Impact of the Inland Revenue (Amendment) (Miscellaneous Provisions) Ordinance on tax practitioners

HKICPA's Advocacy and Practice Development Department

A look at the Institute’s response to the bill and the new penalty provisions

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HKICPA's Advocacy and Practice Development Department


The Inland Revenue (Amendment) (Miscellaneous Provisions) Ordinance 2021 (the ordinance) was gazetted on 11 June and took effect immediately after being passed by the Legislative Council on 2 June. 

Despite its innocuous-sounding title, the ordinance contains a number of substantive amendments to the Inland Revenue Ordinance (Cap. 112) (IRO), including the tax treatment for the amalgamation of companies under the court-free procedures; the tax treatment for the transfer or succession of specified assets under certain circumstances; enhancing the statutory framework for the filing of tax returns electronically (e-filing); and the deduction of foreign tax under specified circumstances.

A Legislative Council Bills Committee was set up to review the bill and submissions on it were made by the Institute, the Joint Liaison Committee on Taxation, the Taxation Institute of Hong Kong, Deloitte Advisory (Hong Kong) Ltd. and PricewaterhouseCoopers Ltd.

During the Bills Committee stage, the administration responded to the points raised in the initial stakeholder submissions, in a letter sent to the Bills Committee (admin’s first response). Due to continuing concerns, in particular about the provisions relating to e-filing and associated offences, the Institute subsequently issued a second submission. The administration then wrote to the Bills Committee responding to this (admin’s second response). The Institute’s first submission, issued on 29 April (April submission) and second submission, issued on 12 May (May submission) can be found on the Institute’s website (under Thought leadership > Professional representation). All the stakeholder submissions and the administration’s responses are also on the Legislative Council’s website at here

Members of the Institute who act as tax representatives (TaxReps) should study the changes to the IRO introduced by the ordinance, particularly in relation to the offences that could be applicable to TaxReps in the context of e-filing. To give members a “heads up,” this article discusses these new penalty provisions.

Electronic filing

The Inland Revenue Department (IRD) is following a two-phase project on e-filing of profits tax returns. The first phase is to enhance the existing eTax Portal in 2023 to enable more businesses to voluntarily e-file profits tax returns, together with the financial statements and tax computations. The second phase is to develop a new Business Tax Portal by 2025 for e-filing of profits tax returns, with the ultimate goal of implementing mandatory e-filing.

While the Institute’s Taxation Faculty Executive Committee (TFEC) was generally in support of the main aims of the bill, the TFEC had some specific concerns regarding some of the detailed provisions, particularly on e-filing.

Among other things, the bill introduced the concept of a “service provider” (SP), who could be engaged by a taxpayer to furnish a return, as required under section 51(1) of the IRO, on behalf of the taxpayer. It created several offences that may be applicable to SPs. These follow:

When an SP is engaged by taxpayer to furnish a return for or on behalf of the taxpayer, the SP, without reasonable excuse:

(i)  Fails to furnish a return for or on behalf of the taxpayer (new section 80K(2) of the IRO).

(ii) Fails to obtain a confirmation from the taxpayer (in a form specified by the Commissioner of Inland Revenue (CIR)) that the information contained in the return is correct and complete to the best of the taxpayer’s knowledge and belief, before furnishing the return; or fails to retain the above confirmation for a period of not less than seven years after furnishing the return (new section 80K(3)).

(iii) Furnishes the return for or on behalf of the taxpayer, but not in accordance with the information provided, or the instructions given, by the taxpayer to the SP, and the return so furnished is incorrect in a material particular (whether or not because any information is omitted from the return) (new section 80K(4)).

While there may be a temptation to regard the sanctions as not being very severe (i.e. a fine at level 3, which is currently HK$10,000), TaxReps should not take these offences lightly as they carry a criminal conviction, which could have reputational and other implications.

Role of the service provider

The TFEC expressed various concerns about these provisions, particularly given that there has yet to be detailed discussion or consultation with the market on the design or operation of the future e-filing system.

Firstly, the TFEC noted that role of an SP was not clear in the bill. The Institute’s April submission asked whether the key roles of an SP would be e-signing and submitting a return and supporting documents, or whether it was envisaged that an SP would perform all the roles currently played by a TaxRep in relation to paper returns. Addressing this issue, the admin’s first response clarified that the role of an SP under the law would relate only to the act of signing the return.

