Tax Recovery Methods used by CIR to Recover from Taxpayer doing Business in Hong Kong

In this blog we will explore that what methods are adopted and what time limits are given to the taxpayers experiencing different circumstances for the tax recovery. We will discuss the various ways that are adopted by CIR to recover these taxes. We will further explore the tax recovery from the debtor, persons living in Hong Kong, impounding ship or aircraft and as civil debt through district court.

Tax Recovery

The ways given below may be used by the CIR to recover the tax:

• In accordance with the Section 77A of Hong Kong tax law, appropriate aircrafts or ships in case of default by a character or an owner of aircraft or ship.
• According to Section 75 of Hong Kong tax law, tax civil action in district court.
• Apply to a district judge under Section 77 of Hong Kong tax law, for the issue of departure prevention direction to prevent the non-payers from leaving Hong Kong.
• Recover tax from the debtor of taxpayer under Section 76 of Hong Kong tax law.

Recovery of Tax through District Court as Civil Debt under Section 75

In District Court proceedings for the tax recovery in default as per Section 75 (3), the CIR signed certificate containing name, defaulter latest postal address, and tax particulars will be enough evidence for the due amount and sufficient authority of a District Court to give decision for the said amount.

In these types of proceedings, any request such that tax is subject to excessive under appeal or objection, incorrect should not be entertained by the court. The reference for this statement is taken from Section 75 (4) of Hong Kong tax law.

No power is given under tax recovery action to the taxpayer either having company setup in Hong Kong or other business for assessment dispute. The certificate of CIR under Section 75 of Hong Kong tax law is necessary evidence of the amount of due tax. Following cannot be argued by the taxpayer doing business in Hong Kong:

• The assessment is legally void on the basis that assessments are random and variable. The reference for this statement is taken from the proceeding of case Ng Chun Kwan.
• The assessment is incorrect. These types of action should go through the appeal and objection to the board of review, CIR, and the courts under Section 67, 68 and 69 of Hong Kong tax law. The reference for this statement is taken from cases of Au Yuk-shuet, Choy Sau Kam and Chan Yun against CIR respectively.

In the case of the Ng Chun Kwan it was pointed out by Justice Briggs that, it was not stated by law that, on action for the recovery of tax there can be no defense brought by the CIR. Consider an example here, in the case of D 25/90, there was a question as to identity the taxpayer having Hong Kong incorporation under partnership in which it was observed that, an assessment raised on the partnership was discharged by board of review on the basis that there was no proofs for the existence of partnership.

Section 75 of Hong Kong tax law violate the Hong Kong Bill of Rights Ordinance. As to the claims of CIR for payments of tax certain articles related of the Hong Kong Bill of Rights Ordinance have been used by some taxpayers having company setup in Hong Kong:

• It was provided by Article 10 that, ‘… by a contempt everyone shall be responsible to a fair and public hearing by an impartial, competent and independent tribunal established by the law ….’
• It was provided by the Article 11 (1) that, ‘anybody charged with the criminal offence shall have the right to be imagined innocent until he / she is proved guilty in accordance with law.’
• It was provided by Article 22 that, ‘everyone is equal before the law and is responsible without prejudice to the equal protection of law’.

It was held by Judge Kwan in the case of Eekon Enterprise Ltd. that:

• If none exists already then it’s not guaranteed by Article 10 of Hong Kong Bill of Rights Ordinance a right of court access.
• Article 22 of the Hong Kong Bill of Rights Ordinance was not violated by the fact that defendant was poor.

In a case of Chapman Development Ltd. it was held by the judge HC Wong that, the Article 10 of Hong Kong Bill of Rights Ordinance is consistent with the Section 75 of the Inland Revenue ordinance. The taxpayer (T) having Hong Kong incorporation will not be disadvantaged of an access to court or seeking judicial remedies although the CIR has optioned to wind up T in the execution of judgement if T fails to pay up the assessed tax. The various options and possibilities are open to T, and one of this option is to ask the CIR for holding-over the payment until after the appeal to board of review. If somehow it gets fail in the appeal to board of review, then T has option to apply for a judicial review to the board of review. The winding up of T may or may not decide by the CIR. T has option to pursue the issue in a different court even if it does take place at a date in future.

It was held by Deputy district court judge J Ko in case of Carpe Diem Publications Ltd. that:

• A fair hearing is not denied by T. An assessment is an administrative act and Article 10 does not apply to the Administrative matters.
• As T has not charged with any criminal offense the Article 11 (1) does not apply on him. One of the fundamental principal is that a person is innocent until proven guilty and the assessment made by the Inland Revenue department is not in violation of that fundamental principal.

