Hong Kong Tax Field Audit and Investigation,Tax Advisory - Conpak CPA Limited

Tax Field Audit and Investigation

In combating tax evasion and avoidance, the Inland Revenue Department (“IRD”) of Hong Kong adopts the “Assess First, Review Later” (AFAL) approach as its assessment mechanism on tax returns and other supplementary information submitted by taxpayers while at the same time fully utilises advanced technology in selecting cases not subject to review and conducts automated assessment. Certain criteria is used for proper case selection depending on the current business environment in a society and performing review annually. Certain cases will be forwarded to Unit 4 for tax field audit and investigation.

Conpak’s Tax Advisory Team is comprised of professionals with ample experience in tax controversy services who will also accompany clients under investigation in meetings and negotiations with the IRD in achieving reasonable resolution. Our sophisticated team is also equipped with excellent negotiation skills and committed to reaching the most favorable assessment of additional tax and minimizing the penalty level for clients.

Major Reasons for Being Selected for Investigation Are Listed below

  • The auditors’ report in respect of accounts of an incorporated business is heavily qualified
  • Transactions in are mainly settled in cash
  • A business has an unreasonably low turnover or profit as compared with other businesses in the same industry
  • Failure to submit tax return on time in past years
  • Failure to maintain sufficient business records
  • A large scale of domestic and cross-border transactions were carried out between a company and its associated companies
  • A company is able to run its operation on a going concern basis even though its profits encounter continued low growth or losses
  • Profits significantly declined due to changes in group structure
  • The taxpayer acquired valuable assets or injected a large amount of capital by using unknown sources of finance into a business
  • Other cases referred by other government departments or reported by informers

General Procedure

  • To collect taxpayers’ background information
  • To arrange an initial interview for the taxpayer with the case assessor
  • To issue a letter to the taxpayer in requesting information such as accounting record for the year of assessment under investigation
  • To visit taxpayer’s place of business and meet with senior management in understanding their operation status
  • To obtain further information of taxpayers by the case assessor from third parties and other government departments
  • In the case of understatement or tax evasion, the case assessor will assess the assessable profits that had been understated and impose penalty on taxpayers
  • In the case of tax evasion, apart from imposing penalty on taxpayers, the IRD may also transfer the subject case to the Department of Justice for criminal prosecutions (Note: Tax evasion is a criminal offence that is subject to a fine of $50,000, and treble the amount of the tax undercharged and 3-year imprisonment.)
  • The case assessor will arrange a settlement interview with the taxpayer and negotiate resolutions on tax dispute and penalties
  • To issue an assessment of additional tax and settle the case

Time Required

It depends on the following circumstances:

  • The complexity of the taxpayer’s business model
  • The integrity of taxpayer’s financial records
  • The extent to which the taxpayer is willing to cooperate with the case assessor during the course of investigation

Conpak’s Services:

  • Advise the client on general procedures of the field audit and investigation
  • Formulate strategies for addressing tax investigation
  • Review and analyze information provided by clients for subsequent submission to the IRD
  • Serve as a tax representative for the client and accompany the client to meet with the case assessor to protect clients’ interest
  • Assist in drafting and submitting settlement proposal and other representation documents for negotiating tax disputes resolution with the IRD

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