Column: HK Technical Column(s)

The application of blockchain technology has brought a myriad of solutions for business, the increase in the value of Bitcoin over 2017 and early 2018 being just one indicator of the uptake of the technology. The increase in the price of Bitcoin and other cryptocurrencies (or “crypto”) and the search for alternative asset classes over this period have brought with them a spate of issuances by start-up technology groups of their own forms of cryptocurrencies by way of initial coin offerings (“ICOs”). This has in turn brought about substantial windfalls to the groups undertaking ICOs. With its recognisable corporations law and established capital markets, Hong Kong has at times found itself as a jurisdiction through which groups have sought to raise funds through ICOs. However, in the chase for free money, the analysis of the taxation treatment of tokens may have been put aside on occasion, largely due to the absence, as in other jurisdictions, of legislative provisions or Inland...

This article summarises 20 cases reported in Volume 31 (Third Supplement), Volume 32, and Volume 32 (First Supplement) of the Inland Revenue Board of Review Decisions. These include five cases on profits tax and five cases on salaries tax. There are also four penalty tax cases, four cases concerning case stated, and two cases on procedural matters....

In line with the Hong Kong Government’s recent efforts to use tax policy as a tool to drive economic development, Chief Executive Carrie Lam announced in her Policy Address on 11 October 2017 that the Government would introduce enhanced tax deduction for R&D expenditure in 2018 to boost the development of innovation and technology in Hong Kong. Hong Kong remains one of the most successful economies in the world. However, its efforts to encourage innovation and technology through R&D tax incentives lack the variety and sophistication of some other major economies. This article explores the issues that may need to be examined when formulating R&D tax incentive policy in Hong Kong in order for the policy to achieve its intended goals effectively....

On 29 December 2017, the Hong Kong SAR Government (“the Government”) introduced draft legislation, the Inland Revenue (Amendment) (No. 6) Bill 2017 (“the Bill”), to implement key actions arising from the base erosion and profit shifting (“BEPS”) agenda of the Organisation for Economic Co-operation and Development (“OECD”). When enacted, the Bill will codify transfer pricing rules into Hong Kong’s domestic tax law, introduce mandatory transfer pricing documentation requirements, formalise the advance pricing arrangement (“APA”) regime, and impose a penalty regime with civil and criminal sanctions....

This article reviews the cases reported in Board of Review Decisions Volume 31 ( rst and second supplements). There are six pro ts tax cases, one property tax case, two penalty tax cases, and two cases on administrative matters. The six pro ts tax cases cover a wide variety of issues, including deduction of the acquisition costs of moulds/machinery used by persons other than the taxpayers in mainland China, change of intention in holding a property, source of pro ts, deduction of expenses, and the applicability of sections 20 and 61A of the Inland Revenue Ordinance. The property tax case relates to the issue of beneficial ownership. The Board dismissed the two cases on penalty tax and the two cases on administrative issues....

Early studies on taxpayers’ compliance behaviour mainly focused on discussing deterrent factors (such as punishment) to reduce non-compliance. Subsequently research focus shifted toward positively identifying non-sanction factors driving tax compliance. More recent studies support the assertion that taxpayers comply if they are able to, ready to and willing to comply. If they believe that it is the right thing to comply, they will do so voluntarily – so-called tax ethics/ morale. This paper summarises the major literature in this area, then widens its remit to study the tax compliance position in Hong Kong. Tax revenue is the predominant source of public funding in Hong Kong, and the government has expended a lot of effort on educating taxpayers to improve their compliance. This has contributed to a high level of compliance in recent years. This paper recommends that tax education be extended to the undergraduate curriculum to instil better tax ethics/morale in students before they themselves become taxpayers. A positive compliance...

This article examines the general trend of taxation in Hong Kong over the past 20 years, discusses the areas of the Hong Kong tax system where a review may be required to enhance its competitiveness, and considers the possible future directions of tax reform in Hong Kong. Taking into consideration the evolving domestic economic environment of Hong Kong, the measures put in place by many of its neighbouring countries to enhance their tax competitiveness, and the fast changing international tax landscape, this article identi es the following areas of the tax system in Hong Kong where either close monitoring is required or changes are recommended: (1) the sustainability of the offshore regime; (2) the competitiveness of the corporate tax rate; (3) the use of tax incentives as a tool to foster economic growth; (4) measures to enhance tax equity; (5) broadening the tax base in Hong Kong; and (6) the need for dedicated and specialised resources for tax policy setting...

Hong Kong tax practitioners are accustomed to emphasising the supposed sharp distinction between Hong Kong’s territorial, source-based approach to taxation and the revenue codes of other jurisdictions, such as the United Kingdom, which, by contrast, are identified as taxing on the basis of residence. This apparent divergence in approaches to raising revenue has made the territorial system of taxation in Hong Kong a scal totem, to which successive Governments both before and after the 1997 handover have remained committed and would prefer to leave undisturbed. A system that worked well in the fat years of Hong Kong’s post-war economic miracle is, however, coming under strain as both the Inland Revenue Department (IRD) and, in some cases, the Board of Review (the “Board”) and the lower courts have begun to extend the scope of territoriality, apparently proceeding under the assumption that certain persons should be taxable in Hong Kong....

Twelve cases are reported in Volume 30 Third Supplement and Volume 31 of the Inland Revenue Board of Review Decisions. The cases include two cases on the locality of profits, three on salaries tax, and one on personal assessment. There are also four cases concerning appeal out of time and two involving penalty tax. All of these appeals were dismissed by the Board....

Housing in Hong Kong has been rated the most “severely unaffordable” in the world by the Demographia International Housing Affordability Survey (“the Survey”) for seven consecutive years since 2011. When Hong Kong was first added to the Survey in 2011,1 it was the only major metropolitan market with a double-digit (11.4) “Median Multiple”....