Regulations on Assessments, Objections and Notices of Appeal in Inland Revenue Ordinance for Taxpayer having Hong Kong Business Formation

We will be seeing in this blog, the issuance of different notices that are related to the assessment of taxpayer by Hong Kong tax department. We will discuss the authorities or power of CIR to apportion the acquisition cost and direction to disregard the delay in disposing of specified asset. In last part of this blog we will discuss the appeals and objections, disputes to tax collection and assessments. One should be aware of these laws before start up company Hong Kong to avoid any future problems.

Investment Arrangement Disqualifying Event

In relation to disposition in a scheme, an ‘investment arrangement disqualifying event’ that has been accepted or alleged to be a QIA in a specified alternative bond scheme for the reasons of assuring the person to be allowable means:

• Even though the scheme is all times specified alternative bond scheme during the term of scheme that is specified, the scheme fails to follow the with any of conditions given in Section 13 (1) and Section 13 (2) (b) of schedule 17A. and that is also at any time during the alleged term according to Section 13 (5) of schedule 17A; or
• During the specified term of the scheme, scheme is not a specified alternative bond scheme.

The penalty provisions given follow are applicable if references in those provisions to a failure to follow with Section 51 (2) of Hong Kong tax law consisted of a failure to follow with Section 26 (1) of schedule 17A:

• Section 80 of Hong Kong tax law.
• Section 82 A of Hong Kong tax law.

If ‘investment arrangement claim’ or ‘bond arrangement claim’ has made by a person who is a taxpayer and wants to either start up company Hong Kong or establish Hong Kong small business start up, in relation to an arrangement in a scheme. Then it is not required by him to inform CIR about a specified event in relation to that arrangement if:

• After the allege has been received for any assessment years, one or more than one alleged assessments have been made on the individual on the basis that due to earlier specified event the arrangement is disqualified, and under Section 70 of the Inland Revenue ordinance the specified assessments have all become conclusive and final.
• One or more than that assessments have been applicable on the person on the ground that claim is not accepted for any assessment years and also the assessments have all done conclusive and final under Section 70 of the Inland Revenue ordinance.

Additional Assessments

In Section 27 of schedule 17A, in relation to an assessment year and a person an arrangement in a scheme is an arrangement that is accepted if claims such as ‘investment arrangement claim’ or ‘bond arrangement claim’ has been accepted in relation to the arrangement for the reasons of assuring the tax that is chargeable on the person for the assessment year.

Section 60) of Inland Revenue ordinance is applicable, with the changes specified in Section 27 (3) of schedule 17A to the making of additional assessment or assessment on a person for the assessment year because of disability of an accepted arrangement. Due to these reasons, each of the years given below commence to run after the year of disqualification is deceased if that year of disability falls after the assessment year:

• 6 years mentioned in Section 60 (2) of the Inland Revenue ordinance and Section 27 (3) of schedule 17A.
• 6 years mentioned in Section 60 (1) of Inland Revenue ordinance.
• 10 years mentioned in paragraph (b) of proviso to Section 60 (1) of the Inland Revenue ordinance.

Year of disposition in relation to an arrangement in a scheme in relation to a person whose ‘investment arrangement claim’ or ‘bond arrangement claim’ has been received, means the assessment year in which:

• In relation to the arrangement a specified event occurred; or
• If there are 2 or more than 2 specified events and in relation to the arrangement the earliest specified event occurred.

Extra Tax Paid to be Refunded 

Section 79 of Inland Revenue ordinance with the modifications specified in Section 27 (5) and Section 27 (6) of schedule 17A applies to an amount of tax that is found to be paid in excess by a person working under Hong Kong business formation, for an assessment year (in accordance with Section 17 (4) of schedule 17A) due to disability of an accepted arrangement. Due to some specific purposes of Section 27 (4) of schedule 17A, after the expiry of year of disability the period of 6 years referred in Section 79 (1) of Inland Revenue ordinance begins to run. For this to happen that year should fall after the assessment year (in accordance with Section 27 (5) of schedule 17A).

If:

• It is appeared to the assessors that, for another assessment year an amount of tax in excess has been paid by the person due to same disability.
• An additional assessment or assessment is made by an assessor because of the disability of an accepted arrangement under Section 60 of the Inland Revenue ordinance on the person for an assessment year. 

Then, even in the non-presence of a claim being made in writing under Section 79 of the Inland Revenue ordinance for the refund:

• The amount to be refundable may be departed against any amount that is payable under additional assessment or assessment under Section 27 (6) of schedule 17A.
• A refund of that amount may be made under Section 79 of Inland Revenue ordinance for which tax paid in excess

Notice of Appeal, Assessment and other Proceeding

The allocations of Inland Revenue ordinance that is related to the appeal, a notice of assessment and other proceeding that apply:

• To any tax that was charged under it.
• To an additional assessment, reassessment or assessment made under Section 60 or 79 of the Inland Revenue ordinance. (The application of Section is dependent on the requirement of cases).

