Category: APJT Archive

The judgment of the Court of Appeal in Nice Cheer Investment Ltd (NCIL) v. Commissioner of Inland Revenue (CIR) [2012] HKCA 257 (Nice Cheer) upheld the decision by the Court of First Instance that unrealised gains on the revaluation of onshore trading investments at the balance sheet date were not taxable in Hong Kong whereas unrealised losses on the same investments in another year could be deducted. Such an asymmetrical treatment of unrealised profits and unrealised losses provides cash flow benefits to taxpayers: While tax is not paid until a gain is realised, a deduction can be claimed for an unrealised loss. Given the potential impact of the decision in Nice Cheer on tax collections, one would anticipate that the Hong Kong Inland Revenue Department (IRD) will be very cautious when handling similar claims lodged by taxpayers, especially before the Court of Final Appeal rules on this case later this year (2013)....

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....

Australia has a liking for big tax reform projects. This paper concerns Australia’s most recent tax review — the 2009 Henry Review, Australia’s Future Tax System (“AFTS”) — and the Tax Forum which succeeded it in October 2011.1 It also considers the next tax review, the next tax summit, forum, colloquium or whatever, and the ones that will come after them....

Malaysia has a self-assessment regime which relies on taxpayers to determine their own tax obligations and comply voluntarily. Hence, understanding the significant influences on their behaviour is important. We used a large-scale survey on individual taxpayers in Malaysia to explore four potential determinants of tax compliance: tax fairness, enforcement, risk personality, and demographic variables. We found that taxpayers’ perception of tax fairness was significantly related to tax compliance, while neither enforcement nor risk personality was significantly related to tax compliance. Of the demographic variables studied, only the type of taxpayer (i.e. self-employed or salary and wage earner) was found to be significantly related to tax compliance....

Tax rates from different countries provide a perceived incentive for multinational companies (“MNC”) to formulate their transfer prices to recognize lower profits in jurisdictions with higher tax rates and higher profits in jurisdictions with lower tax rates. By doing so, MNCs could reduce their aggregate tax payable. Chinese tax authorities have enacted tax rules and regulations to govern transactions between associated enterprises and to prevent unreasonable shifting of profits to jurisdictions outside China. The transfer pricing rules and regulations would create un-certainties to enterprises in terms of whether the transfer pricing between the affected enterprises and their associated enterprises would be challenged by the Chinese tax authorities....

The Hong Kong Inland Revenue Department (IRD) formally introduced an advance pricing arrangement (“APA”) programme on 29 March 2012. As part of the launch of the APA programme, the IRD also issued Departmental Interpretation and Practice Notes No 48 (“DIPN 48”), which provides guidelines on the IRD’s approach to administering, negotiating, and concluding APAs in Hong Kong....

There are many practical considerations when deciding whether or not to pursue an advance price arrangement (“APA”) approach for a multinational company as part of its risk management strategy. Companies should factor in the costs of the APA process and then weigh it up against the resulting benefits of obtaining certainty in respect to the tax implications for profitability levels and the associated tax costs....

This paper is concerned with the use of appropriate presumptive income tax (PIT) designs for small businesses in large informal economies. As informal economies hamper income tax implementation by adversely affecting compliance behaviour, developing countries mostly rely on PIT. Despite the widespread use of PIT, little research has been undertaken to assess the effectiveness of different types of PIT design in large informal economies. This paper analyses the PIT designs for small business in Pakistan and Thailand for their ability to tackle the informal sector. The regimes are primarily tested against their adherence to the principles of a good tax system. The findings suggest that both regimes, being turnover-based PIT designs, are difficult to enforce. In terms of efficiency and equity, the Thai PIT design is relatively better than the Pakistani PIT design for taxing the informal sector. These findings can help other developing countries to improve their PIT designs to tax the informal economy....

Many countries have extensive tax treaty networks with their trading partners. Currently, China has tax treaties or agreements with 95 countries and regions. As the Chinese State Administration of Taxation (“SAT”) increasingly focuses on the taxation of non-Chinese tax residents, the interpretation of tax treaties has become an important instrument for strengthening its tax administration....

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....