Column: HK Technical Column(s)

There are 19 cases reported in the First and Second Supplements to Volume 28 of the Board of Review (BOR) cases: seven profits tax cases, seven salaries tax cases, and five tax administration cases. Of the profits tax cases, five relate to property transactions and whether these transactions were of a trading nature and two concern deduction of expenses. The seven salaries tax cases include two cases on chargeability to salaries tax and the taxability of payment, three cases on deduction of expenses, and two cases on dependent parent allowance....

Under section 70A of the Inland Revenue Ordinance (“IRO”), a taxpayer can apply to correct an assessment within 6 years after the end of the year of assessment concerned or 6 months after a relative notice of assessment is served, whichever is the later, if they can prove that the tax charged for that year of assessment is excessive by reason of an error or omission. A recent judicial review case handed down by the Court of First Instance in Good Mark Industrial Limited v. Commissioner of Inland Revenue [HCAL 88/2012] concerns how the time limit for a section 70A application should be interpreted. The issue involved a protective assessment served close to the expiration of the normal six-year time limit for raising an additional assessment for a year and whether the serving of the same enabled the time limit for a section 70A application to correct an earlier assessment for the same year to be extended by up to...

Instruments for the transfer of immovable property in Hong Kong have been subject to an ad valorem stamp duty (AVD) at a range of rates (currently up to a maximum rate of 4.25 per cent) depending on the amount or value of the consideration paid for the property. For a residential property, AVD is levied on the agreement for sale and purchase, whereas for a non-residential property, it is imposed on the assignment. The buyer and the seller are jointly and severally liable for paying AVD. Since the onset of the global financial crisis in late 2008, abundant liquidity and historically low interest rates have contributed to an influx of capital into Hong Kong, fuelling a speculative market in Hong Kong property and a consequent surge in property prices. In fact, property prices in Hong Kong have skyrocketed to such a level that home ownership is now unattainable for the general population. In an effort to address the pressing housing...

From the 1st, 2nd, and 3rd Supplements of the 27th Volume of the Decisions of the Board of Revenue (Inland Revenue), a total of 37 cases were recorded: 12 cases on salaries tax, 1 on personal assessment, 17 on profits tax, 1 on penalty tax, 4 on late appeal, and 2 on stated case. The cases included an attack on a tax avoidance scheme, capital gains and offshore profit issues, home loan interest deduction, eligibility for personal assessment, and other topics....

Volume 28 of the Board of Review Decisions has recently been published, with 10 cases being reported: five salaries tax cases, two profits tax cases, two property tax cases, and one case concerning a request for the Board to state a case. This review includes cases concerning the assessment of an education subsidy, a claim for a rental payment deduction, the assessment of rent paid in advance, the disallowance of depreciation allowance, and the effect of the 20 per cent statutory deduction in a property tax assessment....

In the recent case of Nice Cheer Investment Limited (NCIL) v. Commissioner of Inland Revenue (CIR) FACV 23/2012 (Nice Cheer), the Court of Final Appeal (CFA) ruled that the increase in the value (i.e. revaluation gain) of trading stocks at the balance sheet date which was recorded as unrealised profits in the income statement should not be assessable to tax in Hong Kong. This upheld the judgments of the Court of First Instance (CFI) and Court of Appeal (CA) in favour of NCIL. This case was heard by the CFA on 16-17 October 2013, and the written judgment was delivered by the CFA on 12 November 2013. The CFA reaffirmed that profits are not taxable until they are realised and profits must not be anticipated. The CFA also concluded that accounts drawn up in accordance with the ordinary principles of commercial accounting must nevertheless be adjusted for tax purposes if they do not conform to the underlying principles of taxation....

In the First and Second Supplements to Volume 26 of the Inland Revenue Board of Review Decisions, 20 cases were reported, including five on salaries tax, four on profits tax, two on property tax, and two on personal assessment. Of these, six cases involved penalty tax. These cases are reviewed in this article....

To promote the wider application of intellectual property by enterprises and the development of creative industries in Hong Kong, the Financial Secretary proposed in his 2010/11 budget speech to grant tax deductions for capital expenditure incurred in the purchase of registered trademarks, copyrights, and registered designs (hereinafter referred to as “relevant intellectual property rights” or “relevant IPRs”). The Inland Revenue (Amendment) (No. 3) Ordinance 2011 (“the new legislation”) implementing the proposal was enacted in December 2011....

In the course of the global financial crisis of 2008-2009, many businesses suffered from the problem of delinquent debts. While the Hong Kong profits tax provisions seek to recognise such economic losses by allowing a tax deduction, the manner in which they apply to commonly occurring transactions can result in tax deductions being unavailable. In regard to this, most of the discussion among tax professionals in Hong Kong relates to the difficulties of showing when a bad debt loss is incurred.1 However, the less frequently discussed issues concerning when the deductibility provisions can fall short of the economic losses arising from various types of transactions, often in the group context, are where taxpayers will likely find themselves coming unstuck. These issues, which came to the fore following the recent global economic crisis, are likely to arise again if existing global economic uncertainties persist. Taxpayers need to be mindful of the limitations on deductibility, and policy makers should take it upon...

In the 3rd Supplement of the 26th Volume and 27th Volume of the Decisions of the Board of Review (Inland Revenue), a total of 30 cases were published: 8 on salaries tax, 8 on profits tax, 1 on property tax, 3 on personal assessment, 6 on the hearing and disposal of appeals, and 4 on stated case. The decisions covered the following issues: the reopening of a 50:50 basis of assessment, deductions in profits tax assessments, capital gains and offshore profits, eligibility for personal assessment, the meaning of donation for salaries tax purposes, the meaning of owner for property tax purposes, and other items....