The circumstances in which an SP could be engaged were also not clear. For example, the TFEC and some other stakeholders asked whether this statutory arrangement could be implemented in the context of the existing system for filing paper returns. In this regard, it was felt that there was no need to change the current arrangements for filing paper returns, as these have been operating for many years without any significant problems. It was somewhat surprising, therefore, that the admin’s second response stated that the current intention was to allow a taxpayer to engage an SP, irrespective of the mode in which a return is furnished (i.e. paper, electronic or mixed). It should be pointed out, however, that this cannot happen immediately as, under the new section 51AAD(1) introduced by the bill, the situation where a taxpayer may engage an SP to furnish a return should be a case specified by the CIR. It is not known at this stage what circumstances will be specified by the CIR as those cases where an SP may be engaged.

Penalty provisions

As mentioned above, the penalty provisions in relation to SPs were of particular concern to TFEC members. Under the existing regime, generally, TaxReps may face penalties only if they, e.g. aid, abet or incite another person to commit an offence, as set out under section 80(4). The Institute’s April submission pointed out that, in principle, changing to an e-filing system merely changes the mode of submission and should not lead to a different penalty exposure.

Even though, under the new section 51AAD(5), it is made clear that engaging an SP does not relieve the taxpayer of the obligation to furnish a return under section 51(1), as indicated above, under the new section 80K(2), an SP engaged by taxpayer to furnish a return will commit an offence if, without reasonable excuse, the SP fails to furnish a return for or on behalf of the taxpayer. The Institute argued that it could confuse responsibilities of the taxpayer and the SP to impose a penalty on an SP for failing to comply with an obligation which currently is, and which will remain, fundamentally a taxpayer’s obligation. The duty that a TaxRep owes to a taxpayer is primarily a contractual duty, which depends on the terms of engagement, and, as the Institute’s April submission noted, this is the way in which it continues to be viewed in many other jurisdictions where e-filing is more advanced than in Hong Kong.

With regards to the offence under the new section 80K(4), referred to above, this too would appear to create an offence for a possible breach of a contractual duty owed by the SP to the taxpayer, for which the normal remedy would be a civil claim. Prima facie, it would seem harsh to create a criminal offence for a situation where, for example, an SP may have made an inadvertent mistake which may not even amount to a serious case of professional negligence. Yet, in practice, this could happen under the IRO as amended. This provision could also put TaxReps in a disadvantageous position in the unfortunate event of a dispute with the taxpayer.

The admin’s first response stated that, as an SP is engaged to perform a “statutory act,” i.e. furnish a return on behalf of taxpayer, if the SP fails to do so, or does not do so in accordance with the information provided or instructions given by the taxpayer, and the return is materially incorrect, it is reasonable to impose a penalty on the SP to protect the interests of the taxpayer. The Institute’s May submission reiterated that there is no statutory obligation on the SP to furnish a return, whereas a “statutory act” is not a commonly used term and its implications are unclear. Meanwhile, as regards protecting the interests of the taxpayer, the Institute’s view is that section 80(2) already protects the interests of a taxpayer who fails to furnish a tax return, where the taxpayer has a reasonable excuse for not doing so.

The new section 80K(3) provides that an SP commits an offence if, without reasonable excuse, the SP fails to obtain an appropriate confirmation from the taxpayer. The Institute’s April submission pointed out that, if the TaxRep is unable to obtain the taxpayer’s confirmation by the tax filing deadline, perhaps because of a delay on the part of the taxpayer, who may be overseas, the TaxRep will face a dilemma whether or not to file the return, as he/she would be at risk of committing an offence either way. This is because he/she may either have to file the return without the necessary confirmation from the taxpayer, or not file the return at all. In the final analysis, the TaxRep may feel that the only practical solution is to resign. This would appear to impose an undue burden on TaxReps and could discourage professionals from taking up this role.

