assessing functions - inland revenue department · the total amount of tax payable is restricted to...
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6 Annual Report 2015-16
3 Assessing Functions
TheDepartmentraisesrevenuethroughtaxes,dutiesandfeesinaccordancewiththerelevantlegislation.Earnings
andprofitstaxareassessedbyreferencetotheincomes/profitsofthetaxpayersinthepreviousyear,whereas
dutiesandfeesarechargedatthetimetherelevantactivitiesoccur.For2015-16,earningsandprofitstaxassessed
increasedby$5.5billion(2.7%)(Schedule 2)ascomparedwiththepreviousyear.Yet,thetotalamountofduties
andfeescollecteddroppedby$11.5billion(11.9%).
Profits Tax
Profitstaxisleviedonindividuals,corporations,bodiesofpersonsandpartnerships,inrespectofassessableprofits
arisinginorderivedfromHongKong.Fortheyearofassessment2015-16,thetaxratesforcorporationsandnon-
corporatepersonsremainedunchangedat16.5%and15%respectively.
Theamountofprofitstaxassessedin2015-16was$139billion,whichwas$6.8billion(5.1%)morethanthatof
thepreviousyear,reflectingamodestgrowthintheHongKongeconomy(Figure 5).
The amounts of final tax assessed in respect of different business sectors are shown in Schedules 3 and 4. Of the
totalfinaltaxassessedfortheyearofassessment2014-15,thepropertyandfinancialsectorstogethercontributed
44%andthedistributionsectorgenerated24.2%(Figure 6).
Figure 5 Profits tax assessed
140
120
115.2
5.2
127.3
4.9
118.1
4.8
134
5
100
80
60
40
20
0
($b)
2012-13
Corporations Unincorporated Businesses
2013-14 2014-15 2015-16
Figure 6 Ratios of corporation profits tax assessed under 2014-15 final assessments by business sectors
Manufacturing(5.4%)
Distribution(24.2%)
Banking(21.1%)
Public Utilities(5.8%)
Property, Investment & Finance(22.9%)
Others(20.6%)
7Annual Report 2015-16
Salaries Tax
Salariestaxischargedonallincomesfromanyoffice(e.g.adirectorship)oremploymentandpensionarisinginor
derived from Hong Kong. The total amount of tax payable is restricted to the standard rate on the net total income
(withoutallowances)oftheindividualconcerned.Fortheyearofassessment2015-16,thestandardrateremained
unchangedat15%.
Ascomparedwiththepreviousyear,thenumberofsalariestaxassessmentsmadeduring2015-16increasedby
1.7%.However,thetotalamountoftaxassessedwas2.3%lessafterimplementingthesalariestaxreliefmeasures
inthe2015-16Budget(Figure 7).
Figure 7 Salaries tax assessments
2,800
2,700
2,600
2,500
2,575
2,676
2,750
Number
2,797('000)
2012-13 2013-14 2014-15 2015-16
70
60
50
40
30
20
10
0
52.657.7
62.0 60.6
($b)Tax assessed
2012-13 2013-14 2014-15 2015-16
Analyses of salaries tax assessments and allowances
granted in respect of taxpayers at various income levels
fortheyearofassessment2014-15areprovided in
Schedules 5 and 6.
Fortheyearofassessment2014-15,thenumberof
standardratetaxpayersincreasedby1,841to29,692.
Thesetaxpayerstogethercontributed39.5%ofthe
salariestaxassessed,anincreaseof2.5%compared
withlastyear(Figure 8).
Figure 8 Standard rate taxpayers
40
30
1.6 1.7
37.039.5
20
10
02013-14
Final Assessments2014-15
Final Assessments
(%)
%oftotalnumberoftaxpayers %ofsalariestaxassessed
8 Annual Report 2015-16
Notification Requirements of Employers
EmployersarerequiredtonotifytheDepartmentofcommencementsandcessationsofemploymentaswellas
employees’impendingdeparturefromHongKongformorethan1month.Besides,employersarerequiredto
prepareannualemployer’sreturnstoreporttheemolumentsofeachoftheiremployees.Duringtheyear,406,264
employers filed employer’s returns with the Department.
