Chapman Development Limited v Commissioner of Inland Revenue

[2024] HKCFI 2590, the CFI dismissed the Appellant Taxpayer’s appeal against a decision of the Inland Revenue Board of Review holding that certain management fees (“

”) paid to its associated entity claimed by the Taxpayer were not deductible as expenses under ss.16 & 17 of the Inland Revenue Ordinance (Cap. 112) (“

In dismissing Ground 1, Cheng J applied the well-established principles that tax appeals are on points of law only, and findings of facts can only be challenged on limited grounds: 

Kwong Mile Services Ltd v Commissioner of Inland Revenue

 (2004) 7 HKCFAR 275. Cheng J concluded that the Taxpayer could not re-open the Board’s finding that it could not infer any variation by conduct by pointing to selected matters which support the Taxpayer’s claim of variation and ignoring others. This approach would be an impermissible attack on the Board’s factual conclusions. The “expenses” were not deductible under ss 16 and 17 of the IRO.

In also dismissing Ground 2, Cheng J disagreed with the Taxpayer’s argument that if it took up the associated company’s role, its income would have been offshore and not chargeable to Hong Kong tax. She accepted the CIR’s argument that this would not generate new profits for the Taxpayer as it would just not have to pay fees to its associate.

Cheng J upheld the Board’s decision that the Transaction was carried out for the sole or dominant purpose of enabling the Taxpayer to obtain a tax benefit. Appellate intervention is not warranted unless it can be said that the Board’s decision was perverse or irrational. The Taxpayer’s approach of inviting the court to re-weigh the evidence to arrive at a different conclusion is impermissible.

, instructed by Department of Justice, for the Respondent.

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