Power of Courts regarding Tax Assessment Appeals and Claims of Omission or Error in Assessment by Taxpayer having Hong Kong Corporate Formation


In this blog we will explore the powers of CFI and CA concerning the assessments of taxpayer. We will also explore the empowerment of board of review to issue the directions and to sanction non-compliance and what assessment is considered to be final and conclusive that should not be subjected to any further objection. In the ending of this blog we will also see the handling of claims for omissions and errors in the assessment or any return or statement submitted.    

Powers of Court of Appeal and Court of First Instance regarding Assessment

The court of appeal and court of first instance when handle an appeal (whether under arrangements of leapfrog or not) may grant leave:

  • With any directions (this also include direction for a new hearing) that are fit under consideration by court, cancel the matter back to the board of review.
  • Increase, confirm, annual or reduce the assessment that is determined by the board of review.

The court of appeal or court of first instance while hearing an appeal against the board of review’s decision, that involves a question of law, would not:

  • Vary or reserve any result on question of fact, made by board of review unless it is found by court that conclusion or decision is erroneous in point of law.
  • Receive any further proofs.

Board of Review Authorized to Issue Directions and Consent Non-Compliance

The person working with the members on how to register a limited company in Hong Kong is directed at the hearing having authority to:

  • Provide with directions on the allowance of information and documents for hearing of an appeal.
  • Deny to admit any information or documents as a proof in the hearing of an appeal if they are not produced in compliance with given directions. It may apply by the party to presiding person for sanction from relief. The decisions such as to refuse to admit any information or documents as proof or to deny to grant the relief from sanction are decision of administrative level. Hence the decisions are amenable to judicial review.

Immunities and Privileges

The Deputy Chairman, Chairman and other members of the board of review have to perform their duties under the inland revenue ordinance, the same immunities and privileges as a judge of the court of first instance in civil proceedings in that court.

The parties to any following and representatives, witnesses or other person that appear before the board of review have the same immunities and privileges as they would have in civil proceedings in the court of first instance.

Transitional Arrangements

An application that has been delivered after making before 1 April 2016 under Section 69 of Hong Kong tax law is to be continued after 1 April 2016. That is in the case if the Amendment Ordinance had not been approved.

Assessment as Final and Conclusive under Section 70

An assessment becomes conclusive and final if:

  • In accordance with Section 70 of Hong Kong tax law, the assessment is determined on appeal or objection.
  • An appeal has been dismissed or withdrawn
  • No valid appeal or objection has been lodged within the time limit.
  • In accordance with Section 64 (3) of Hong Kong tax law, an objection has been agreed to by the CIR.

In the case of Chu Ru Ying the appeal of taxpayer having Hong Kong corporate formation was dismissed by the court of first instance as the concerned assessments were conclusive and final.

This Section in accordance with Section 60 of Hong Kong tax law for any assessment year shall not prevent any assessor from making assessment or additional assessment that have no concern on discussing again the matter or problem that is determined on appeal or objection year. The reference for this statement is taken from Section 70 proviso of Hong Kong tax law.

Now we will discuss an example to understand such situation, if it is claimed by a taxpayer that for a particular year his employment is a foreign employment and this question has been determined by board of review or CIR, the assessment cannot be reopen later for that year on the basis that the employment is a Hong Kong one. However, raising an additional assessment is not impossible if he has basis to believe that the personal allowance (e.g. the allowance of child) that was granted to him should be withdrawn due to the reason that personal allowance was not subject of the appeal or objection.

Other than that, even if the matter has been examined before the board of review, if there are some matter that after the hearing of board of review come to light and which could not come to knowledge of parties with due thoroughness, it may be allowed by CIR to re-process on the same facts or issue. The reference for this statement is taken from case of Extramoney Limited.

Estoppel    

The Inland Revenue department as a general principal is usually not prevented from carrying out its constitutional obligation. It cannot be estopped by agreement or otherwise from not performing its duties under constitution. However, it is false that the inland revenue department is under no circumstances but still subject to an estoppel. If the issue has been examined in a court hearing or board of review, the inland revenue department will not be allowed to re-process the issue later. The reference for this statement is taken from case of Extramoney Limited.

Omission or Error Claim under Section 70 A

If the satisfaction of an assessor it can be accepted for any assessment year tax charged is excessive by reason of:

  • Any arithmetic omission or error while calculating the amount of the assessable profit or income assessed, or in amount of tax charged.
  • An omission or error in any return or statement submitted in respect so.

