Tax Evasion

Though the Ordinance does not contain a definition of “tax evasion”, the concept of “evasion” involves some deliberate act on the part of the taxpayer. The most quoted statement is that of Dixon J in Denver Chemical Manufacturing Co. v. FCT, 4 AITR 216, at page 222:

“ I think it is unwise to attempt to define the word ‘evasion’ ...... it means more than avoid and also more than a mere withholding of information or the mere furnishing of misleading information. It is probably safe to say that some blameworthy act or omission on the part of the taxpayer or those for whom he is responsible is contemplated. An intention to withhold information lest the Commissioner should consider the taxpayer liable to a greater extent than the taxpayer is prepared to concede, is conduct which if the result is to avoid tax would justify finding evasion.”

It is the Department’s view that the term “evasion” includes the following:

1. (a)  deliberate non-lodgement of a return;

2. (b)  deliberate understatement of income or over-claiming of deductions;

3. (c)  understatement of income or over-claiming of deductions owing to ignorance of taxation obligations (even if without any conscious intention to undermine compliance or to understate assessable income); and

4. (d)  overly aggressive tax planning.

The Field Audit and Investigation Unit within the Department is primarily responsible for the audit and investigation of cases where tax evasion is suspected. Broadly speaking, the purpose of field audit and investigation is to secure maximum possible voluntary compliance through a balanced program of audit and investigation. The three main objectives are:

1. (a)  to recover back taxes;

2. (b)  to provide a deterrent to tax evasion by the imposition of penalties, either administratively or through the institution of prosecution action; and

3. (c)  to educate taxpayers on the need to file proper and correct returns.

This practice note is to provide general guidance for taxpayers and their representatives who are involved in field audit and investigation. As the Department is committed to combating tax evasion strenuously, and because heavy penalties may be imposed, where evasion is involved a taxpayer may find it advisable to obtain professional assistance to put his tax affairs in order. It should be kept in mind that the degree of co-operation exhibited by a taxpayer in a field audit or investigation case will generally have a bearing on the amount of penalty imposed. It is in the taxpayer’s own interests not to “sit back” and leave it to the Department’s officers to build up the necessary statements from which the true profits can be ascertained. The taxpayer, if lacking the relevant skills in taxation matters, should recognise that it is sensible to engage the services of a representative to carry out the work entailed.

Reference:

• DEPARTMENTAL INTERPRETATION AND PRACTICE NOTES NO. 11 (REVISED) FIELD AUDIT AND INVESTIGATION, Inland Revenue Department, The Government of the Hong Kong Special Administrative Region of the People's Republic of China https://www.ird.gov.hk/eng/pdf/dipn11.pdf

Contact Henry NOW for top-notch tax and consulting services 聯絡 Henry，獲得一流的稅務和稅務糾紛諮詢服務 WhatsApp: https://wa.me/85298650785 Contact Form: https://www.henrybiz.com/contact