(Court of Final Appeal, Hong Kong) The taxpayer company borrowed money to buy some land and build a block of flats. Construction took three years, during which no sales took place. The company’s accounts submitted to the revenue for those years treated interest on the borrowed money as carried forward to be added to the cost of the flats and, there being no sales against which any costs could be set off, showed neither a profit nor a loss. The company then changed its mind and claimed that its accounts had been drawn up on a false basis. Section 16 of the Hong Kong Inland Revenue Ordinance provides that in ascertaining the assessable profits for any year of assessment, ‘there shall be deducted all outgoings and expenses to the extent to which they are incurred during the basis period for that year of assessment . . including . . interest.’ The taxpayer argued that the carrying forward of any outgoings and expenses is prohibited and all such outgoings should have been deducted in the year in which they were incurred. The claim was to rewrite the accounts to show that the interest payments gave rise to a substantial loss in each year.
Held: Section 16 did not prohibit the capitalisation of interest, but there had been a deduction for interest in each of the first three years but that it had been set off against an increase in the value of the stock. The fact that the profit and loss account showed neither of these items was ‘merely a matter of presentation’.
Judges:
Miller LJ
Citations:
(2000) 74 TC 1
Cited by:
Cited – Revenue and Customs v William Grant and Sons Distillers Ltd HL 28-Mar-2007
The Revenue appealed findings as to the calculation of profits for corporation tax. The companies had sought to deduct sums from profits for depreciation of unsold stock in accordance with current accounting standards.
Held: ‘the profit and . .
Lists of cited by and citing cases may be incomplete.
Commonwealth, Corporation Tax
Updated: 10 May 2022; Ref: scu.251452