TheDepartmentprovidese-SeminarsanddisseminatestaxinformationtoemployersontheIRDwebsitetohelp
themunderstandtherelevantstatutoryrequirements. Thecontentscovercompletionofemployer’sreturns,
employer’sobligationsandanswerstofrequentlyaskedquestions. Employerscanalsoobtainspecimensof
completedemployer’sreturnsandnotificationthroughtheFax-A-Formservice.
Property Tax
Propertyowners (includingcorporations)aresubject
to property tax which is charged at the standard rate
in respect of the net assessable value of the property.
For the yearofassessment2015-16, the standard
rate remainedunchangedat15%. Rents received
from properties solely owned by individuals should be
declaredinTaxReturns-Individuals(BIR60);whilstrents
receivedfrompropertiesjointlyownedorco-ownedby
individuals or properties held by corporations / bodies
of persons should be declared in Property Tax Returns
(BIR57/BIR58).Propertyownersthatpaypropertytax
in respect of premises used for their businesses can have
such payments set off against their profits tax liabilities.
Forcorporations,incomearisingfrompropertiesowned
by them is also subject to profits tax at the corporation
rate.Toobviatetheneedforyearlyset-offofproperty
taxagainstprofits tax,acorporationcanapply for
exemption of property tax on the property concerned.
Statistics on the classification of properties and
classif ication by number of owners, based on
the records of the Department, are provided in
Schedule 7. The number of assessments made in
2015-16wasmorethanthat inthepreviousyearby
4.5%.Thetotalamountofpropertytaxassessedalso
increasedby3.1%(Figure 9).
Figure 9 Property tax assessments
600
550
500
552
571 573
Number599('000)
2012-13 2013-14 2014-15 2015-16
4
3
2
1
0
2.502.81
3.233.33
($b)Tax assessed
2012-13 2013-14 2014-15 2015-16
9Annual Report 2015-16
Personal Assessment
Ifanindividualhasincomechargeabletoprofitstaxand/orpropertytax,he/shemayelectforpersonalassessment.
Underpersonalassessment,alltheincomesofthetaxpayerandhisorherspouse(ifmarried)areaggregatedand,
afterdeductionofallallowances,areassessedattheprogressivetaxratesapplicabletosalariestax.Inappropriate
circumstances,thiswouldreducethetotaltaxliabilityofthetaxpayerandhisorherspouse.
In2015-16,boththenumberofassessmentsmadeandthe totalamountof taxassessedunderpersonal
assessmentweresimilartothoseoflastyear(Figure 10).
Figure 10 Assessments made under personal assessment
400
350
300
353
375
360
Number
362
('000)
2012-13 2013-14 2014-15 2015-16
5
4
3
2
1
0
4.044.41
4.87 4.85($b)
Tax assessed
2012-13 2013-14 2014-15 2015-16
Tax Treaty Network
Double taxation arises where the same item of income or profit of a taxpayer is subject to tax in Hong Kong as well
as in another tax jurisdiction. To establish a tax treaty network can help minimise exposure of Hong Kong residents
andresidentsofthetaxtreatypartnerstodoubletaxation. Itwillalsofacilitatetheflowsoftrade,investment
andtalentbetweenHongKongandtherestoftheworld,andenhanceHongKong’scompetitivenessasan
internationalfinancial,investmentandcommercialhub.
Asat31March2016,HongKonghassignedcomprehensivedoubletaxationagreements(coveringvarioustypes
ofincome)with34jurisdictions.TheyareAustria,Belgium,Brunei,Canada,theCzechRepublic,France,Guernsey,
Hungary,Indonesia,Ireland,Italy,Japan,Jersey,Korea,Kuwait,Liechtenstein,Luxembourg,theMainlandofChina,
Malaysia,Malta,Mexico,theNetherlands,NewZealand,Portugal,Qatar,Romania,Russia,SouthAfrica,Spain,
Switzerland,Thailand,theUnitedArabEmirates,theUnitedKingdomandVietnam.
HongKong,asaresponsiblememberoftheinternationalcommunity,iscommittedtoenhancingtaxtransparency
andpreventingcross-border taxevasion. Tocomplywiththe latest internationalstandardonexchangeof
information,HongKongenteredintotaxinformationexchangeagreementswithappropriatepartnerssince2014.
