Hong Kong has a relatively simple tax system in comparison to most other of the tax systems in the world. However, regardless how simple the tax system is, as the tax laws are based on legal principles, the enforcement of those tax laws is often contested and may create tax disputes.
Tax Disputes
Tax disputes arise mostly because there is a disagreement between the taxpayer and the Hong Kong Inland Revenue Department (“the IRD”) as to the application of the legal principle (for example, one of the most disputed areas is regarding source or taxability of income), and/or to the facts and circumstances.
In general, the process of a tax dispute is:
- File an objection
- If no agreement is reached during the objection stage, the dispute will be pass on to the IRD Appeal Section for the Commissioner of Inland Revenue (“the Commissioner”) to make a determination
- In case you wish to appeal against the determination of the Commissioner, you may appeal the Commissioner's determination to the Board of Review
- A taxpayer may further appeal to the High Court (i.e. Court of First Instance and the Court of Final Appeal) if the taxpayer is dissatisfied with the decision decided by the Board of Review on a question of law
Tax Investigations & Field Audit
Unlike a tax dispute, which is generally initiated by the taxpayer, a tax investigation or tax audit is initiated by the IRD if the IRD has doubts regarding the sources of income, the completeness and accuracy of the tax returns filed by taxpayers (in respect to both companies and individuals). For example, one of the most focused tax audit areas in recent years is in regards to a company's permanent establishment. In general, tax audit/investigation is carried out by the Field Audit and Investigation Unit (“FAI”) of the IRD.
In general, the process of a tax investigation is:
- Taxpayer receives the tax notification. Between having received the tax notification and the first meeting/initial interview, the taxpayer should retrieve all documents/information requested in the notification.
- Attend initial interview. In general, the taxpayer has 10 to 14 days after having received the tax notification to contact the FAI to arrange for the initial interview.
- The FAI is to conduct field audit.
- FAI will review the taxpayer's tax position after the field audit has been conducted.
- Attend settlement meeting.
- Propose a fine. In the case of understatement, the FAI will assess the assessable profits that had been understated and impose a penalty on the taxpayer. Whereas in the case of tax evasion, the FAI may transfer the case to the Department of Justice for criminal prosecutions as well as assessing the understated profits and imposing a penalty.
Prevention of Tax Disputes & Investigations
HKWJ Tax Law & Partners can assist you to identify and mitigate potential tax disputes and investigations by:
- Conducting regular tax health check to identify possible tax risks
- Advising on preparation of necessary documents to substantiate tax position
- Advising commercial or tax substance in order to substantiate claim
- Applying for an advance ruling with the IRD before engaging in any activity/transaction
Our Services
There is a unit in the Hong Kong Inland Revenue Department (IRD) specialised in tax audit and investigations. They do in-depth review and investigations on cases selected. The selected taxpayers will likely have to spend a lot of time and manpower on dealing with the tax audit investigation, hence is best to engage a professional tax lawyer to:
- Provide professional assistance to clients who are selected for tax audit
- Assist to plan a proper strategy to reduce the tax and/or penalty (if any) as much as possible for client
- Attendi interviews with the IRD, handling tax enquiries from the IRD, preparing and filing settlement proposals to the IRD
As your legal and tax representative, HKWJ Tax Law & Partners can assist you with manage and resolve tax disputes and tax audit or investigations with the IRD during any stage of the process. Our services include but are not limited to:
For tax dispute
- Assist with preparing and filing of an objection (including late objection)
- Assess and advise whether there is merit for litigation/whether litigation is appropriate
- Advise, assist and represent in appeal and litigation procedures
For tax investigation
- Formulate strategy to handle the tax investigation
- Retrieve all documents/information requested, estimate the time required to retrieve documents/information if not readily available, and arrange for interview
- Accompany you to interview, field audit and settlement meeting
- Prepare settlement proposal/further proposal to the IRD on behalf of you
Can I Change my Tax Advisor / Representative?
Yes - you can change tax advisors at any time, even in the middle of a financial year or close to filing deadlines. In fact, many of our clients come to us because they were unhappy or “uneasy” with their previous tax adviser.
Common reasons businesses and individuals decide to switch include:
- Slow response or last-minute rush
You only hear from your adviser right before deadlines, or they take too long to respond to emails and calls. Also, you have not been informed any tax letters or correspondences issued by the IRD. - Lack of proactive tax planning
You feel your adviser is only doing basic compliance (filling in forms, filing returns), but not helping you to achieve tax efficiencies or spot opportunities in advance. You also do not know the potential tax risks of certain tax matters and the potential enquiries from the IRD. - Unexpected or opaque fees
You receive invoices that are higher than expected, with limited breakdown, or you are charged for every short question. - Errors, amended filings or IRD questions
Your tax filings often need correction, or you are frequently contacted by the IRD to clarify basic matters. - Poor understanding of your business or cross-border situation
Your adviser does not really understand your industry, your group structure, or your international footprint (e.g. Hong Kong-China / Hong Kong-overseas structures). - Minimal support during IRD enquiries or tax audits
When the IRD asks questions, you feel left alone or receive generic answers that do not properly defend your position. - No clear point of contact
Your case is passed from one junior to another, and you need to repeat your situation multiple times.
If any of this sounds familiar, it may be time to consider a change.
Is it Complicated to Switch Tax Advisors?
In most cases, the process is straightforward. You do NOT have to wait until year-end or the next filing season to make a move.
When you appoint HKWJ Tax Law & Partners as your new tax adviser, we:
- Review your situation and needs
We start with a confidential discussion to understand:
- Your business model or personal tax profile
- Any existing IRD enquiries / audits
- Your concerns with the current adviser
- Your potential tax issues / risks
- Key deadlines coming up
- Coordinate with your previous adviser (if you wish)
With your consent, we can:
- Contact your previous adviser professionally to arrange handover of files and working papers
- Request copies of past returns, computations and relevant correspondence
- Clarify any open issues or pending filings
This helps ensure continuity and avoids duplicated work where possible.
- Check your past filings for risk and opportunities
Once we have the necessary information, we typically:
- Review recent Hong Kong tax returns (Profits Tax, Salaries Tax, etc.) and tax position
- Identify potential risks (e.g. positions that may attract IRD attention)
- Highlight planning opportunities or reliefs that may not have been fully utilised
We can then agree with you which areas to prioritise, from simple clean-up to more strategic planning.
- Take over IRD communication and deadlines
After appointment, we can:
- Act as your representative with the IRD
- Update the IRD records where appropriate
- Monitor and manage important filing and payment deadlines
Our aim is to give you visibility and reduce last-minute surprises.
