Different Nature of Appeals on Tax Assessment to the Court of First Instance by Taxpayer doing Business in Hong Kong

In this blog we will explore different types of appeals that are done by taxpayer to court of first instance according to his/her requirements. We will discuss the effects of these appeals on the original cases of concerned person working for an employer or having set up company in HK. We will also discuss the legal procedure that is to be adopted for having such type of appeal.

Appeal to the Court of First Instance

According to Section 69 (1) of Hong Kong tax law, if decision of board of review is not sympathized for either CIR or appellant then he may apply through clerk in writing to board of review. This is for reacquiring the board of review to state a case for the opinion of CFI (the procedure for case stated was abolished as from 1 April 2016).

The point to note here that application to board of review should be made in writing and delivered to board of review through clerk within 1 month of date of decision of board of review together with a fee of $770. The reference for this statement is taken from Section 69 (1). In a case D 10/13 it was observed that, CIR applied to board of review for the reason of stating a case to court of first instance. CIR paid the prescribed fee only after one month from the date of decision of the board of review. In accordance with Section 69, as the authority to extend the time limit was not granted to board of review, the application of CIR was dismissed by board of review. When the case was signed and stated by board of review, then according to Section 69 (2), the appellant should transmit the case to court of first instance.

Finding of facts is final by board of review. According to Section 69 (5) of Hong Kong tax law, the appeals to higher courts and court of first instance only lie on question of law. Judge reaches the decision on a point of law after hearing the case that may reduce, increase, confirm or annual the assessment or may cancel the case to board of review with the judgement of court thereon. The reference for this statement is taken from Section 69 (5) of Hong Kong tax law. If a case has been cancelled by board of review and assessment concerned is revised by board of review, then that revised assessment is a decision. If a party is not satisfied with the decision, then that part may require the board of review to state a case for the judgement of court of first instance as stated in the judgment of case of Indosuez WI Carr Securities Ltd.

Guidelines for Cancellation of a Case by Court back to the Board of Review

The CA in cases of HIT Finance Ltd. and Hong Kong international Terminals Ltd. gave the following recommendations for cancellation of a case by court back to board of review:

• Whether to cancel a case stated is a matter of carefulness.
• The power to cancel must be in the context of the stated case. That is due to the reason that, appeal under Section 69 (1) of Hong Kong tax law is an appeal and apart from the authority to have a case stated on a matter of law being raised out of a decision. The decision of board of review is required to be final.
• The board may be asked about the proofs that they did not refer to in the proceeding of case stated that these may support the finding of fact that they have made.
• Even though there is no bar to the hearing of board further evidence it can only be directed to issues that were arising in the questions on the stated case and the answers given by court.
• It is mandatory for court to hear each case and it does not cancel a case except in very exceptional circumstances i.e. hearing the case afresh. One of these circumstances might be if board had considered itself bound by some earlier decision erroneously and had not, in truth heard the case. This thing was observed in the case ‘The old Bushmills’ Distillery Company Limited.

In the proceeding of case of Crown Brilliance, it was observed that a landed property was purchased and sold by T as a gain within 7 months. It was argued by T that nature of gain was capital. The resultant gain was assessed to tax on profits and T appealed successfully before the board of review. On appeal to court of first instance, one of the question of law that was posed by CIR was that whether ‘the BoR misdirected itself in law or mistook in law in relying on or giving undue weight to the representatives of taxpayer working in Hong Kong incorporation services’ representations or assertions which were not supported by any proof or were not mentioned as evidence, in the circumstances where:

• Despite of invitations by the board, the taxpayer doing business in Hong Kong chooses not to call any witness to give oral statement on the behalf of himself / herself and be caring for cross-examination by the Commissioner of IRD and for questioning by the board of review; and
• The truthfulness of those representations or assertions was not being supported by evidences (‘oral or otherwise’).

The following was considered by court of first instance:

• In the argument a fact is not proved by its truthfulness rather it is proved by its evidence that can be documentary or oral. The oral submissions and representations do not munt to evidence that are made by the representative of tax without more.
• There is no debate on that there can be an error of law where the board of review has relied to a material extent on such matters that were not mentioned properly as evidence.

