of time. Of the remaining profits tax cases, one concerns taxability of profits derived from the sale of property, one is related to whether profits were derived from a business, one considers deduction of management fees paid to a related party, and one is related to the application of an Interest Income Exemption Order....

近年來，香港特區稅務局一直在積極推動數字化轉型，其中一個重要的舉措是採用iXBRL（網頁集成式可擴展商業報告語言）格式進行電子報稅。iXBRL格式能夠提高報稅的準確性和效率，並簡化稅務申報流程。通過使用iXBRL格式，企業可以將財務報表和稅務申報表格整合在一起，實現數位化報稅。此外，香港特區稅務局還推出了一系列數位化工具，如分類標準及iXBRL擬備工具和自助服務平台，方便納稅人進行在線申報和查詢稅務信息。這些舉措有助於提高稅務申報的效率和透明度，促進香港特區報稅的數字化轉型。本文將基於以上背景，從iXBRL的發展和應用、全球稅收數字化實踐概況，對香港特區稅收數字化改革進行論述。...

Tax laws for digital businesses are clearly lagging behind the speed at which the digital economy is developing, particularly with respect to cloud computing offerings. Many of the tax laws were developed at a time when traditional bricks and mortar businesses were commonplace and focused on the concept of a physical presence. Although, with the development of technology over time , various forms of cloud service models and many hybrids have been produced, we clearly cannot cover all of them, and so this article focuses on software as a service (“SaaS”). For simplicity, when referring to SaaS, a general rule of thumb is to define it as a “cloud-based software delivery model in which the cloud provider develops and maintains cloud application software, provides automatic software updates, and makes software available to its customers via the Internet on a pay-as-you-go basis”. Suffice to say when the “service” is delivered digitally and the business may not require many physical operations, a huge...

The second and third supplements to Volume 36 of Inland Revenue Board of Review Decisions were published in November 2022 and March 2023, respectively. Sixteen cases were reported in these two supplements, including eight profits tax cases, seven salaries tax cases, and one property tax case. Five of these sixteen cases concerned appeal out of time. The Board refused to grant any extension of time and dismissed all these cases without proceeding to consider the substantive issues. Of the other salaries tax cases, two related to dual-employment contract arrangements and two concerned source of employment and whether the income was derived from employment or office. Of the other profits tax cases, one concerned the deductibility of expenses, three were related to the taxability of profits on the disposal of property, one considered the source of profits, one was related to the tax exemption of charitable institutions, and one concerned the timing of the taxability of a fee....

The Inland Revenue (Amendment) (Taxation on Specified Foreign-sourced Income) Ordinance 2022 (“Amendment Ordinance”) was passed by the Legislative Council in late December 2022 and came into operation on 1 January 2023. The Amendment Ordinance was triggered by the European Union (“EU”) adding Hong Kong to its watchlist on tax co-operation1 in October 2021 due to concerns of possible risks of double non-taxation arising from the exclusion of offshore passive income from Hong Kong profits tax in the absence of any economic substance requirements, following a review of the foreign-sourced income exemption (“FSIE”) regimes in a number of jurisdictions as part of the EU’s work on harmful tax practices. In fact, work on this area is not new. Back in 1996, the Committee on Fiscal Affairs of the Organisation for Economic Cooperation and Development (“OECD”) launched a project on harmful tax competition. The results of the project were published in the 1998 report Harmful Tax Competition: An Emerging Global Issue. The report...

Since December 2021, only one issue of Board of Review Decisions has been published in August 2022. There are eight cases reported in the First Supplement to Volume 36, four salaries tax cases and four profits tax cases. Three of the salaries tax cases were related to sums received or paid upon termination of employment, and all of these appeals were dismissed by the Board. Another salaries tax case relating to a claim for personal allowance was successful. Of the profits tax cases, one concerned profits apportionment while the rest involved appeals which were out of time. All of these cases were dismissed by the Board....

Ever since the introduction of simplified procedures in the revised Companies Ordinance (“CO”) in 2014 which aimed to reduce the business costs of restructuring, there has been controversy in the area of tax treatment for court-free corporate amalgamations. There was no codified practice in place in the Inland Revenue Ordinance (“IRO”) to align with the revised CO. However, potential tax exposure is one of the important factors for taxpayers to consider when deciding whether to proceed with an amalgamation, and the impact of tax exposure may eventually lead taxpayers to opt for alternatives. Hence, legislation in this regard is welcome for sake of certainty and clarity in regard to the tax treatment for court-free corporate amalgamations. On 11 June 2021, the Inland Revenue (Amendment) (Miscellaneous Provisions) Bill 2021 (“New Bill”) was enacted to address the tax implications of court-free amalgamations under Division 3 of Part 13 of the CO. In this article, we explore the features of the New Bill and...