The Investigation Unit | The Field Audit Group
The Investigation Unit and the Field Audit Group of the Department are set up to counter tax evasion, minimise opportunities for tax avoidance and promote voluntary compliance by taxpayers. During 1999-2000, back tax and penalties of $2.1 billion were collected from investigation and field audit cases (Figure 32).
|Number of cases completed||1,832||1,816||1,812||1,874|
|Back tax and penalties assessed (Dollars million)||2,021.2||2,128.4||2,141.3||2,318.9|
|Back tax and penalties collected (Dollars million)||2,303.2||2,090.8||2,074.7||2,147.8|
The Investigation Unit
The Investigation Unit is responsible for detailed investigations where tax evasion is suspected and taking penal actions (including prosecution proceedings in appropriate cases) to create a deterrent to tax evasion.
There are 13 teams of investigation officers with 2 teams focusing on investigating and prosecuting tax evasion cases. During 1999-2000, back tax and penalties of $1 billion were assessed by the Unit, from 926 completed cases (Figure 33).
Tax evasion is a serious crime and once the wilful intent to evade tax is established in the Courts, the law provides for a custodial sentence. In 1999-2000, the Unit successfully prosecuted 2 tax evasion cases. The first case involved providing false statements in respect of salary income in the returns. The taxpayer was sentenced to 6 months' imprisonment, suspended for 2 years. The other case involved an attempt to evade tax by overstating purchases. The taxpayer was ordered to perform 100 hours of community services.
The Unit also successfully prosecuted 2 taxpayers who failed to maintain sufficient business records. The Inland Revenue Ordinance provides for a maximum penalty of $100,000 in such cases.
|Number of cases completed||920||901||901||926|
|Understated earnings and profits (Dollars million)||3,357.5||3,603.9||3,830.0||3,948.9|
|Average understatement per case (Dollars million)||3.6||4.0||4.3||4.3||Back tax and penalties assessed (Dollars million)||1,026.6||1,041.3||1,065.4||1,023.7|
|Back tax and penalties collected (Dollars million)||1,158.1||964.2||898.5||953.4|
The Field Audit Group
On corporations and unincorporated businesses, the Field Audit Group conducts field audit, including site visits and of accounting records examination, to ensure that correct profits tax returns have been made. The purpose of conducting field audit is to enhance voluntary compliance with taxation requirements by giving the Department's enforcement activities a more visible presence, thus encouraging the keeping of sufficient business records and the lodgment of correct returns. Field audits require extensive use of interviewing, negotiating and investigative techniques, accounting skills and application of taxation knowledge in different business environments. Back tax will be assessed and penalties imposed where discrepancies are detected. Penalties are also imposed on offenders who fail to comply with the record-keeping requirements.
The Field Audit Group also conducts audit on cases involving tax avoidance with a view to tracking down unacceptable avoidance schemes so as to uphold the tax base of Hong Kong. The Group set up its second Anti-Tax Avoidance Team in October 1999. The two Anti-Tax Avoidance Teams are solely responsible for the tackling of avoidance cases, whereas the other 8 teams will handle avoidance cases only on an operational need basis. In the past year, the types of avoidance schemes being audited had been expanded. The success of the Group in combating a number of avoidance cases with substantial understatement had led to an impressive increase in the amount of revenue yield in the year.
During 1999-2000, the Field Audit Group completed 948 cases (including 162 avoidance cases) and assessed back tax and penalties of some $1.3 billion (Figures 34 and 35).
|Cases completed - Discrepancies detected||871||879||853||894|
|Cases completed - Referred for investigation||15||4||9||9|
|Cases completed - No further action||26||32||49||45||Total Number of cases completed||912||915||911||948||Understated earnings and profits (Dollars million)||3,989.4||4,845.0||5,245.2||6,283.4||Average understatement per case (Dollars million)||4.4||5.3||5.7||6.6||Back tax and penalties assessed (Dollars million)||994.6||1,087.1||1,075.9||1,295.2||Back tax and penalties collected (Dollars million)||1,145.1||1,126.6||1,176.2||1,194.4|
|Number of cases completed||45||157||156||162|
|Understated earnings and profits (Dollars million)||640.4||1,722.4||2,032.9||3,864.3|
|Average understatement per case (Dollars million)||14.2||11.0||13.0||23.9|
|Back tax and penalties assessed (Dollars million)||103.7||257.8||303.3||654.1|
Property Tax Compliance Checks
In addition to conducting audits on business records, the Field Audit Group also carries out verification checks on the correctness of rental income reported by property owners. During the year, back tax and penalties of $23.3 million were assessed on 4,401 completed property tax cases (Figure 36).
|Number of cases completed||4,416||4,442||4,642||4,401|
|Understated rental income (Dollars million)||187.2||172.0||194.0||194.9|
|Back Tax and penalties assessed (Dollars million)||22.4||20.6||23.2||23.3|
Merger of the Field Audit Group and the Investigation Unit
With effect from 1 April 2000, the Field Audit Group and the Investigation Unit were merged to form the Field Audit and Investigation Unit. The merger will enhance efficiency and flexibility in the handling of tax evasion cases. It will facilitate better sharing of experience between the professional officers of the 2 Groups and drawing up more efficient and effective synergies to combat tax evasion and tax avoidance cases involving overly aggressive tax planning arrangements.
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(Last updated/reviewed : August 30, 2001))