In its first response, the administration pointed to the existing provisions of the IRO allowing for other types of SPs to be engaged, which, they indicated had been operating smoothly for some time without any problem. These relate to persons who may be (i) engaged to assist financial institutions with their reporting obligations in relation to foreign account holders, under section 50H, or (ii) engaged to assist multinational companies with their country-by-country reporting, in relation to the transfer pricing provisions, under section 58M. These provisions have been in effect for two to three years.

On this point, the Institute’s May submission highlighted that, these types of SPs are likely to be more sophisticated than many ordinary TaxReps carrying out regular tax compliance work, and that the offences relating to filing materially incorrect information applicable to these kinds of SPs (under sections 80D and 80H) generally require wilful or reckless behaviour to be established on the part of the SP. However, many SPs who will be submitting tax returns on behalf of taxpayers under the new provisions will be small- and medium-sized practices performing regular tax compliance work. For these SPs, the proposed offences are broadly defined and require no mens rea or intention (e.g. wilful or reckless behaviour) to be established on the part of the SP.

The admin’s second response indicated that, if the failure to furnish a tax return is solely caused by the SP, the taxpayer may have a reasonable excuse for the failure. In such case, and in the absence of the proposed section 80K(2), an undesirable outcome may ensue with no one being held accountable. Therefore, it is reasonable to impose a sanction on the SP.

However, the Institute has reservations about the premise that, if an incorrect return is submitted to the IRD and the taxpayer has a reasonable excuse, there is need to hold someone criminally liable. This is not the situation under the current system, which, as noted above, has been operating for a long time without significant problems.

With regards to a possible way of resolving the concerns over the penalty provisions, the Institute’s May submission proposed that certain offences applicable to SPs be dropped from the bill, or, if not that, then at least be amended so that higher thresholds for prosecution, i.e. wilful or reckless behaviour on the part of the SP, would need to be established.

Implementation of e-filing

Turning to the implementation plan for the e-filing system, the admin’s second response indicated that, before the implementation of mandatory e­-filing, the IRD will gauge views from stakeholders and consider the actual situation, including whether taxpayers and tax practitioners have sufficient time to get familiar with the new e-filing mechanism. The Legislative Council will be consulted again on the implementation plan if and when it has been decided to make e­-filing mandatory. A Gazette notice, which is subject to negative vetting by the legislature, will need to be made by the CIR on the class(es) or description(s) of persons who must furnish their tax returns by e-filing.


The Institute was disappointed to note that, ultimately, no changes were made to the relevant provisions of the bill before it was passed. We remain concerned that some of the offences applicable to SPs under the ordinance, as it now is, will confuse the roles and responsibilities under the IRO and may disadvantage a TaxRep in the event of a dispute with a client.

TaxReps are advised to review these new provisions in the IRO, consider the possible implications on their future work, and take necessary precautions to minimize the danger of falling foul of the law and incurring criminal liability. Once the circumstances in which a taxpayer may engage an SP under the new regime are specified, TaxReps may, for example, wish to consider whether the taxpayer should be asked to submit the final return after all the work on it has been completed. This would not be ideal and not how we would expect to see a modern e-filing system operate, but nevertheless it may be a prudent precaution for TaxReps to consider. This is because, as indicated above, the admin’s first response confirmed that only the person who furnishes (i.e. signs) the tax return on behalf of the taxpayer will be treated as the SP. A person engaged by a taxpayer just to undertake preparatory work, such as preparing profits tax computations and other supporting documents, filling in the return form, etc. is not an SP for the purpose of section 51AAD(8), unless he or she also furnishes the tax return on behalf of the taxpayer.

With regard to how the new regime might work in the context of paper returns, or mixed paper and electronic returns, this is unclear since, in the current system of paper returns, there is no provision for TaxReps to sign the return on behalf of the taxpayer and, in most cases, no reason why they should want to take this on in future in view of the possible risks.

Given the concerns outlined in this article, we were pleased to note, from the comments of the Assistant Commissioner at the Institute’s annual taxation update conference, held on 24 July, that the IRD is aware of the need to provide greater certainty for practitioners. It seems that the department plans to issue more guidance on how these provisions will be implemented, probably in the form of a departmental interpretation and practice note, and is also willing to listen to further views from stakeholders as to what kind of guidance may be required. To allay the concerns, this should be done as soon as possible.

This article was contributed by the Institute’s Advocacy and Practice Development.

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