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A Practical Guide to Tax Audit and Investigation in Hong Kong

A Practical Guide to Tax Audit and Investigation in Hong Kong

  • Author:
  • Publisher: Wolters & Kluwer (Law & Business)
  • ISBN: 9789881221599
  • Published In: July 2016
  • Format: Paperback , 301 pages
  • Jurisdiction: Hong Kong ? Disclaimer:
    Countri(es) stated herein are used as reference only

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    A Practical Guide to Tax Audit and Investigation in Hong Kong is guidebook that deep-dives into vital issues in the area of tax audit for tax professionals. Illustrations and commentary are carefully written by Mr HO Chi Ming, who has over 15 years of work experience in the IRD, as well as a successful legal practice as a barrister at law. This book is a must have for financial professionals, accountants, legal practitioners, and business owners with tax audit concerns or questions.

    Features for the readers to note include:

    • Definition of Tax Evasion and Tax Avoidance;
    • Tax Audit, Tax Investigation, Records, and Interview Process;
    • Offence and Penalty Policies;
    • Helpful Illustrations for Sole Proprietors, Partnerships, and Corporations; 
    • Tips for Negotiation and Settlement with Inland Revenue Department;
    • Useful Case Studies;
    • and much more!

    Skilfully written and presented for the reader A Practical Guide to Tax Audit and Investigation in Hong Kong is the source for key content, a truly informative and definitive work which offers a practical perspective that gives the readers a thorough appreciation to tax audit and investigation.

     

    A Practical Guide to Tax Audit and Investigation in Hong Kong is a handy reference book which focuses on the issues of tax evasion as well as the measures designed to combat it.

     

    Features:

    • Explains the laws and offences governing tax avoidance/evasion and the responsibilities of different parties
    • Provides responsive regulations in relation to taxation to tackle tax evasion schemes
    • Contains methods and process of investigations
    • Serves as a reference tool for tax payers, accountants and professionals who are required to fill tax returns and pay taxes.
    • Provides latest updates and investigation processes on tax evasion.
    • Contains extensive cases and examples of tax evasion/avoidance.
    • Up-to-date summary and analysis of the requirements under Inland Revenue Ordinance and Common Law that relate to anti-tax avoidance.
    • Each topic is covered under a separate chapter and phase for easy reference.

    Topic Covered:

    • Process of audits and investigations of tax evasion
    • Methods of investigation by Inland Revenue Department
    • General anti-tax avoidance sections and specific anti-avoidance guidelines for leasing, transfer pricing, cross border transactions and service companies
    • Tax offences and penalties
  • Chapter 1 Introduction

    • Tax Evasion
    • Tax Avoidance
    • How field audit/investigation cases are initiated
    • Departmental Interpretation and Practice Notes No. 11 (October 2007) (“DIPN 11”)
    • Full Voluntary Disclosure
    • Penalty Policy
    • Field Audits and Investigation Unit 
    • Field Audit and Investigation Cases Handled in 2014-15
    • Period covered by an Audit & Protective Assessment 
    • Process of an Audit 
    • Difference between Field Audit and Investigation
    • File Number

    Chapter 2 The Initial Interview

    • Tax Representative and Secrecy Provision of the IRO
    • Preparation for the Initial Interview
    • Incorrect Returns
    • Accounting Records
    • Questions Asked
    • Commencement of the interview
    • Full Voluntary Disclosure
    • Details of other income
    • Family background
    • Private Assets and Liabilities
    • List of Bank Accounts - Business and Private
    • Living expenses
    • Money held in trust
    • Windfall profits 
    • Remittances
    • Review of Past returns
    • Record of Interview
    •  After the Initial Interview

    Chapter 3 Power of IRD to Obtain Information and Documents

    • Statutory power to obtain information for audit/investigation purpose
    • Section 51(4)(a), IRO
    • Accounting Papers and Advice Papers
    • Section 51(4)(b) Examination by an Assistant Commissioner
    • Exchange of Information (“EoI”)
    • DIPN47 - IRD’s practices in relation to EoI
    • Trade business or other secrets
    • Legal professional privilege
    • Disclosure Rules (s49(6))
    • Non-compliance
    • Reasonable excuse
    • Legal Professional Privilege
    • Self - Incrimination
    • Statement of Assets and Liabilities (s51A)
    • Search Warrant (s51B)
    • Information from Other Government Departments or Public Bodies s52(1)

