Hong Kong Tax

S14 Profits tax shall be charged on every person:

(i) carrying on a trade, profession or business in HK

(ii) in respect of profits arising in or derived

(iii) from HK from such trade, profession or business

(and not merely result from a revaluation of assets held for the purpose of a trade, profession or business)

HKFRS 9 (replaced HKAS 39) recognizes profits or losses in respect of financial assets of revenue nature at fair value in income statement.

IRD assesses the change in fair value if taken to the income statement(even not sold) following the Secan judgement per DIPN No. 42.

But the 'tax follows accounting' principle was overthrown in the Nice Cheer case as the Lord opined that IRD midread his decision in the Secan case.

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Nice Cheer has its unrealised trading stock held at the end of the period shown in its financial statements at lower of cost or NRV and the Company claimed that the unrealized gains were not taxable, whilst unrealised losses were deductible.

The Court found that unrealised gains recognised at year-end are not taxable.

The Lord held that the accountancy standards are directed to the preparation of financial statements and not tax computations and they serve different purposes.

-financial statements are prepared to give true and fair view of its financial position and profitability

-readers are concerned not with the past but with the future

-IRO is directed to the past however

-such gains are anticipated and

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