Recovery of Tax from a Debtor under Section 76 

A debtor under the of Section 76 of Hong Kong tax law means a person who hold the money to the taxpayer or holds on the behalf of taxpayer.

In a case of Shanghai and Hong Kong Banking Service it was held that notice in which it was required by bank to pay money to CIR from a joint account was asked by it to be served to satisfy the tax liability of one of the account holders.

A notice in writing may be given by CIR to debtor, and a copy of which should be send to the taxpayer in which it may be required by the debtor to pay the amount of outstanding tax from:

• The money that becomes due from him or comes into his hands at any time within 30 days from the notice date. The reference for this statement is taken from Section 76 (1) of Hong Kong tax law; or
• If any money due on him to the taxpayer at the date of receipt of this type of notice.

If the debtor fails to observe the response on request of CIR without reasonable excuse and not able to obey the request of CIR within 14 days from the termination of above 30-day period, an offence is committed by him. This would be discussed in more details in the subsequent articles.

If the debtor is not able to obey the request of CIR, he shall give notice in writing to the CIR within 14 days from the end of the above period of 30 days in which the facts should be explained. The reference for this statement is taken from Section 76 (3) of Hong Kong tax law.

If Employment Ordinance covered an employee, then while deducting the wages i.e. all the deductions, including other deducted item(s) made in period of 1 wage shall not increase 1 half of the wages that are payable in that amount of time except under some specified conditions and circumstances employer of that employee must follow the Section 32 (3) of Hong Kong tax law. So, if:

• In default mounting to $20,000 the taxpayer has salaries tax.
• There is no deduction other than that and his wage for the month is $30,000.

In response to the Section 76 (1) of Hong Kong tax law, his employer should:

• Explain in writing to CIR that amount of wages that are deducted should not increase from the amount specified by the Employment Ordinance.
• Only deduct amount of $15,000 from the wages payable to him for the tax payment.

The debtor who obeys the request of CIR shall be reimbursed in the respect of payment that was made to Inland Revenue department against all the proceedings that are either criminal or civil and notwithstanding the allowances of any contract or written law. The reference for this statement was taken from Section 76 (2) of Hong Kong tax law. 

Recovery of Tax from Person Leaving Hong Kong 

A district judge may issue the departure prevention direction, if he is not dissatisfied by an oath statement by chief assessor or CIR or above authorized by CIR that:

• There is reasonable basis for believing that the he plans to leave Hong Kong to reside somewhere else.
• All the tax assessed on him are not paid by a person.
• To insure that, a person cannot leave the Hong Kong without furnishing the security or payment of the tax for the satisfaction of the CIR for the payment of that tax is not in interest of public. The reference for this statement is taken from Section 77 (1) of Hong Kong tax law.

The departure prevention direction (DPD) shall be issued to:

• The commissioner of public; and
• The director of immigration.

Directing them for preventing the person from leaving the Hong Kong without delivering security or paying tax for the CIR’s satisfaction to payment of that tax. When it is known by taxpayer that, an offence is committed by him if he attempts to depart from Hong Kong without any legal authority, as an authorization by the CIR. The maximum penalty in the form of amount for such type of offence is $ 25,000.

An appeal may be done by a person to CFI to satisfy a departure prevention direction:

• Dismiss the appeal under Section 77 (9) of Hong Kong tax law.
• Set the departure prevention direction aside, subject to such conditions as may directed by the court. For example, supplying security to the CIR
• Vary or otherwise temporarily suspend the departure prevention direction, subject to such conditions as may direct by the court.

Impounding the Ship or Aircraft under Section 77A

For the taxpayers rendering services to Hong Kong incorporation services that are chargeable under Section 23B, 23C, 23D or 23E of Hong Kong tax law, if the taxes of them are in default. It may be issued by CIR with earlier approval of the Chief Secretary to:

• The director of Civil Aviation;
• The director of Marine Department; or
• Other authority who is responsible of granting the clearance.

A certificate of the addresses and names of the particulars and taxpayers of the taxes in default under Section 77A of Hong Kong tax law. Then any aircraft or ship that chartered by such taxpayers or is owned partially or wholly shall not be granted clearance at all to leave the Hong Kong until the payment is done for tax or provision of adequate security is given. The reference for this statement is taken from the Section 77A (2) of Hong Kong tax law.