When I arrived in Hong Kong in the early 1980’s obtaining a copy of the Inland Revenue Department’s Assessor’s Manual was considered essential, but extremely difficult to acquire. Gradually the Assessor’s Manual has been replaced by a series of Departmental Interpretation and Practice Notes (DIPNs). Whereas the Assessor’s Manual had to be acquired by surreptitious means the DIPNs are readily available to the general public. However, they have become a two edged sword, on the one hand it is stated that the DIPNs are issued for the information of taxpayers and their tax representatives but on the other hand the Department considers it is not bound by its own interpretation of the law as stated in the DIPNs.
I agree that the DIPN “health warning” does say that;
“Taxpayers are reminded that their right of objection against the assessment and their right of appeal to the Commissioner, the Board of Review or the Court are not affected by the application of these notes”
This is fair enough as the taxpayer should have a right of appeal if the person does not agree with the approach taken by the Department, however what is not stated is that the Department also considers that it is not bound by its own DIPN. This was made clear in the case BR92/07 in which the Board reaffirmed that “the IR (Commissioner of Inland Revenue) contends that it is not bound by the concession set out in DIPN 21 and this appeal should be resolved by applying the relevant charging provisions of the Ordinance as construed by the case law”.
This is disturbing from two perspectives. Firstly, that it would appear that the Department cannot be relied upon to apply its own stated practice and secondly that the most important of all the DIPNs i.e. No.21 (Revised) “Locality of Profits” is clearly out of date. Whilst the Department may endeavor to keep the DIPNs current it concerns me that the one DIPN that is fundamental to understanding whether a source of income is taxable in Hong Kong simply cannot be relied upon. Whilst I appreciate that the health warning does say that a DIPN is based on the law “as it stood at the date of publication” there is no excuse for not amending such an important document as and when court decisions provide further clarification on the interpretation of the Inland Revenue Ordinance. I have said in past “Rants” it is extremely important for corporations, particularly persons looking to establish a business in Asia, that they are able to budget for their future liability to tax. This current uncertainty does not help Hong Kong’s cause.
I suspect I am one of many who look forward to DIPN 21 being updated, a lot has happened since it was last revised in 1998!
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