Navigating a tax investigation can be a daunting and stressful experience. 展群CK ® (Handled by CTA and FCPA) understand the intricacies of tax investigations in Hong Kong and are here to guide you through the process with confidence and ease.

 

If you receive a letter from the Inland Revenue Department, the file number on the upper left corner is 4A, 4B, 4C, meaning that you are unfortunately being opened the file for investigation by the Tax Office . At this time, the appointment of a tax representative 展群CK ® (Handled by CTA and FCPA) to work with the Inland Revenue Department will normally take about three months to two years, depending on whether the taxpayer can provide the information required by the Inland Revenue Department to close the investigation case.

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The Inland Revenue Department will issue judgment prosecutions on the Internet on a regular basis to alert other taxpayers to:

https://www.ird.gov.hk/chi/ppr/pca.htm

 

Tax Audit - Field Audit and Tax Investigation have 3 major categories:

• Tax investigation – very serious case and taxpayer will be investigated on all years under concern and potentially sued for criminal prosecution

• Field audit – most cases are field audits, using projection method based on one year results

• Anti-avoidance – preventing taxpayers from using aggressive tax avoidance schemes

 

In fact, the file number will actually show a lot of important information, such as severity, investigation nature and so on

 

4B8-A123456-ABC(16)

 

• 4B8 represents the taxpayer case as a criminal prosecution group and the general Revenue Department will require taxpayers and legal representative to attend the meetings

• 4C6 / 4C7 represents taxpayer cases as anti-tax avoidance groups, and the common case is that taxpayers use past aggressive tax avoidance practices

• Second subdivision of A123456，

  • A represents Anti-avoidance、

  • B represents Tax investigation、

  • C represents Field audit、

  • D represents Review case

• The last part (16 / 17) represents which floor of Kai Tak Inland Revenue Centre:

 

Common cases of Tax Audit - Field Audit and Tax Investigation:

1. Source of funds to purchase immovable or movable properties

2. Owners of sole proprietor

3. Cash transactions business

4. Commission business (insurance agents / properties agents

5. Insufficient business records

6. Significant private expenses

7. Business revenue deposit into personal accounts

8. Late submission of Tax Returns

9. Delay in replying IRD's enquiries

10. Incurring losses for consecutive years with expanding business scale

11. Owned assets (Eg: properties / motor vehicles) not match with income reported to the IRD

12. Staff expenses (salaries / director fee / staff messing / quarter expenses) not match with Employer's Return of Remuneration & Pensions (IR56B forms)

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Common assessment methods for tax investigations:

1.  Asset betterment method

2.  Bank accounts analysis method

3.  Income projection method

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How CK Tax (Handled by CTA and FCPA) assists taxpayers in handling Tax Audit - Field Audit and Tax Investigation:

1. Review the documents to be submitted to the Inland Revenue Department, including accounting books, bank statements, income / expenses invoices etc

2. Review the tax filing status of the taxpayers

3. Prepare Bank Deposit / Withdrawal Analysis

4. Review the accounting ratios of the Companies (Gross Margin, Inventory Levels, Accounts Receivables / Accounts Payables ratios or financial expenses etc)

5. Review staff expenses, whether match with 56B or 56M forms

6. Review the tax deductibility of the expenses under Inland Revenue Ordinance

7. Review Source of fund for purchasing properties

8. Understand tax status of relatives of taxpayers

9. Communicate and understand with the Inland Revenue Department

10. Assist in preparation work and conduct mock interviews before Initial Interview with the Inland Revenue Department

11. Attend Initial Interview with taxpayers and case officers of the Inland Revenue Department

12. Attend onsite visit at taxpayers' office

13. Review interview notes issued by the Inland Revenue Department, provide comments and updates on the interview notes

14. Assist taxpayers to negotiate with the Inland Revenue Department for a mutually acceptable basis to settle the tax audit case

15. Submit Settlement Proposal to close the tax audit case

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Tax investigation and dispute resolution services provided by CK Tax (Handled by CTA and FCPA) include:

1. Tax Investigation Support and Advisory: Our team of experienced tax professionals will help you understand the scope and nature of the tax investigation, advising you on your rights and obligations throughout the process. We will work closely with you to develop a strategic approach, ensuring that you are well-prepared for meetings and correspondence with the Inland Revenue Department.

2. Documentation Review and Analysis: Proper documentation is crucial in tax investigations. Our team will conduct a thorough review of your financial records, identifying any discrepancies or areas of concern. We will assist you in gathering and organizing relevant documentation, ensuring that your records are complete, accurate, and compliant with Hong Kong's tax regulations.

3. Voluntary Disclosure and Negotiation: In cases where errors or omissions are discovered, voluntary disclosure to the tax authorities can help mitigate penalties and reduce the risk of prosecution. Our team will advise you on the best course of action and assist you in preparing and submitting a comprehensive voluntary disclosure. We will also represent you in negotiations with the Inland Revenue Department, aiming to achieve a fair and reasonable settlement.

4. Post-Investigation Compliance and Advisory: Once the tax investigation is resolved, it is essential to maintain ongoing compliance with Hong Kong's tax regulations. Our team will provide you with practical advice and recommendations to ensure that your tax affairs remain in order and that you are well-prepared for any future tax inquiries.

 

Let CK Tax be your trusted partner in managing tax investigations and disputes. Our knowledgeable and experienced team is committed to protecting your interests and achieving the best possible outcome.

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Penalty Provisions under Section 80 of the Inland Revenue Department:

• Failure to notify the Commissioner of Inland Revenue of profits tax in writing within a specified period of time

• The Commissioner of Inland Revenue was not informed of the information on employees ' cessation of employment and departure before leaving Hong Kong

• Make an incorrect statement and claim the dependent parent allowance

• Underreport of directors ' remuneration

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Penalty Provisions under Section 82 of the Inland Revenue Department (Criminal cases):

• Make a false statement in order to claim the deduction of "personal education expenses", "home loan Interest", "approved charitable donation", "Dependent parent allowance"

• Underreport of rental income

• Keep false books or accounting records to exaggerate the company's purchase amount or reduce the company's sales