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, to accept 2013/14 to 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 to apply in relation to a year of assessment for which the basis period begins on or after 1 January 2018. The sections allow taxpayers, with their financial statements prepared in accordance with the Hong Kong Financial Reporting Standard 9 (Financial Instruments) / International Financial Reporting Standard 9 (Financial Instruments) or an equivalent standard, to elect the alignment of the treatment of financial instruments for profits tax purpose with their accounting treatment, subject to any adjustment to be made under specified circumstances.
For taxpayers who account for their financial instruments on a fair value basis and adopt a basis period beginning before 1 January 2018 or are temporarily exempted from applying the above specified financial reporting standard (e.g. insurers) before 1 January 2023, the Department is prepared to extend the interim administrative measure further to the filing of the 2018/19 to 2022/23 profits tax returns. That is, the Department agrees to accept the 2018/19 to 2022/23 returns in which the assessable profits are computed on a fair value basis. Similarly, the Department agrees to re-compute the 2018/19 to 2022/23 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.