Hong Kong Tax Update June - July 2016

Transcription

1 Hong Kong Tax Update June - July 2016 AOEI - Inland Revenue (Amendment) (No. 3) Ordinance 2016 came into effect on 30 June 2016 The amendment ordinance implements the Automatice Exchange of Financial Account Information ( AEOI ). See Jan 2016 Newsletter of TIHK for information on the amendment ordinance. The following further information was elicited from the IRD's website, principally the FAQs. AEOI involves the transmission of financial account information from Hong Kong to an overseas tax jurisdiction with which Hong Kong has entered into an AEOI agreement ( An AEOI partner ). The exchange of information with the AEOI partner will be on an annual basis. Hong Kong intends only to partner with jurisdictions which have signed a comprehensive avoidance of double taxation agreement ( CDTA ) or a tax information exchange agreement ( TIEA ) with Hong Kong. The first exchange will take place by the end of A financial institution ( FI ) resident in Hong Kong will identify the financial accounts held by invididuals or entities liable to tax by reason of residence in the AEOI partner jurisdictions. The FI will collect and furnish to IRD information of the identified account holders as well as financial account data on annual basis. IRD will then transmit the information to the tax administration of the relevant jurisdiction of which the account holder is tax resident. The Inland Revenue Ordinance ( IRO ) requires the reporting FIs to apply due diligence procedures to collect all required information and documentation from account holders. Selfcertification as to tax residency would be required from account holders for all accounts opened on or after 1 Jan As for pre-existing accounts (ie accounts opened before 1 Jan 2017), if the reprting FI has doubts about the tax residence of an account holdeer, it can seek a self-certification from the account holder to verify its tax residence. Information exchanged includes name, address, jurisdiction of residence, taxpayer identification number and the date and place of birth. As for financial account data, it includes the account number, account balance or value (year-end) and the gross amount of interests, dividends and sale proceeds of financial assets as appropriate for the year concerned. FIs will furnish information of reportable financial accounts for a particular year (eg 2017) to IRD in May of the following calendar year (ie 2018). Tax resident of reportable jurisdictions refer to those who are liable to tax by reason of residence in an AEOI partner.

2 Profits Tax Exemption for Offshore Private Equity Funds Pursuant to the enactment of the IR (Amendment) (No.2) Ordinance 2015, IRD issued Departmental Interpretation and Practice Notes No. 51. Please refer to September 2015 Newsletter of TIHK for particulars of the amendment ordiance. Report on Latest Published Board of Review Decisions Volume 30 2 nd Supplement (1) D27/14 Late Appeal The taxpayer under reported her income for salaries tax purposes by $415,426, being a share option benefit, as a result of which tax of $70,623 has been undercharged. The CIR imposed s.82a additional tax of $6,300 being 8.92% of tax undercharged. The taxpayer appealed to the Board but the notice of appeal was late by 5 days. The taxpayer explained that the notice of appeal was duly prepared and signed and handed to her colleague for delivery to the Board but the colleague forgot the matter. The Board held that the failure of the person to whom the taxpayer delegated the task of lodging the notice of appeal did not constitute a reasonable excuse warranting the exercise of its discretion to grant time for late appeal under s.82b (1A). That a taxpayer has no intention to evade tax is not a reasonable excuse nor a mitigating factor justifying reduction of penalty. (2) D28/14 Source of Profits The Taxpayer purchased garments from a wholly owned subsidiary manufacturer in Mainland China and sold to overseas customers. Only two persons worked in the business address of the Taxpayer in Hong Kong. It was the case of the Taxpayer that they were not employees of the Taxpayer. The Taxpayer claimed that they had no employees whether in or outside Hong Kong. The Taxpayer asserted that all sales and purchase transactions were negotiated in Mainland China by its subsidiary which would contact customers via telephone, internet or direct meetings in Mainland China or during visits to customers' offices outside Hong Kong. Some of the goods were delivered via Hong Kong. Payments were made by customers to the Taxpayer's bank account in Hong Kong. The Board ruled that the effective cause of the production of the profits was the bringing together the complementary needs of the manufacturer in Mainland China and the overseas customers (Euro Tech and Kim Eng followed). The Mainland China manufacturer by selling goods to the Taxpayer instead of the overseas customers directly stood to be buffered by any risk of non-payment by the