As in decision-making process of board of review there was a material error, the court of first instance made an order pursuant to Section 69 (5) of Hong Kong tax law. and according to that instance, the case be cancelled to board of review for its decision to be done on proper evidence.

In accordance with Section 69 (7) of Hong Kong tax law, further appeal against the decision made by court of first instance may be made to the court of appeal and then to the court of final appeal.

Question of Fact or Law  

The interpretation of law is included in the question of law. For example, in the case of Asia Television Ltd. the meaning of ‘agent’ is a question of law.

In the well-known authority of case Bairstow & Harrison what amounts to a question of law is explained. There is an error of law if the decision is one which no reasonable person instructed properly as to the relevant law could have to. The court has authority to overturn such decision.

Refusal to State a Case

It was observed in the proceeding of case of Wong You Cho Rolly that if the question raised is not a proper question of law then it might be refused by board of review. Even though the question that was raised by an appellant are question of law technically still the board of review has power to consider whether the questions are proper. In a case of Honorcan Ltd. it was observed that if there is no reasonable prospect of success then board of review can refuse to state a case.

Direct Appeal to Court of First Instance under Section 67

If an appeal is boarded with the board of review by taxpayer having set up company in HK, the CIR can give notice in writing that according to their desires the appeal should be transferred to the court of first instance without going through board of review. The reference for this statement is taken from Section 67 (1) of Hong Kong tax law. This kind of notice should be given to the facing party no later than:

• 21 days; or
• Such further time as increased by the board of review.

After the date on which the clerk to the board of review received the notice of appeal. So according to Section 67 (2), a copy must have sent to board of review at the same time.

If facing party is consented, he shall, within:

• 21 days; or
• Such further time as extended by board of review.

After the date on which the above described notice is given, notify his consent in writings the board of review and serve a copy of this notification on the party, that served the first notice. The reference for this statement is taken from Section 67 (3) of Hong Kong tax law. The notice of appeal shall be transmitted by board of review to the court of first appeal together with the relevant document that were submitted by the appellant to board of review, taken from Section 67 (4).

Direct Appeal to Court of Appeal under Section 69 A

As long as case has been determined by the board of review, either the CIR or appellant may appeal to the CA directly, thereby bypassing the court of first instance, given that the court of appeal grants leave for such application, taken from Section 69 A (1).

The court of appeal may grant leave for direct appeal if, in the opinion of court of appeal:

• The issue is difficult atypically.
• The amount of tax involved is considerable.
• According to Section 69 A (2) of Hong Kong tax law, for any other reason that it is advisable that the appeal be determined after hearing by the court of appeal instead of the court of first instance.
• The issue is of public or general interest.

Changes to Appeals to Courts as from 1 April 2016

Direct appeal against decision of board of review to court on question of law

The taxpayer working in Hong Kong incorporation services is allowed to apply direct (without the stated procedure of case) to appeal to the court of first instance against the decision of board of review on a question of law. The application should be made between parties.

If the court of first instance:

• Denys to grant leave to appeal, the concerned taxpayer or the CIR may make an application further to the court of appeal for leave to appeal. The case will be heard by court of first instance if the leave to appeal is granted by court of appeal.
• Allows leave to appeal, the substantive issue of the appeal will be heard and determine by it.

If:

• A party is offended by the determination.
• The application for leave on the basis of submission in written form is determined by Court of first instance.

The court of first instance must, carry out a hearing to reconsider the application for leave at the request of offended party.

The application for leave by one or more than that justices of appeal may handle by court of appeal to cater for cases having different complexity and nature. After the application of leave has been determined by court of appeal then no application for the leave to appeal against the decision of board of review may be made to the court of appeal.

Leapfrog Arrangements

• If leave to appeal is granted direct by court of first instance to court of appeal, then for leapfrogging the CIR or concerned taxpayer may apply for leave from the court of appeal.   
• In the first place court of first instance does not allow to grant leave to appeal but subsequently the court of appeal upon application by CIR or taxpayer grants leave. But another leave is still required from the court of appeal for leapfrogging.

The appeal will be heard by court of first instance if grant of leave for leapfrogging is refused by the court of appeal. 

The nature of appeals that are discussed in this blog are in accordance with Hong Kong tax law, hence before company formation HK a taxpayer should be familiar with such appeals and other rules and regulations of Hong Kong Law’s.