10 Annual Report 2015-16
Asat31March2016,HongKonghassignedtaxinformationexchangeagreementswith7jurisdictions.Theyare
Denmark,theFaroes,Greenland,Iceland,Norway,SwedenandtheUnitedStatesofAmerica.
Advance Rulings
Taxpayers may apply for an advance ruling on how a provision of the Inland Revenue Ordinance applies in relation
toaparticulararrangement.Afeeischargedfortheserviceona“costrecovery”basis.Theapplicantisrequired
topayan initialapplicationfeeof$30,000forarulingconcerningtheapplicationofthe“TerritorialSource
Principle”inaprofitstaxcase,or$10,000forarulingonanyothermatter.Anadditionalfeeispayableifthe
processingtimeexceedsthespecifiedlimit.TheDepartmentendeavourstorespondwithin6weeksofthedateof
application,providedthatallrelevantinformationissuppliedwiththeapplicationandfurtherinformationfromthe
applicantisnotrequired.
During2015-16,theDepartmentcompletedtheprocessingof29advancerulingapplications(Figure 11).Mostof
the applications were for rulings on profits tax matters.
Figure 11 Advance rulings
2014-15 2015-16Number Number
Awaiting decision at the beginning of the year 7 20
Add: Applicationsreceivedduringtheyear 46 35
53 55
Less: Disposedof-
Rulings made 19 16
Applications withdrawn 9 12
Rulings declined 5 33 1 29
Awaiting decision at the end of the year 20 26
Advance Pricing Arrangement
AnAdvancePricingArrangement(APA)isanarrangementthatdeterminesinadvanceanappropriatesetofcriteria
forthedeterminationofthetransferpricingofcross-bordertransactionsbetweenassociatedenterprises.TheAPA
process gives enterprises the opportunity to reach agreements with tax administrations on the method of applying
thearm’slengthprinciplesothattransferpricingissuescanbemoreefficientlydealtwithinrealtime,thusavoiding
the risk of transfer pricing audit later. This arrangement enables enterprises to better assess their tax exposure and
facilitates their business operation.
A unilateral APA is an arrangement between the Commissioner and the enterprise concerning the transfer pricing
ofitscross-bordertransactionswithanassociatedenterprise.AstheAPAprocessdoesnotinvolvetheagreement
11Annual Report 2015-16
withacomprehensiveavoidanceofdoubletaxationagreement (CDTA)partner, itdoesnotguaranteethe
agreement of the CDTA partner to the arrangement made.
A bilateral APA is an arrangement between the Commissioner and a CDTA partner concerning the transfer pricing
oftheabovementionedcross-bordertransactions.Itthereforeprovidescertaintytoenterprisesthatdoubletaxation
will not arise. The same also applies to a multilateral APA which is a similar arrangement involving the partners of
two or more CDTAs.
TheDepartmentrolledouttheAPAprogrammeinApril2012.Atpresent,theDepartmentwillonlyconsider
bilateral or multilateral APA applications due to resource constraints and the deficiency of a unilateral APA. Up to
31March2016,theDepartmenthasreceivedquiteanumberofapplicationsinrelationtoCDTAwithdifferent
partnersincludingtheMainlandofChina,Japan,MalaysiaandtheNetherlands.Thesecasesarecurrentlyunder
different stages of the APA programme and a few of them have already been completed.
Objections
A taxpayer who is aggrieved by an assessment may lodge a notice of objection to the Commissioner within the
prescribedtimelimit.Iftheobjectionisagainstanestimatedassessmentraisedintheabsenceofataxreturn,a
properlycompletedreturn,togetherwiththesupportingaccountswhereapplicable,mustalsobeaccompanied
with the notice of objection. A significant proportion of the objections received each year arise from estimated
assessments.Mostoftheseobjectionsaresettledpromptlybyreferencetothereturnssubsequentlyreceived.
Many of the other types of objections are also settled by agreement between the taxpayers and the assessors
concerned. Only relatively few objections are ultimately referred to the Commissioner for determination. During
2015-16,theDepartmentcompletedtheprocessingof79,999objections(Figure 12).
