Hong Kong: Company directors not liable for additional taxes for incorrect profits tax returns filed by company

A corporation, instead of its directors, is required to file a profits tax return.

A corporation, instead of its directors, is required to file a profits tax return.

The Court of Final Appeal held that a corporation, instead of its directors, is required to file a profits tax return pursuant to the Inland Revenue Ordinance (IRO). Accordingly, the directors of the company were not liable for the additional taxes assessed under IRO section 82A for the incorrect tax returns filed by the company.

The case is: Commissioner of Inland Revenue v. Koo Ming Kown (5 August 2022)

The appellate court dismissed the Commissioner of Inland Revenue’s appeal and upheld lower court judgements that when a company’s returns filed with the Inland Revenue Department (IRD) are found to be incorrect, the company directors (who signed on the return as filed) are not liable for the administrative penalties charged for the incorrect returns filed.  

Summary

The case concerned whether the two directors of a company, who signed the profits tax returns, were liable for the additional taxes assessed (as administrative penalties) for those incorrect returns. 

The IRD conducted an audit and found the profits tax returns were incorrect, and imposed additional tax assessments. However, the company did not pay the assessed amounts and ultimately was “wound up” by the court upon petition by the tax authority. Subsequently, the two directors were assessed to additional tax under IRO section 82A(1)(a) for the incorrect tax returns filed. 

The directors were successful in their appeals to the Court of First Instance, and then the Court of Appeal, against the additional tax assessments. The tax authority appealed to the Court of Final Appeal which unanimously held that the tax returns at issue: (1) were required to be made, and were made, by the company; and (2) were not required to be made, and were not made, by the two directors on behalf of the company. Thus, the two directors were found not to be liable to the additional taxes for the incorrect returns filed. 


For more information, contact a KPMG tax professional:

David Ling | davidxling@kpmg.com

 

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