Category: APJT Archive

This article will review selected cases relating to profits tax, salaries tax, property tax, penalty loading, and procedural matters reported in Volume 29 (1st to 3rd supplement ) and Volume 30 of the Board of Review Cases. There are seven profits tax cases, four salaries tax cases, one property case, four penalty cases, and two cases on procedural matters. Among the seven profits tax cases, three relate to property disposal, one on source of profits, and three on deduction, of which two concern sections 61 and / or 61A. Among the four salaries tax cases, there is one on gratuity payment, one on commission to a director, one on whether services were rendered in Hong Kong, and one on dependent brother allowance. The Board dismissed all cases on penalty and procedural matters....

This paper examines whether Malaysian firms are complying with income tax laws and paying appropriate income taxes. The study explores the divergence in effective tax rates (ETRs) among firms listed on the stock exchange referred to as the Bursa Saham Malaysia (also known as the Malaysian Stock Exchange). We used Compustat data for the eight years from 2005 to 2012 (inclusive). Our initial search produced 8,117 firm-year observations. After data cleaning, our sample consisted of 752 observations, each observation representing a firm’s eight-year average ETR. ETR is measured by dividing income tax expense by profit before tax (PBT). The results of this study prove that during the period 2005 to 2012 (inclusive), more than half of the firms had an ETR either below 20 per cent or above 30 per cent, which represents a significant variation from the statutory tax rate of 25 per cent. Policy setters should specifically focus on type of industry and size and tax practitioners should...

This paper considers issues related to tax, governance, and administration through an analysis of aspects of the Chinese, Indonesian, and Thai tax systems. It identifies that the tax capacity in each of the three countries is constrained, preventing them from being able to fully support or sustain the levels of economic growth and social development that their growing and increasingly affluent populations crave. It is argued that such countries need to improve the quality of governance, particularly as it relates to the control of corruption and the administration of the tax system. This in turn requires some structural changes as well as more effective tax management and compliance strategies designed to limit the opportunities for tax evasion through the shadow economy and lower the operating costs of the tax system for all concerned....

Manufacturing has long been one of the key economic drivers in Asia particularly in China, where its well-known low labour and operating costs have given it a competitive edge. The changing global economic landscape and strong economic growth in China is now creating challenges for manufacturers based there Geographical transformation and strategies for running manufacturing businesses effectively are now of strategic, financial, and operational interest to managers. This article provides a general overview of several new and desirable manufacturing locations in South East Asia, namely Cambodia, Indonesia, Myanmar and Vietnam, that are increasingly being used as production bases. It also provides a snapshot of some of the challenges that may arise from such geographical transformation....

Section 15(1)(c) of the Inland Revenue Ordinance (IRO)1 was enacted in 1971, and brought within the charge to Hong Kong profits tax: “[s]ums received by or accrued to a person by way of a grant, subsidy, or similar financial assistance in connection with the carrying on of a trade, profession, or business in Hong Kong, other than sums in connection with capital expenditure made or to be made by the person”. Such grants and subsidies are deemed to be Hong Kong source profits arising in or derived from a trade, profession, or business carried on in Hong Kong, and are accordingly chargeable to profits tax under section 14 on that footing. There remains, however, an unresolved ambiguity in the scope of the words “grant, subsidy, or similar financial assistance”. Despite having been enacted over 40 years ago, section 15(1)(c) has never been properly considered by the higher courts of Hong Kong, or even substantively analysed by the Board of Review....

This article outlines the proposed changes to the tax treaty provisions recommended by the Organization for Economic Co-operation and Development (OECD) in their report of 16 September 2014 entitled “Preventing the granting of treaty benefits in inappropriate circumstances” (“the Report”). It focuses specifically on the Limitation of Benefits and Principal Purpose tests. Comments on the impact on Collective Investment Vehicles (CIVs) are also detailed in the context of the recommendations of the Report, as well as the follow-up work outlined in the OECD’s 21 November 2014 Discussion Draft. At the end of this article, we comment on how Hong Kong has reacted to the OECD’s anti-treaty shopping push as well as what these proposed changes may mean for Hong Kong in the future....

The case provides an in-depth discussion of one of the basic principles of the income tax system, namely the distinction between capital and revenue with respect to the characteristics of gains that we, as tax practitioners, commonly deal with. In particular, it highlights the importance of ensuring that the nature of the taxpayer’s trade or business is characterised accurately in order to determine the chargeability of profits tax under Section 14 of the Inland Revenue Ordinance (“IRO”). The case also provides commentary on the mechanics of the seldom discussed Sections 15(1)(m) and 15A of the IRO and analyses the operation of the relevant balancing charges provisions. From an administrative standpoint, the recent decision of the Court of Final Appeal (“CFA”), which discusses the issue of making an assessment after the expiry of the six-year limitation period, reinforces the importance of upholding the protection purportedly given to taxpayers. However, such a conclusion comes with a disclaimer in that there may be...

This article reviews the cases reported in Volume 28 (3rd supplement) and Volume 29 of the Board of Review Cases. Seven cases deal with profits tax, three with salaries tax, two with extension of time, and five with penalty. Among the seven profits tax cases, three relate to property disposal, one to source of profits, and the last three to deduction, of which one concerns section 61A. The three salaries tax cases include one on the source of a director’s fee, one on the taxability of termination payment and one relating to housing benefit. The Board dismissed all the cases on extension of time and penalty....

Hong Kong’s greatest strength is its laissezfaire and pragmatic approach to commerce. Itshistory is steeped in examples of minimising administrative barriers and regulation to facilitate the efficiency, and to lower the costs, of doing business there. This same strength has also been a source of weakness. It has been famously observed that “what is not expressly forbidden is permitted in Hong Kong, whereas in Singapore, anything not expressly permitted is forbidden.” As a result, Hong Kong has often been publicised in lists of tax havens and has been criticised in the past for its opaque approach to taxation administration matters that did not necessarily align with the approach of its key trading partners....

In Pakistan, income tax is the second major source of tax revenue after sales tax for balancing the government’s budgets. The income tax system is structured into normal and presumptive tax regimes. In this article, the author discusses the presumptive/final tax regime as a source of tax revenue with a focus on social equity, economic efficiency, and fairness. Some possibilities with regard to how to reduce dependence on such a regime in order to minimise economic and legal distortions are also discussed....