Good Faith in Domestic and International Tax Law: Hong Kong Report
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AbstractHong Kong is a common law jurisdiction. Public bodies in Hong Kong, including the Inland Revenue Department (IRD), must exercise their discretion in good faith. Good faith in the enactment of Hong Kong’s domestic tax law could be described as follows: First, Hong Kong’s purposive approach to interpretation requires that laws should receive “fair, large and liberal” interpretation to achieve their true intention. Second, retroactive application of tax laws is not considered unlawful and contrary to good faith, although it may be scrutinized by the courts for its legality and proportionality. Third, taxpayers’ good faith belief that a tax position is correct or does not violate general anti-avoidance rules (GAAR) is not a defense against a finding of tax deficiency. However, taxpayers who acted reasonably and in good faith may avoid penalties.

Good faith in the administration of Hong Kong’s tax system could be described as follows: First, good faith plays a role in information requests from tax authorities and taxpayers. Second, advance pricing arrangements (APAs) should be negotiated and implemented in good faith. Third, while the IRD must not act in bad faith when conducting tax audits and investigations, courts are unlikely to find that the IRD acted in bad faith. Taxpayers’ cooperation in good faith with tax investigations should generally result in lower penalties. Fourth, taxpayers can correct errors that resulted in the overpayment of tax, and the IRD can assess additional tax within a six-year limitation period. Also, the penalty policy considers the taxpayer’s culpability and the nature and timing of the disclosure he makes. Fifth, while taxpayers’ ability to rely on IRD guidance may be limited, the IRD typically does not pursue positions that contradict its published guidance, and changes usually apply from the current year of assessment.

As Hong Kong moves to expand its treaty network and comply with international tax norms, it is unsurprising that Hong Kong aims to satisfy its treaty obligations. The Vienna Convention on the Law of Treaties and the Charter of the United Nations are applicable to Hong Kong. With respect to good faith in treaty interpretation, IRD guidance suggests multiple reference points to international and domestic laws with no clear hierarchy. Hong Kong has neither enacted treaty overrides nor engaged in treaty “dodging.” Hong Kong has not issued guidance contrary to the international view of a treaty provision. It has been fulfilling its information exchange obligations.
Acceptance Date30/12/2022
All Author(s) ListNoam Noked
All Editor(s) ListJoshua David Odintz, Rachel T. Provencher
Book titleGood Faith in Domestic and International Tax Law
Year2023
Month8
PublisherInternational Fiscal Association
Pages1 - 13
ISBN9789083087474
LanguagesEnglish-United States

Last updated on 2024-04-03 at 11:25