Figure 12 Objections
2014-15Number
2015-16Number
Being processed at the beginning of the year 32,871 35,422
Add: Receivedduringtheyear 82,293 82,237
115,164 117,659
Less: Disposedof-
Settled without determination 79,323 79,483
Determinations:
Assessments confirmed 246 313
Assessments reduced 93 113
Assessments increased 66 86
Assessments annulled 14 419 79,742 4 516 79,999
Being processed at the end of the year 35,422 37,660
12 Annual Report 2015-16
Appeals to the Board of Review
A taxpayer who is dissatisfied with the Commissioner’s determination of his objection may appeal to the Board
ofReview(InlandRevenueOrdinance)(theBoard).TheBoardisanindependentstatutorybody.Asat31March
2016,theBoardconsistedofachairmanand8deputychairmen,whohavelegaltrainingandexperience,aswell
as68members.During2015-16,theBoardsettled56appealcases(Figure 13).
Figure 13 Appeals to the Board of Review
Number
Awaiting hearing or decision as at 1 April 2015 48
Add: Receivedduringtheyear 53
101
Less: Disposedof-
Withdrawn 21
Decided:
Assessments confirmed 23
Assessments reduced in full 6
Assessments reduced in part 1
Assessments increased 4
Others 1 35 56
Awaitinghearingordecisionasat31March2016 45
Appeals to the Courts
AdecisionoftheBoardisfinal,providedthateitherthetaxpayerortheCommissionermay,pursuanttosection
69oftheInlandRevenueOrdinance,makeanapplicationrequiringtheBoardtostateacaseonaquestionoflaw
arisingfromitsdecisionfortheopinionoftheCourtofFirstInstance.Witheffectfrom1April2016,thesection
69wasamendedtoallowthetaxpayerortheCommissionertoapplyfor leavetoappealdirectlytothecourt
againstthedecisionoftheBoardonquestionsof lawwithouthavingtheBoardtostateacaseforthecourt’s
consideration.
During2015-16,theCourtofFirstInstanceruledontwocasesrelatingtotheInlandRevenueOrdinance.Inan
appealfromtheCommissioner,theCourtofFirstInstanceremittedthecasewithitsopiniontotheBoard.Inthe
otherappealconcerningchargeabilityofbenefitsaccrueduponterminationofemployment,theCourtofFirst
Instance dismissed the taxpayer’s appeal.
Duringtheyear,theCourtofAppealruledagainstataxpayer inanappealastowhether licencefeeswere
chargeable to tax.
13Annual Report 2015-16
TheHongKongCourtofFinalAppealOrdinanceprovidesthat,ataxpayerortheCommissionermay,withthe
leaveoftheCourtofAppealortheCourtofFinalAppeal,appealagainstthejudgmentoftheCourtofAppeal.
During2015-16,theCourtofFinalAppealgrantedtheCommissionertheleavetoappealagainstjudgmentsofthe
CourtofAppealin2relatedcases,however,therelevantappealsconcerningwhethercertainprofitsweretrading
innatureweresubsequentlydismissedbytheCourtofFinalAppeal.
Figure 14setsoutthestatisticsconcerningappealstotheCourtsduring2015-16.
Figure 14 Appeals to the Courts
Court of First Instance
Court of Appeal
Court of Final Appeal Total
Awaiting hearing or decision as at 1 April 2015 4 1 0 5
Add: Lodgedduringtheyear 1 0 2 3
5 1 2 8
Less: Disposedof-
Decided 2 1 2 5
Discontinued 1 0 0 1
Awaitinghearingordecisionasat31March2016 2 0 0 2
Business Registration
The Department aims to maintain an efficient business
registration system. A person carrying on a business
in Hong Kong must register the business and pay
therequiredfeeand levy. Thenumberofbusiness
registrationsasat31March2016stoodat1,427,064,
whichwasanalltimehigh.Itwas21,362morethan
thatasat31March2015(Figure 15).
Business registration certificates are generally valid
foroneyear,butbusinessesmayelect for3-year
certificates.Asat31March2016,20,819businesses
held3-yearcertificates.