 Are applicable:

• To any tax that is charged accordingly in accordance with Section 27 (7) of schedule 17A; and
• To a reassessment (assessment specified), additional assessment or assessment made under Section 60) or Section 79 of the Inland Revenue ordinance as changed by Section 27 of schedule 17 A. (The application of Section is dependent on the requirement of cases).

Objection

In spite of Section 27 (7) of schedule 17A, if:

• Objection is made by a person against the specified disputing, disability and assessment under Section 64 of Inland Revenue ordinance.
• Due to disability of an accepted arrangement a specified assessment is made for an assessment year.

This objection is referred as, objection made by the person against all the alleged assessments that were made due to that disability, for all the assessment years.

Direction of CIR to Ignore the Delay in Disposing of Mentioned Asset

A delay in disposing of the alleged asset may be ignored by CIR as a violation of arrangements that were performed according to conditions and terms if:

• The CIR is convinced that for the delay there was a rational excuse (according to Section 28 of schedule 17A);
• The already described conditions are met otherwise; and
• The disobedience is simply composed by a delay in discarding the specified assets, for more than 30 days.

Power of CIR to Allocate Acquisition Cost

For the reason of calculating the return for investment the acquisition cost may be divided by the CIR among different parts of the alleged assets under a specified investment arrangement having considerations to all the conditions of alternative bond scheme (according to Section 29 of schedule 17A).

Objection to Assessment and Tax Collection 

A person offended by an assessment may object to assessment under Section 64 (1) of Hong Kong tax law.

Conditions for a Reasonable Objection

The conditions given below are for a reasonable objection on the tax assessment:

• If in a case the assessment is made in absence of a return under Section 59 (3) of Hong Kong tax law as estimated assessment, in order to validate the objection (under Section 64 (1) proviso (b) of Hong Kong tax law, a properly accomplished return is required. In a case of Mayland Woven Label Factory it was observed that a return that was not held to be a proper return as it was not supported by a profit or loss account or balance sheet. Due to this reason the objection was considered invalid.
• The notice of objection for assessment must be addressed and is given to CIR in writing.
• After the notice of assessment is send to the taxpayer having Hong Kong small business start up, the notice of objection must be received by CIR from taxpayer within 1 month of date of notice of assessment. CIR can grant an extension if it is satisfy by him that owing to sickness, absence from Hong Kong or other reasonable cause, the taxpayer was abandoned from giving notice of objection on assessment within the limit (under Section 64 (1) proviso (a) of Hong Kong tax law) and
• The grounds of objection must be mentioned precisely in the notice of objection.

Extension of Time for Notice of Objection

The time limit for notice of objection from taxpayer may be extended by the CIR owing to sickness, absence from Hong Kong or other reasonable cause. The word ‘Prevented’ means ‘unable to’.

In a case Lam Ying Bor Investment it was observed that, a sole active director asked extension in the date of notice of objection due to sickness but this of his reason was not considered sufficient to grant the extension in the date of objection because there were also 2 other directors, although they were too busy or too old to attend the daily affairs of company.

In another case Chan Chun Cheun it was observed that, assessment on 23 property tax was issued by CIR on 22 January 2010 and two profits tax assessment was issued on 10 February on Chan. Mr. Chan was working in a law firm as a company secretary Hong Kong. The assessment was issued on property tax to Mr. Chan in care of that firm by an ordinary post. These notices were never returned undelivered to CIR. By the recorded delivery the assessment on profits tax was sent. The receipt was acknowledged by KLY. According to the record of Inland Revenue department the last known address of Mr. Chan was address of KLY so the assessments were sent to that address. In accordance with Section 51 (8) of Hong Kong tax law, the change of address was not notified by Mr. Chan to Inland Revenue department. The arrangements that were made previously between Mr. Chan and KLY was that, as long as a letter was received for the attention of Chan, it would be informed by KLY to secretary or brother of Chan to collect the same. Any such letter was never by KLY. It was asserted by KLY that even though its staff were not able to recall any letter specifically that may have passed to Chan or his representatives through its office, it was believed by them that any letter received would have been sent further to Mr. Chan. It was affirmed by secretary of Chan or his brother that KLY did not connect to any one of them to collect the said notice of objection on assessment. Until the date of 4 June 2010, Chan did not object to assessments. It was stated by Mr. Chan that he only became aware of such assessment on 24 April 2010. Under this stance he applied for judicial review against the refusal of CIR to late objection respect to Section 64 (1) proviso of Hong Kong tax law on the basis that he was retained from the date of notice of objection within time limit of 1 month on assessment, from objecting. The CIR depended on Section 58 (2), 58 (3) and 58 (4) of Hong Kong tax law.