IRD Field Audit

Field audit is conducted by Inland Revenue Department (“IRD”) on both corporations and unincorporated businesses as well as individuals. The work of IRD field auditors entails site visits to business premises, examination and investigate of all accounting records in details of taxpayers in order to ascertain whether correct report of profits have been made.

It is not usual for Inland Revenue Department to carry field audit to the corporations or individuals unless there are evidences showing abnormal or incorrect tax/accounting records arousing suspicious.

During 2013-14, the Field Audit and Investigation Unit completed 1,802 cases (including tax avoidance cases) and collected back tax and penalties of about $2.5 billion.

Common reasons why companies are audited by the IRD:

  1. The company made math errors

  2. The company didn’t report everything, especially income

  3. Relative unreasonable charity donation was made

  4. Many work expenses were reported

  5. The profit and loss statement show unrealistic loss

  6. The figures in the audited financial statement are not entirely accurate

IRD Enquiries is very common especially for those companies intend to claim off-shore. Pursuant to the general charging provision of Section 14(1) of the Inland Revenue Ordinance (‘HK-IRO’), an income is NOT liable to profits tax (corporate income tax) if it is (i) not derived from a trade, profession or business carrying on in Hong Kong and/or (ii) not arising in or derived from Hong Kong (i.e. sourced outside of Hong Kong). However, it is important to understand that any such offshore non-taxable claim made is usually being examined by the Hong Kong Inland Revenue Department (‘HK-IRD’). Thus, enquiry letters will be issued by IRD and the company has to submit supporting documents to prove the off-shore claim is established.

Prism accounting team provides professional IRD field audit and IRD enquiries handling service to help your company prepare the best solution and strategy to cope with IRD and result as an ultimate successful claim.