    Chapter 4 Methods of Determining the Understatement

    • Specific or Indirect Approach
    • Direct Method (Specific Omission)
    • Failure to notify chargeability s51(2)
    • Accounting r ecords
    • Adjustments to tax computations
    • Prosecution
    • Where accounting records are incomplete
    • Assets Betterment Statement (“ABS”)
    • Bank Deposit Method
    • Business Economics (Percentage Computation) Method 
    • Projection Method
    • Gross Profit Method
    • Trading business - Cash trade
    • Service income
    • Factors affecting the accuracy of the Gross Profit Ratio
    • Report by the Tax Representative
    • Deposit for Tax

    Chapter 5 Assets Betterment Statement

    • Format of an ABS
    • Periods Covered in an ABS
    • Loans from Other Persons
    • Living Expenses
    • Unidentified Withdrawals
    • Cash in Hand
    • Gambling Wins
    • Investments
    • Discrepancy and Head of Charge
    • Non-trading Profits/Income
    • Opportunity for Comment by the Taxpayer
    • What Evidences are Required?
    • Negotiation

    Chapter 6 Sample ABS - Sole Proprietor

    • Illustration of an ABS of a Sole Proprietor
    • Revision o f ABS1
    • Acceptance of the ABS and Issue of Assessments

    Chapter 7 Assets Betterment Statement — Partnership and Corporation

    • Partnership
    • Illustration
    • Corporation
    • Illustration 

    Chapter 8 Process of Audit, Protective Assessments and Hold over of Tax under Objection

    • Bank Analysis 
    • Examination of Accounting Records
    • Obtaining Information from Third Parties
    • Performance Pledge 
    • Protective Assessments and Alternative Assessments
    • Hold over of tax pending settlement of objection
    • Recovery of tax under objection

    Chapter 9 Anti-Tax Avoidance and Technical Adjustments to Assessments

    • Anti-Tax Avoidance
    • Offshore Companies
    • Transfer Pricing and Offshore Companies 
    • Profits from Property and Share Transactions
    • Rental income from Real Properties
    • Manufacturing in Mainland China
    • Bad Debt
    • Entertainment Expenses
    • Interest expenses 
    • Management and Consultancy Fees
    • Private and domestic expenses

    Chapter 10 Negotiation and Settlement

    • Conclusion of an Audit
    • Letter of Settlement 
    • Penalty
    • Approval by Top Management
    • Issue of Assessments and Penalty
    • Finality of Assessments
    • Installments
    • Cases Which Cannot Be Settled

    Chapter 11 Offence and Penalties in Taxation

    • Levels of Fine
    • Compounding
    • Failure to Supply Information or to Answer Questions
    • Keeping Business Records 
    • Tax Evasion Offences

    Chapter 12 Penalty Policy of the IRD

    • The IRD’s Penalty Policy - Field Audit/Investigation Cases
    • Category of Disclosure and Work Involved 
    • Late Returns
    • IRD’s Penalty Policy – Non-investigation/Field Audit Cases 
    • Salaries tax and Property tax Cases
    • Personal Assessment Cases

    Chapter 13 Tariff of Penalties

    • Starting point — 100%
    • Late Returns Cases (infringing s51(1))
    • Tariffs in Board Cases
    • Salaries Taxpayers
    • Profits Taxpayers
    • Property Tax
    • Late Returns
    • Failure to Notify Chargeability to Tax

    Chapter 14 Section 82A — Additional Tax 

    • Section 82A — The Offences and Penalty
    • Failure to Submit Tax Return (s51(1) or (2A) or Notify Chargeability to Tax (s51(2))
    • Right to Make Written Representation
    • Deceased Person
    • Appeals to the Board of Review
    • Not liable to Additional Tax
    • The amount of additional tax exceeding the amount for which he/she is liable under s 82A
    • Excessive in the Circumstances
    • Cannot Go Back to the Basic Tax
    • Onus of Proof 
    • Procedure on Appeal 
    • Appeal to the High Court
    • Increase in Penalty by the Board
    • Section 82A Additional Tax — Criminal Penalty

