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Hong Kong Tax News Flash 

May 2014, Issue 5

Applying the attribution rules in Hong Kong tax context

The Court of Final Appeal (CFA) handed down its judgement in Moulin Global Eyecare Trading Limited (In Liquidation) v CIR on 13 March 2014. The case concerns whether the taxpayer, which filed profits tax returns based on false accounts prepared by its fraudulent directors and overpaid profits tax as a result of the inflated profits in the false accounts, could lodge a late objection against the tax assessments issued to it or reopen the tax assessments on the basis that there was an ‘error or omission’ in the tax returns submitted. The CFA held by majority that the guilty knowledge of its fraudulent directors should be attributed to the taxpayer. Given the CFA judgment in this case, taxes overpaid by a company due to the fraudulent acts of its directors or employees are unlikely to be recoverable even though the company itself may be one of the victims. This in turn highlights the importance of having proper corporate governance and internal control from the tax risk management standpoint.

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Reynold Hung
China South and Hong Kong Tax Leader
Hong Kong
Tel: +[852] 2289 3604 Email
Oscar Lau
Hong Kong
Tel: +[852] 2289 5603 Email