Figure 15 Number of business registrations
1,600
1,400
1,149,197 1,176,220
256,505 250,8441,200
1,000
800
600
200
400
031.3.2015 31.3.2016
('000)
1,405,702 1,427,064
Corporations Unincorporated Businesses
14 Annual Report 2015-16
Theamountofbusinessregistrationfeesandpenaltiescollected in2015-16 increasedto$2,607million. It
representsanincreaseof5.1%comparedwithlastyear(Figure 16).Businessregistrationstatisticsaresetoutin
Schedule 8.
Figure 16 Business registration statistics
2014-15 2015-16 Increase
Numberofcertificatespaid(MainandBranch) 1,382,214 1,402,548 +1.5%
Fees(inclusiveofpenalties)collected($m) 2,481 2,607 +5.1%
UndertheBusinessRegistrationOrdinance,asmallbusinesswithaveragemonthlysalesorreceiptsbelowa
specifiedlimit($10,000forbusinessesderivingprofitsmainlyfromthesaleofservices,and$30,000forother
businesses)canapplyforexemptionfrompaymentofthebusinessregistrationfeeandlevy.Whereanapplication
forexemptionisnotallowed,thebusinessoperatormayappealtotheAdministrativeAppealsBoard.Thenumber
ofexemptionsgrantedduring2015-16was16,103,representinganincreaseof16.4%fromthepreviousyear.No
appeal case was received by the Board during the last two years.
Stamp Duty
Stamp duty is charged on instruments effecting
propertytransactions,stocktransactionsandleasing
ofpropertyinHongKong(Figure 17).
TheStampDuty (Amendment) (No.2)Ordinance
2014 (“AmendmentOrdinance”)wasgazetted
on25 July2014. TheAmendmentOrdinance
introduced higher rates of ad valorem stamp
duty (“AVD”)oncertain instruments relating to
immovableproperties executedonor after23
February2013;andadvancedthechargingofAVD
oninstrumentsrelatingtonon-residentialproperty
transactionsfromtheconveyanceonsaletotheagreementforsaleexecutedonorafterthatdate.One-offreceipt
of additional stamp duty chargeable on certain instruments relating to immovable properties executed during the
transitionalperiod(from23February2013to24July2014)uponpassageoftheAmendmentOrdinanceresulted
insignificantlylargecollectionsin2014-15.Ontheotherhand,thenumberofimmovablepropertytransactions
hasbeendecreasingsinceAugust2015.Asaresult,thestampdutycollectionsfromimmovablepropertiesin
2015-16significantlydecreasedby42%ascomparedtothatof2014-15.
Figure 17 Composition of stamp duty collections
Leases etc.(1%)
Shares(53%)
ImmovableProperties(46%)2015-16
15Annual Report 2015-16
Thenumberofsecuritiestransactionshas increasednoticeably inthefirsthalfof2015-16. Thestampduty
collectionsfromsharetransactions in2015-16were$33.4billion,representinganincreaseof34%fromthe
previous year.
Overall,therewasadecreaseof16%inthetotalstampdutycollectedduringtheyear.Thenumberofdocuments
stampedalsodecreasedby8%(Figure 18 and Schedule 9).
Figure 18 Stamp duty collections
2014-15($m)
2015-16($m)
Increase/Decrease
Immovable Properties 49,215 28,494 -42%
Shares 24,885 33,410 +34%
Leasesandotherdocuments 745 776 +4%
Total 74,845 62,680 -16%
Estate Duty
Estate duty is charged on that part of a deceased person’s estate situated in Hong Kong. The threshold for levying
dutyis$7.5millionandthedutyratesrangefrom5%to15%,dependingonthevalueoftheestate.
TheRevenue(AbolitionofEstateDuty)Ordinance2005cameintoeffecton11February2006abolishingestate
duty in respect of persons passing away on or after that date. The estate duty chargeable in respect of estates
ofpersonsdiedbetweentheperiod15July2005to10February2006,withtheprincipalvalueexceeding$7.5
million, isreducedtoanominalamountof$100.Withtheabolitionofestateduty,thenumberofnewcases
reducedgraduallyto771in2015-16,adropof14%fromthelastyear(Figure 20).
Figures 19 and 20 show the composition of estates and cases processed for the past two years.
