亏损结转事宜.DOCVIP

Case No. D48/12 Profits tax – loss carried forward – bank overdraft interest expenses – sections 16, 17(1)(b), 19C(4), 59(3), 64(1), 68(4) and 70 of the Inland Revenue Ordinance (‘the IRO’); section 2A(2) of the Inland Revenue Rules. [Decision in Chinese] Panel: Albert T da Rosa Jr (chairman), Susanna W Y Lee and Mak Wai Piu Paul. Date of hearing: 20 August 2012. Date of decision: 28 January 2013. The Appellant objected to the profits tax assessment for the year of assessment 2007/08 issued by the Inland Revenue Department (‘the IRD’) against it. The Appellant claimed that it should be allowed to set off the loss carried forward from the assessable profits and that the amount of interest expenses as allowed to be deducted was incorrect. In the years of assessment 2005/06 and 2006/07, the Appellant failed to furnish its tax returns and the IRD issued estimated profits tax assessment and additional assessment (‘the First Category Assessments’) against it. The IRD did not receive any notice of objection from the Appellant to the First Category Assessments within the statutory time limit. As regards the interest expenses, part of the money overdrawn from the bank account was lent by the Appellant to its related company and directors by way of interest-free loans. The IRD took the view that the interest incurred from such loans should not be allowed to be deducted and used the ratio of the relevant loans to the Appellant’s total assets to calculate the amount of interest that was not allowed to be deducted. The Appellant claimed that the loan to its related company was actually used as prepayments to the mainland factory to purchase raw materials and pay salaries to the outsourced workers. It suggested that the ratio of 1/3 should be used as the basis of apportionment for the overdraft interest. However, the Appellant failed to support its claim that the loan was used as prepayments as it did not explain how the ratio of 1/3 was arrived at, and failed to prov