In combating tax evasion and avoidance, the Inland Revenue Department (IRD) of Hong Kong adopts the “Assess First, Review Later” 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. IRD uses certain criteria for proper case selection depending on the current business environment in society and performing review annually.
Major reasons for being selected for investigation by Inland Revenue Department are listed below:
- The auditors’ report in respect of accounts of an incorporated business is heavily qualified
- Mainly cash transactions
- 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 transaction between a company and its associated companies
- A company is operating 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
For further information, please contact us
You may also read: WHAT TO DO WHEN RECEIVING A LETTER FROM INLAND REVENUE DEPARTMENT?