    Chapter 15 Prosecution for Tax Evasion

    • Section 80(2)
    • Section 82 Fraud or Wilful Evasion
    • Compounding
    • Section 82 or Section 80(2)?
    • Assisting Others to Evade Tax
    • Signing any Return or Statement without Reasonable Grounds for Believing the Same to Be True (s82(1)(d))
    • Mandatory Custodial Sentences
    • Decision to Prosecute
    • The Level of Penalty
    • Possibility of Prosecution for Tax Evasion

    Chapter 16 Miscellaneous Issues Arising in an Audit

    • Payment of Tax and Penalty
    • Protective Assessments
    • Current Year Return
    • Partnership
    • Directors of a Corporation
    • Deceased Person
    • Spouses

    Chapter 17 Mentality and Attitude of Taxpayers

    • Keeping Proper Accounts
    • Tax Advice
    • Stress of an Audit
    • Reaction to an Audit
    • Protective Assessments
    • Basis of Settlement.
    • Attitude and Approaches during an Audit
    • What Should a Taxpayer Do and What Not to Do
    • After t he Audit
    • Professional Fees

    Chapter 18 Case Studies

    • Omission of Income and Overstatement of Purchases
    • Excess Deposit and Gross Profits Approach
    • R Wong Yue Hung Johnson (1992) 3 HKTC 733
    • The Queen v Ng Wing Keung, Paul (First Defendant “D1”) and Choi Sin-biu (Second Defendant “D2”) 4 HKTC 264 (see Appendix A) 
    • HO Lui 3 HKTC 289 (see Appendix B) 
    • Yip Kam Sing DCC640/1994, 4 HKTC 68 (see Appendix C) 
    • HKSAR v Chan Kin-man Ivan 5 HKTC 535 (see Appendix D )
    • Asia Master Ltd v CIR [2006] HCAL 114/2005 (see Appendix E )

    Appendix A
    Appendix B 
    Appendix C 
    Appendix D
    Appendix E 
    Frequently Referred Parts of Inland Revenue Ordinance (Cap 112)
    Table of Cases 
    Table of Legislation 
    Subject Index

     

  • Mr. HO Chi Ming completed his accountancy education in the Hong Kong Polytechnic (as the predecessor to the Hong Kong Polytechnic University) in June 1973. In the same month, he completed the qualifying examination of the Association of Certified Accountants (as the Association of Chartered Certified Accountants was then named) (ACCA). He was awarded the prize for submitting the best paper in Advanced Taxation (British tax) in the ACCA examination in June 1973. He commenced his career in the Inland Revenue Department where he served for 15 years. Since leaving the Department, he had served as an Associate Professor in the Department of Accountancy, City University of Hong Kong until 1998 when he commenced full practice as a barrister. As a barrister, his major area of practice is taxation. Criminal law is another area of practice. He has handled many Inland Revenue Board of Review appeals, a number of High Court tax appeals and judicial reviews. He ceased practicing as a barrister after full practice for 15 years and is now a tax consultant. Field audit and investigation is a major area of his current practice.

    He has co-authored a university textbook Advanced Taxation in Hong Kong and has published a number of articles in Hong Kong Lawyer and accountancy journals. He is a Contributing Editor of Archbold Hong Kong from 2007 to 2015, the leading authority in criminal law of Hong Kong on the chapter “Inland Revenue Offences”. He is the updating editor of 2012 Edition of Volume 24 Halsbury’s Laws of Hong Kong, Taxation and Revenue Law which is the encyclopedia of laws in Hong Kong. He is a co-author of PBE Paper IV Business Law and Taxation, a study text for AAT students, in which substantially deals with Hong Kong Taxation and Company Law.

    He is a Council Member of the Taxation Institute of Hong Kong and is the Chief Editor of the Institute’s newsletter which provides regular updates on Hong Kong, China and International taxation.

  • “I highly recommend this book to any professionals that deal with tax audit, as this is truly one of a kind in-depth commentary on Tax Audit. If your job involves tax, or you just want to get a practical guidance on tax audit, this is an excellent tool for practitioners in legal and accounting firms, and certainly an extremely useful tool for Tax Directors and Controllers. It will guide you through some uncertainties on the matter, offer perspective that will help you make the right decision in tax audit.”

    David Chang
    General Manager of Wolters Kluwer Hong Kong Limited

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