Figure 19 Composition of estates
10.6%
25.8%0.7%1.7%
10.4%
52.9%18.9%
0.4%4.7% 73.9%
Immovable Properties QuotedShares UnquotedShares Bank Deposits Others
2014-15
2015-16
16 Annual Report 2015-16
Figure 20 Estate duty cases
2014-15 2015-16Number Number
New cases 897 771
Cases finalised
-Dutiable 7 17
-Exempt 868 763
875 780
Estatedutyof$30millionwascollectedduringtheyear (Schedule 10),adecreaseof$148million (83%)
compared with the previous year.
Estatedutyispayableondeliveryofanestatedutyaffidavitoraccount(orwithin6monthsfromthedateofthe
deceased’sdeath,whicheveristheearlier).$6.3millionwasreceivedduringtheyearinadvanceoftheissueof
formalassessments(Schedule 10).
Betting Duty
Betting duty is charged on the net stake receipts from betting on horse races and football matches and on the
proceedsofMarkSixlotteries,alladministeredbytheHongKongJockeyClub.In2015-16,theratesofbetting
dutyonthesebettingactivitiesremainedunchanged(Figure 21).
Figure 21 Rates of betting duty in 2015-16
Rate
Horse racing
Localbetsonlocalhorseraces Net stake receipts
thefirst$11billion 72.5%
thenext$1billion 73%
thenext$1billion 73.5%
thenext$1billion 74%
thenext$1billion 74.5%
the remainder 75%
Localbetsonnon-localhorseraces Net stake receipts 72.5%
Mark Six lotteries Proceeds 25%
Football betting Net stake receipts 50%
Thetotalbettingdutycollected in2015-16was3.3%higherthanthatofthepreviousyear(Figure 22 and
Schedule 11).
17Annual Report 2015-16
Figure 22 Betting duty collections
2014-15($m)
2015-16($m)
Increase
Horse racing 11,932.5 12,316.5 +3.2%
Mark Six lotteries 1,970.3 2,032.2 +3.1%
Football betting 5,576.5 5,778.5 +3.6%
Total 19,479.3 20,127.2 +3.3%
Tax Reserve Certificates
TaxpayersmaypurchaseTaxReserveCertificates(TRCs)
under two situations.
The first situation applies to taxpayers who wish to
save for the payment of their future tax liabilities.
TheDepartmenthas setup twoschemes,namely
the“ElectronicTaxReserveCertificatesScheme”for
all taxpayersand the“Save-As-You-Earn” (SAYE)
Scheme for civil servants and civil service pensioners.
WithaTaxReserveCertificateaccount,taxpayersmay
purchaseTRCsbyvariouschannels, includingbank
auto-pay, telephone, the InternetandbankATM.
Under the“SAYEScheme”,civil servantsandcivil
service pensioners can purchase TRCs through monthly
deductions from their salaries / pensions. Interest is
payable on the TRCs when they are redeemed for
settlementoftaxliabilities,basedontheinterestrate
prevailingat thetimeofpurchase, foramaximum
periodof36monthsfromthedateofpurchase.
In2015-16,therewasanincreaseof2.6%and23.1%
respectively in the number and the amount of TRCs
soldunder the“ElectronicTaxReserveCertificates
Scheme”butaslightdecreaseof0.8%inthenumber
andanincreaseof3.5%intheamountofTRCssold
underthe“SAYEScheme”(Schedule 12).Overall,the
totalamountofTRCssolddecreasedslightlyby0.5%
(Figure 23).
Figure 23 Certificates sold
100
60
80
20
40
01,604 1,812
89,480 90,299
Number
2014-15 2015-16
('000)
429.1 513.3
2014-15 2015-16
3,000
2,000
1,000
0
2,203.72,106.1
($m)Amount
Certificates relating to Objections and Appeals
Certificates other than for Objections and Appeals
18 Annual Report 2015-16
ThesecondsituationappliestotaxpayerswhoobjecttotaxassessmentsandarerequiredtopurchaseTRCsinrespect
of the tax in dispute. Such TRCs are used to settle any tax found payable upon the finalisation of the objection or
appeal.InterestisonlypayableontheamountoftheTRC,ifany,subsequentlyrequiredtoberepaidtothetaxpayer,
andiscomputedatfloatingratesoverthetenureoftheTRC.