According to Section 70 A (1) of Hong Kong tax law, such an assessment shall be corrected by assessor.

The claim of this type must be made within:

  • 6 months after the date on which it was served the relative NOA.
  • 6 years after the expiry of that assessment year.

Whichever among these is the later?

Now to clear our understanding we will discuss an example, it was omitted by a taxpayer having company setup in Hong Kong to claim child allowed in the personal or individual tax return for assessment year 2009 to 10, for his 17 years old son. If no objection was lodged on the issuance of assessment within 1 month, the assessment under Section 70 of Hong Kong tax law should become conclusive and final. However, a claim may have made by him on or before 31 March 2016 under Section 70A of Hong Kong tax law. Let’s suppose that on 20 March 2016 NOA was issued. Then any objection on this NOA must be lodged on or before 20 April 2016. If he is unable to do so, a claim under Section 70A of Hong Kong tax law could still have made within 6 months of date of the NOA. The actual date is on or before 20 September 2016.

 

Omission or Error in any statement Submission or Return

One key thing to note here is that, any statements such as issued by Inland Revenue department or computation of tax do not include NOA. Statements submitted to third parties (e.g., banks or employers) are meant by statements for the purpose of Section 70 of Hong Kong tax law.

If statement or return is not submitted, then no omission or error can be there under Section 70A of Hong Kong tax law. Let’s consider an example, in respect of estimated assessment issued under Section 59 (3) of Hong Kong tax law, no Section 70A claim may be made in the non-presence of tax return. The reference for this statement is taken from the case of Sun Yau Investment Co Ltd.

In a case known as D 55/88 it was ruled that, operation of Section 70A of Hong Kong tax law was prevented by a settlement agreement between the taxpayer and Inland Revenue department.

Statement Submitted in respect of a Return

In a case D 137/02 it was observed that, the board of review was not agreed with the decision of above defined case D 55/88. It was considered by board of review that, if in the agreement of settlement there is an omission or error then still Section 70A of Hong Kong tax law may apply. However, it carries on to rule that a proposal to settle a tax investigation by a taxpayer rendering services in Hong Kong or for offshore incorporations HK limited was not a statement within Section 70A of Hong Kong tax law. The following conclusion was drawn by board of review that:

  • A statement that is for the reason of Section 70A of Hong Kong tax law must be a statement that is required to submit to the Inland Revenue department. A statement is not covered under Section 70A, if it is submitted to another body e.g., the board of review.
  • A statement that is for the reason of Section 70A of Hong Kong tax law must be a statement that is submitted by a person under Inland Revenue ordinance. A written proposal that was for the purpose of settling a tax evasion case and was given to Inland Revenue department by a taxpayer was therefore not according to the board of review, a statement within the scope of Section 70A ‘submitted to another body’.

Arithmetical Omission or Error by an Assessor 

If omission or error are not of type of arithmetical then error or omission of assessor is not covered by Section 70A of Hong Kong tax law.

In a case of Sun Yau Investment Co Ltd. it was observed that an estimated assessment was issued under Section 59 (3) of Hong Kong tax law. an objection was lodged by the taxpayer company that was not supported by tax return on profits and was also out of time. Subsequently, with the audited accounts a profit tax return was submitted. It was claimed by taxpayer that; by the reason of an arithmetical omission or error the assessment was excessive. Hence it was held that, this error was not an error of arithmetical type. Hence concluded that any estimate that is incorrect may not an arithmetical error but an error of judgement.

In case D 42/05 it was observed that, in respect for a claim of business loss and income on salaries an individual return was submitted by the taxpayer having company setup in Hong Kong. The business loss was not allowed by assessor. Hence an assessment under personal assessment was issued by assessor in which salaries income was included but without any deduction for business loss. It was written by assessor to taxpayer advising him / her to submit a notice of objection within 1 month if it was wished by him to claim the loss in business. The taxpayer was unable to object. Subsequently on the basis that there was no error or omission of the assessor for granting a tax set-off in respect of the business loss, a claim was made by him under Section 70 A of Hong Kong tax law. This of claim of taxpayer was not accepted by board of review.

In the case of Good Mark Industrial Ltd., it was observed that a taxpayer working for offshore incorporations HK limited named as T applied for a judicial review. This judicial review was based on the reason that CIR refused to entertain the objection of T and claim under Section 70 A of Hong Kong tax law. The application was dismissed by the court of first instance.

 

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