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WEDNESDAY, MARCH 2, 1994
HE SAID OVER THE
PAST
TWO
YEARS, THE INLAND REVENUE DEPARTMENT'S INVESTIGATION AND FIELD AUDIT STAFF HAD TACKLED OVER 2,000 CASES AND OBTAINED MORE THAN $1.4 BILLION IN BACK TAX AND PENALTIES.
"HOWEVER, IT HAS BECOME APPARENT THAT THERE IS STILL SUBSTANTIAL UNDER-REPORTING BY MEMBERS OF SOME PROFESSIONS WHO RECEIVE CASH PAYMENTS FOR THEIR SERVICES. THIS UNDER-REPORTING OF INCOME IS
INTOLERABLE.
** I UNDERSTAND THAT FOR ONE PROFESSION ALONE, OF 237 CASES EXAMINED, 224 INVOLVED TAX EVASION WHICH, WITH PENALTIES, AMOUNTED ΤΟ ALMOST $100 MILLION. A REMEDY IS CLEARLY NEEDED.
"AS A FIRST INSIST THAT THEIR RECEIPTS.
STEP, WE SHALL REQUEST PROFESSIONAL BODIES то MEMBERS KEEP PROPER ACCOUNTS AND ISSUE PROPER
"LET ME MAKE MYSELF VERY CLEAR. IF THIS FAILS TO ACHIEVE THE DESIRED RESULT, I SHALL HAVE NO CHOICE BUT TO LEGISLATE FOR A SOLUTION INCLUDING THE MANDATORY ISSUE OF RECEIPTS.'
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ON TAX AVOIDENCE, SIR HAMISH SAID HONG KONG HAD SUFFERED INCREASINGLY FROM ONE PARTICULAR DEVICE WHICH WAS CLEARLY WRONG IN EQUITY AND WHICH HAS LITTLE OR NO COMMERCIAL JUSTIFICATION.
"I REFER TO THE PROLIFERATION OF SERVICE COMPANIES ESTABLISHED ΤΟ AVOID OUR ALREADY LOW RATES OF TAX. INDEED, THESE COMPANIES ARE BEING WIDELY PROMOTED BY TAX ADVISERS AND A RECENT PRESS HEADLINE SUMS UP THE SITUATION VERY APTLY: 'USE SERVICE COMPANIES ΤΟ UNLOCK TAX BONANZA'.
..
'] AM NOT IN THE BUSINESS OF TOLERATING TAX BONANZAS. CONSIDER THAT THE TIME HAS COME TO LEGISLATE.
.
I
SIR HAMISH ALSO GAVE TWO FXAMPLES OF SERVICE COMPANY ARRANGEMENTS WITH WHICH HE WAS PARTICULARLY CONCERNED.
·
AN
THE FIRST AMOUNTS ΤΟ AN ATTEMPT TO DISGUISE EMPLOYER/EMPLOYEE RELATIONSHIP TYPICALLY, RFMUNERATION FOR SERVICES RENDERED UNDER EMPLOYMENT-LIKE CONDITIONS IS NOT PAID AS SALARY TO THE INDIVIDUAL WHO PROVIDES THE SERVICE. INSTEAD, A FEE IS PAID ΤΟ A COMPANY WHICH HE CONTROLS.
A SUBSTANTIAL REDUCTION IN THE AMOUNT OF TAX WHICH WOULD OTHERWISE BE PAYABLE CAN THEN BE OBTAINED THROUGH THE SERVICE COMPANY PROVIDING THE INDIVIDUAL WITH GENEROUS FMPLOYEE BENEFITS.
THE SECOND EXAMPLE INVOLVES THE PAYMENT OF INFLATED MANAGEMENT FEES BY A FIRM TO A SERVICE COMPANY WHICH IS CONTROLLED BY THE FIRM'S PROPRIETOR OR ITS PARTNERS.
THE SERVICE COMPANY EMPLOYS THE PROPRIETOR OR PARTNERS AND USES THE FEES TO PAY THEM "EMPLOYEE BENEFITS". AS IN THE FIRST EXAMPLE, THE PROVISION OF THESE BENEFITS IS DESIGNED TO REDUCE THE OVERALL TAX
LIABILITY.
PROPOSE ΤΟ INTRODUCE LEGISLATION TO DEAL AVOIDANCE ASPECTS OF SERVICE COMPANY ARRANGEMENTS. RESULT TO BE SIGNIFICANT ADDITIONAL REVFNUE."
WITH THE TAX-
I EXPECT THE
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