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Tax avoidance and tax
evasion
The Inland Revenue
Ordinance has the following provisions to counteract tax avoidance:-
(1) Section 61: The assessor may disregard any transaction that is artificial
or fictitious, or any disposition that is not given effect to.
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(2) Section 61A: It
applies to any transaction having the sole or dominant purpose of enabling a
person to obtain a tax benefit. This section empowers the Revenue
to make an assessment as if the transaction had not been carried out or in such
manner as to counteract the tax benefit.
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(3) Section 61B:
It is to restrict the trafficking in loss companies for tax
avoidance. To avoid tax, a profitable company buys a company with accumulated tax losses,
and then it injects profitable business into the loss company to absorb the losses. This section empowers the Revenue to
deny setting off
the losses brought forward if it is satisfied that the sole or dominant
purpose of the purchase is to obtain a tax benefit.
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(4) Section
9A: It is to combat tax avoidance scheme in which an employee disguised himself as
an independent service provider ---
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(5) DIPN 24
(this is an administrative pronouncement only): It is to restrict deduction for management fee
paid to a related company. The legal backing for the pronouncement is
Section 16 that grants deduction to an expense only to the extent it is
incurred in the production of assessable profits and Section 61 and 61A
that concerns tax-avoidance schemes.
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(6) Section
20: It is to combat tax avoidance scheme involving pricing arrangements with
non-residents ---
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(7) Section
16(2): It is to combat tax avoidance involving payment of interest.
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(8) Section
39E: It is mainly to deny depreciation allowance on plant and machinery under certain
lease arrangements including sale and
lease back, machinery transferred to a permanent establishment in mainland China
and lease financed by non-recourse debt.
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On this topic, I would like to offer
the following advice:-
Do not
make a simplistic and blatant tax avoidance scheme.
Disclose all the
required information to the Revenue in accordance with the law.
Make full use of the tax exemptions and relief
available in the tax law.
Consult a tax consultant or a lawyer before
you
decide
a big financial deal.
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