3 ultimate buyer. The Board held that the profits were sourced in Hong Kong. (3) D30/14 Salaries Tax Rental refund The Taxpayer's remuneration package included an all-in-one allowance inclusive of and not limited to housing rental, management fees, all utilities charges of the house and travelling expenses. The Taxpayer contended that the allowance should not be assessed. He further claimed deduction of utility bills, building management fees, telephone bills and travelling expenses. The Board found that the terms in the Employment Agreement did not indicate any intention of the employer of providing a place of residence for the Taxpayer. The employer informed IRD that it had not imposed any restriction on how the allowance was spent and the Taxpayer was free to spend it as he desired. The Board ruled that the allowance was taxable. The expenses claim was rejected as being private and domestic in nature. (4) D1/15 Extension for late appeal The Taxpayer's notice of appeal to the Board was lodged on 9 Oct 2014 while the deadline was 2 Oct The Taxpayer explained that he was misled by his tax consultant that he should write to the Commissioner for lodging an appeal instead of the Board of Review. He argued that delay of a few days was not unreasonable given that the case has dragged on for 3 years before the making of the Commissioner's determination. The Board rejected his application for extension of time for appeal. Although according to the Chinese version of the IRO, the test for s.66(1a) is 未能 meaning unable to which is a less stringent test than the word prevent, this is still a higher threshold than a mere excuse (Chow Kwong Fai v CIR [2005] HKLRD 687). It is not sufficient for the taxpayer that he has proved that his failure in time was due to illness, absence from Hong Kong or other reasonable cause. He must also satisfy the Board that he was prevented by such illness, absence or reasonable cause to lodge an appeal within the time prescribed. Absence from Hong Kong does not confer an automatic right for extension of time. Unilateral mistake on the Taxpayer's part cannot be properly described as a reasonable cause, neither was a careless mistake. During the appeal period the Taxpayer was present in Hong Kong for about 20 days. It was common ground that the Taxpayer did not suffer illness during the appeal period. The Taxpayer did not prove the alleged wrongful advice of his tax consultant. The Board refused to grant the required extension.

4 (5) D2/15 Stating a Case The Taxpayer appealed against the Board's decision disallowing 50:50 apportionment of its profits derived from import processing in Mainland China (see D15/14 reported in Jan 2016 Newsletter TIHK) by requiring the Board to state a case pursuant to s.69(1) of the IRO on a question of law for the opinion of the Court. The Board refused to do so. To qualify as a question of law, it must fall into one of the following 3 categories (Burrell J in Ahn Sang Gyun v CIR 23 IRBRD ): a) The Board misdirected itself in law. b) The Board made a finding of fact that no person acting judicially and properly instructed as to the relevant law could have found. c) The Board made a finding of primary fact which was unsupported by any evidence or the Board failed to make a finding of primary fact where the evidence pointed only to such a finding. The Taxpayer complained that the Board accepted the facts stated by the Commissioner in his determination, but does not state how the Board had erred in law in so doing. The Taxpayer complained about the way in which the Board dealt with evidence of the factual and expert witnesses produced by the Taxpayer or their witness statements. The Board could not discern precisely what question of law, if any, was asked by the Taxpayer. S.68 (7) authorises the Board to admit or reject any evidence adduced, whether oral or documentary, and the provisions of the Evidence Ordinance (Cap 8), relating to the admissibility of evidence shall not apply. The basis of its complaint was no more than that the Board should have accepted the Taxpayer's case. The Taxpayer also made blanket attack on the Board's finding of fact without particularising how the Board had erred in law. No property question of law was stated. Further and in any event, the arguments advanced were plainly unarguable and the Board declined to state a case on those arguments. (6) D3/15 Failure to submit return, s.70a The Taxpayer failed to submit profits tax returns. The Assessor issued estimated assessments and later estimated additional assessments. Thereafter the Taxpayer submit returns with audited accounts. The objection periods have long lapsed. The Taxpayer lodged objection against the assessments. The explanation of late lodgement of objection was that the Taxpayer was wrongly advised by the former tax representative that it only needed to submit return if there was a profit. IRD rejected the objection as being late. The Taxpayer applied for correction of the assessments under s.70a on the ground that there has been arithmetical error or omission in the calculation of the amount of

5 assessable profits and tax and also on the ground that there were errors in the returns since the Taxpayer wrongly thought that it only needed to submit returns when there was profit. Eventually the s.70a claim was the subject of an appeal before the Board. The Board dismissed the Taxpayer's appeal. Reported by Mr HO Chi Ming FTIHK, CTA, Council Member 2015/16 (This report is for general information and reference only and should not be regarded, used or adopted as professional advices. No warranty or guarantee, expressed or implied, is given as to the accuracy and completeness of the information contained therein. Neither the Institute or any contributor or the editors shall assume liability for any statement, opinion or advice contained in this report. In no event shall the Institute, its members and council members be liable for any loss and damages arising from or related to the