Question

Question 4 (17 marks)

Mr. Wong is carrying on business in Hong Kong as a sole-proprietor selling furniture. In January 2020, he received a letter from the IRD enquiring about a sale transaction that has not been reported in his tax return for the year of assessment 2018/19. The transaction represents an income of $50,000 received in cash from an Internet sale to a customer in Singapore. In his defence, Mr. Wong replied that he knew nothing about accounting and tax rules and placed full reliance on his accountant.

Required:

(a) Advise Mr. Wong of any possible penalty and prosecution action that could be taken against him by the IRD in relation to the non-reporting of income. (10 marks)

(b) Assume that Mr. Tam is the independent tax consultant appointed by Mr. Wong to provide him with tax advice for handling the enquiry letter issued by the IRD. Discuss the ethical considerations Mr. Tam should be aware of in the course of providing the tax consultancy services to Mr. Wong. (7 marks)

(Total for Question 4: 17 marks)

Answer 1

Answer to question (a):

The penalty Policy issued by the Hong kong IRD includes the following penal provisions :

Prosecution under section 80(2) against any person who without reasonable excuse:

(i) makes an incorrect return;

(ii) makes an incorrect statement in connection with a claim for any deduction or allowance;

(iii) gives any incorrect information in relation to any matter or thing affecting the person's or any other person's liability to tax;

(iv) Fails to notify refund of premiums paid under a Voluntary Health Insurance Scheme policy or qualifying deferred annuity policy after claiming deduction of the premiums;

(v) Fails to furnish a return in time; or

(vi) Fails to inform chargeability to tax.

The offence is subject to a fine of $10,000 and a further fine of treble the amount of the tax undercharged. In respect of the offence in (v), the court may order the person convicted to furnish the return within a specified time.

A person who has been assessed to additional tax has the right to appeal to the Board of Review within one month from the date of issue of the notice of the additional tax assessment

Answer to question (b):

Tax consultant shall be aware of actual facts and figures of the client. so that he can defend the case for its client in better manner. for say,

whether, the transactioon was actually skipped from the Return filling

whether, the transaction had happened or not in true sense or was worngfully shown in the records of IRD.

whether, there were any evidence of the transaction of so had happened.

Whether the Bank statements show the genuiness of the transaction, whether the Bank balances were matching as per the statement.

whether the Accountatnt held responsible for the omission of recording the trnsactions

In the light of the above, the tax consultant shall conclude the accordingly shall apply before the IRD. Depending of the actual facts & Figure he shall either defend the client or shall ask him to pay for the taxes along with penalities in the best possible manner to put lesser hardship on the client in all respects.