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Profits Tax Return - Fair Value Accounting

Subsequent to the judgment of the Court of Final Appeal in Nice Cheer Investment Limited v CIR, the Department has agreed, as an interim administrative measure while pending review, to accept 2013/14, 2014/15, 2015/16, 2016/17 and 2017/18 profits tax returns in which the assessable profits are computed on a fair value basis.

By the Inland Revenue (Amendment) (No. 2) Ordinance 2019, sections 18G to 18L of the Inland Revenue Ordinance were enacted. The new sections allow taxpayers to elect to align the tax treatment of financial instruments with their accounting treatment and have the related profits assessed in accordance with the new sections. Sections 18G to 18L apply in relation to a year of assessment for which the basis period begins on or after 1 January 2018.

For taxpayers who adopt a basis period which begins before 1 January 2018 for the year of assessment 2018/19, the Department is prepared to extend the interim administrative measure further to the filing of the 2018/19 profits tax returns. That is, the Department agrees to accept the 2018/19 returns in which the assessable profits are computed on a fair value basis. Similarly, the Department agrees to re-compute the 2018/19 assessable profits on a fair value basis if the taxpayers subsequently adopt the realisation basis. However, any request for re-computation should be made within the time limits laid down in sections 60 or 70A of the Inland Revenue Ordinance.