ACCT 4410 Taxation

Take home assignment # 1 (Topic: Hong Kong Tax administration)

Instructions to Students:

1. Students should complete the assignment on his or her own, i.e., on

individual basis.
2. Each student should submit a separate written paper of not more than 2
pages of A4 papers (all appendixes and references inclusive, if any)
3. No cover page is necessary
4. Font type/Size: Times New Roman/11
5. 1.5 lines spacing
6. Save your file as .pdf for submission purpose, using your Student ID as the
file name.
7. Assessment criteria: approach to questions; articulation of arguments; clear
discussion and references
8. The total marks of this assignment are 30. It accounts for 5% of total course
assessment.
9. Deadline for submission: 4th March 2023. Submit the completed assignment
to the online course platform – canvas; by 5:00 p.m. No late submission will
be accepted. Electronic devices problems, network failure, online traffic
congestion, slipped of mind etc. are not reasonable excuses to submit late
assignment.

Course Instructor: Dr. MAK Kelvin P.

Lecture sessions: L1; L2 and L3 (denotes sequence of class session)
Subject: Tax administration Case
Date: 24th February 2023

1
Take home exercise #1 (30 marks): ACCT 4410 Taxation – 2023 Spring Semester
Deadline for submission: 4th March 2023, by 17:00 via Canvas online assignment box
Facts of the Case – Offence and Penalty
John Cain is and was a practicing lawyer in Hong Kong. He has been in practice since 2002.
Between 1 April 2012 and 31 March 2017, and from 1 November 2017 to 31 March 2018 he
was employed as a consultant of ABC Company. Additionally, in years of assessment
2012/2013 and 2013/2014, John received salaries from XYZ Company.
In 2019, the Commissioner of Inland Revenue (“CIR”) conducted investigations into John’s
income for years of assessment 2012/13, 2013/14, 2014/15 and 2017/2018. As a result of such
investigations, the CIR considered that John had, without reasonable excuse:
a) made incorrect tax return for the year of assessment 2012/13 by omitting or
understating his income chargeable to tax to the extent of $680,000, and

b) failed to comply with the requirements of notices given to him under s.51(1) for the
years of assessment 2013/14, 2014/15 and 2017/2018. The total amount of tax
liabilities undercharged for the four assessment years was assessed at $310,000.

Accordingly, by notice dated 29 August 2019 issued under s.82A(4), John was notified of the
above and CIR’s intention to assess additional tax in respect of the said incorrect return and
failures to file tax returns. John was invited to make written representations to the CIR within
one month from the date of the notice.
John duly made written representations by letter dated 30 September 2019. In his written
representations:
a) he has not provided any explanation for the omission of income in the year of
assessment 2012/13.

b) he claimed that he thought that his employers (i.e., ABC and/or XYZ Company) had filed
tax returns for him so he thought that he did not have to file tax returns himself.

c) he advanced his argument by putting the blame on the Inland Revenue Department
(“IRD”) for failing it administrative duties to clearly inform his tax return filing duties on
a timely manner.

2
Having considered John’s representations, the CIR by four notices of assessment demand for
additional tax under s.82A all dated 29 December 2019 notified John that CIR had assessed him
to additional tax by way of penalty for the following sums:

Year of assessment Income omitted Amount of additional tax

$ $
a) 2012/13 680,000 62,000
b) 2013/14 520,000 39,000
c) 2014/15 477,000 36,000
d) 2017/18 505,000 23,000

Required:
1) “In Hong Kong taxation concerning offences and penalty, in all circumstances, taxpayers
who breached the tax provisions of the Inland Revenue Ordinance Cap. 112 (“the
Ordinance”) would automatically attract penalty under the Ordinance.” Based on what
you have learnt, is the above statement true? Explain (3 marks)
[Instruction]
Skip 2) below if your answer of this part is “Yes”. Alternatively, if you believe it is not
true, skip 1) here, and go to 2) below directly.
2) If the statement of 1) above is not true, what is the correct view of it? Explain.
(3 marks)
3) Generally speaking, what are the factors that the CIR should have considered when he
or she considers using s.82A “Additional tax” as penalty against taxpayers? Explain.
(10 marks)

4) Based on the information of the case there, it stated “John duly made written
representations by letter dated 30 September 2019.” Was it a late submission of the
written representations? Explain. (3 marks)

5) What are the possible actions and/or discretions that the CIR could make against any
taxpayer who acts like what John did above in the case? (4 marks)

6) Comment on the penal actions that CIR took and imposed on John in the case above.
Support your argument/reasoning numerically, where appropriate. (10 marks)

[End of Assignment 1]