Field Audit and Investigation
The Field Audit and Investigation Unit is responsible for conducting field audits and investigations on businesses and individuals with a view to combating tax evasion and avoidance. Back tax is assessed and penalties are generally imposed where discrepancies are detected.
During 2013-14, the Field Audit and Investigation Unit completed 1,802 cases (including tax avoidance cases) and collected back tax and penalties of about $2.5 billion (Figure 29).
|Number of cases completed||1,805||1,804||1,802||1,802|
|Understated earnings and profits ($m)||19,470.1||34,083.4||16,348.0||12,936.4|
|Average understatement per case ($m)||10.8||18.9||9.1||7.2|
|Back tax and penalties assessed ($m)||3,827.4||6,003.0||3,447.7||2,540.0|
|Back tax and penalties collected ($m)||3,881.3||6,852.4||3,438.3||2,158.7|
In 2013-14, there were 17 Field Audit sections. Field audit is conducted on both corporations and unincorporated businesses. The work of field auditors entails site visits to business premises and examination of accounting records of taxpayers in order to ascertain whether correct returns of profits have been made.
Two of the 17 Field Audit sections concentrate on tackling tax avoidance schemes, whereas other investigation officers and field auditors handle avoidance cases on an operational need basis. During 2013-14, the Field Audit and Investigation Unit completed 219 tax avoidance cases and assessed back tax and penalties of about $0.91 billion (Figure 30).
|Number of cases completed||234||226||207||219|
|Understated earnings and profits ($m)||11,676.1||26,864.3||7,576.4||5,124.9|
|Average understatement per case ($m)||49.9||118.9||36.6||23.4|
|Back tax and penalties assessed ($m)||2,193.2||4,356.7||1,523.8||909.3|
In 2013-14, there were 5 Investigation sections. Investigation officers are responsible for conducting in-depth investigations into suspected tax evasion, and taking penal action (including prosecution proceedings in appropriate cases) as a deterrent.
One of the 5 Investigation sections is the prosecution section focusing on criminal investigation of tax evasion. Tax evasion is a serious crime. A person convicted of tax evasion could be sentenced to imprisonment for up to 3 years and fined. During the year, the Department successfully prosecuted 2 tax evasion cases. The first case involved an employee omitting rental income and making false statements in connection with claims for deduction of home loan interest. The defendant, convicted of evading property tax and salaries tax, was imposed a community service order and a fine. The second case involved a company failing to inform the Commissioner of Inland Revenue of its chargeability to profits tax. The defendant pleaded guilty to the charges and was fined $16,000 and a further fine of $8.3 million, equivalent to 98% of the tax involved. The prosecution section has also completed the investigation of 8 cases with prosecution potential and referred them to the Department of Justice for legal advice.
Property Tax Compliance Check
In addition to conducting audits on businesses, the Department also carries out verification checks on the correctness of rental income reported by property owners. Commencing from 2006-07, the Department has broadened the scope of review to cover cases with lower rental income. In 2013-14, the Department completed compliance check on 140,705 property tax cases (Figure 31).
|Number of cases completed||90,681||102,422||117,923||140,705|
|Understated rental income ($m)||393.1||442.5||461.7||553.3|
|Back tax and penalties assessed ($m)||46.3||53.1||55.4||66.4|