[Hong Kong] Tax Avoidance in Hong Kong

Tax Avoidance in Hong Kong

Admission Scheme

Taxpayers should submit their tax returns correctly and promptly to the Inland Revenue Department. Also, taxpayers may hire tax planners to help them avoid paying taxes according to Hong Kong tax law. While some practice is allowed, the law allows only to a certain extent.

In order to avoid the imposition of taxation through the use of fictitious, artificial or contrived arrangements, there are several general anti-avoidance provisions in the Inland Revenue Ordinance (“IRO”).

Section 61 of IRO

If the Assessor is of the opinion that the transaction is artificial or fictitious or that any disposition is not in fact given effect to, the Assessor can disregard such transaction or disposition and assess the taxpayer accordingly. For example, if no real service was rendered, payment of commissions may be considered as artificial and fictitious and disregarded as deductible expenses.

Section 61B of IRO

It restricts transferring loss companies for the purpose of tax avoidance. If an owner of profitable business obtains the ownership of a loss company, the profitable business is introduced into the loss company to utilize the losses brought forward by offset against profits derived. In this case, the Commissioner of Inland Revenue is able to refuse to set off losses brought forward where he is satisfied that the sole or dominant purpose of a change in shareholding was the utilization of those losses to obtain a tax benefit.

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