Breach of Law and Cases

Taxation

Occurrence of the following events will be subject to prosecution, additional tax, penalty, imprisonment or court order offences:

File incorrect information (such as making a false claim of deduction or allowance);
Understate income
Submit tax return late
Fail to notify for income commencement matters
Prepare or maintain any false books of accounts
Make use of any fraud to evade taxes

The following grounds are rejected by HKIRD as reasonable cause for understating income:

Ignorance, innocence, illiteracy or not familiar with tax provisions
Present / previous employer have already reported the relevant income to HKIRD
Assessments have taken all relevant income into account.
Details of income not possible to provide due to its uncertain nature and irregular payment.
Income already reported properly with reference to the monthly payroll slips but the income are not comprehensive
Income is reported according to incorrect employer's return
Personally form an opinion that the income should be untaxable and so is not reported.
Notification about mistaken income in tax return filed is not made to HKIRD as certain matters are already reported by the employer.

(1) Sentenced to imprisonment and subject to penalty case (false claim of self-education expenses)

The defendant had made a claim of self-education expenses $251,600 for 7 years of assessment. However, when HKIRD investigated her claim, she could not provide documentary evidence in support of her claim. She explained the expenses were actually private tuition fees and she did not know they were non-deductible. The total amount of tax found evaded was $ 42,456.

(2) Imprisonment and penalty case (theft of employee information, understating profits and overstating expenses)

The Police had arrested a Hong Kong famous artist, Pamela Peck Wan-kam, due to theft of former employees personal data. Her case was forwarded to HKIRD for tax investigation. She was then discovered to understate company profits and overstate company expenses (staff salaries, entertainment expenses etc.) for 4 years of assessment. Seven summons were issued to her for suspected evasion of tax $194,000.

Pamela Peck Wan-kam was finally put in prison for 3 months and fined $210,000 for evasion of total tax $210,000.
As compared with other understatement cases, this case as considered by the judge was very serious. The reason was that she had an intention to deceive HKIRD.

(3) Sentenced to prison case (false claim of dependent grandmother allowance)

The taxpayer claimed that her grandmother resided with her in Hong Kong the whole assessment year and additional allowane was granted to her. However, after investigation, the grandmother was found residing in United States for many years. She was then sentenced to imprisonment.

(4) Subject to penalty case (failed to notifying chargeability)

The defendant had set up a partnership and notified HKIRD cessation of the business. However, after investigation, the partnership ran business again after the cessation year of assessment. The defendant did not issue notification to HKIRD about chargeability. The total assessable profits not reported were $351,854 and total tax involved was $52,777. As it was an offence for no notification of chargeability, the defendant was liable to a penalty equivalent to several times of tax failed to pay.

Never defer tax payment

Recovery actions related to tax in default cases

surcharge will be imposed on tax unpaid
Recover tax from third parties, including taxpayers' employers, banks, tenants, debtors, customers, etc.
Or even prohibited from leaving Hong Kong

Never fail to comply with tax provisions