In our September 2022 Issue of Newsletter, we will discuss Hong Kong Tax Update on COVID-19 and two recent prosecuted tax evasion cases published by the Inland Revenue Department (“IRD”).
2. [Fictitious Expense Claim] 9-month Jail Sentence for Insurance Agent Convicted for Tax Evasion of less than HK$100K
Despite the small amount involved, taxpayer should not undermine the consequences of fictitious expenses claims
An insurance agent (the Taxpayer) was charged with 11 counts of willfully with intent evading tax by signing her tax returns, her business’s profit and loss accounts and employer's returns of remuneration and pensions (employer’s returns) without reasonable grounds for believing the same to be true, contrary to section 82(1)(d) of the Inland Revenue Ordinance (IRO) (Cap. 112). She pleaded not guilty to the relevant charges. After trial, she was convicted on all of the 11 tax evasion charges and sentenced to immediate imprisonment for 9 months.
In particular, the Taxpayer over-claimed the following expense deduction / allowance:-
- Claimed deduction on "office assistants" expenses paid to 2 “Employees” for 3 consecutive years. The annual salary remuneration to each of them was HK$96,000; and
- Made a false statement that she had been residing with her father continuously for the full year in those 5 years of assessment and claimed additional dependent parent allowance. The total allowance claims amounted to HK$194,000.
The total amount of false claims of expenses and allowances made by the Taxpayer for the 8 years of assessment was HK$770,000 and the total tax evaded was HK$86,849.
Small amount of tax evasion is sufficient to result in catastrophe. Taxpayers should not undermine the efforts of the Inland Revenue Department to combat tax evasion.
Points to note
Tax evasion is a criminal offence under the IRO. Upon conviction, the maximum penalty for each charge is 3 years' imprisonment and a fine of $50,000 plus a further fine of 3 times the amount of tax evaded.
Regardless of the amount of tax involved, the nature of false transactions and false declarations made in various tax returns are with willful intention to default and evade tax, the consequence could be serious.
Tax returns are statutory declarations that taxpayers should carefully handle with. Should the taxpayers reveal any errors or omission after submission, taxpayers are encouraged to make full voluntary disclosure of any omission/under-reporting of income, over-claiming of deduction/expenses and submit proposals for the IRD’s consideration as early as possible.
Full and speedy voluntary disclosure could usually mitigate the amount of penalty to be imposed.
In the event of Field Audit and Investigation launched by the IRD, taxpayers are encouraged to show sincere and cooperative attitude to avoid criminal offences consequences.