Hong Kong Tax – Advance Ruling (Part 2)

Advance tax ruling

A person can ask the Inland Revenue Department (IRD) to make a tax ruling on a transaction which he is going to do upon payment of a fee.

But the IRD will not make a tax ruling on the following.

  • Prosecution;
  • Tax penalty;
  • Tax recovery action;
  • The correctness of a tax return;
  • To determine or establish a question of facts — for example to rule on whether a trade is carried on or whether a sale of asset is taxable;
  • The ruling requires the Revenue to make assumption on a future event;
  • Any matter being processed under the objection procedures;
  • Any matter in a tax return which has been already filed with the Revenue;
  • Any matter concerning the interpretation of a generally accepted accounting principle or a commercial practice;
  • Any matter involving the interpretation of a foreign law;
  • The IRD opines that the matter is not seriously contemplated by the taxpayer;
  • The IRD opines that the matter is frivolous or vexatious;
  • The IRD opines that the taxpayer has not provided all the relevant information;
  • The IRD opines that the matter requires excessive resources; or
  • Any matter being a subject of the IRD’s tax audit or tax investigation.


Advance tax ruling application fees and time frame

 The applicant has to pay a fee in advance for the tax ruling. If the IRD rejects or withdraws the ruling, the fee will be refunded. The initial application fee is $30,000 for a ruling on source of profits under Section 14 and $10,000 for all other cases. The Revenue may ask the applicant to pay more if the case requires more time than that for a usual case.

The IRD may withdraw the ruling at any time. Besides, if there is a new legislation or a new court case on similar matter, the ruling will become obsolete.

The IRD will normally respond to the application within 6 weeks. The response may be a request for further information or a clarification on certain facts. The application must be made in a specified form and supported by the specified information and documents. So, taking into account the time for lodging the application and the then workload of the Revenue, the applicant should expect at least 6 weeks in getting a reply from the Revenue, not to say it may not be a favorable ruling — but just a request for further information or a rejection of tax ruling.